Austin Instrument, Inc. v. Loral Corp.
Court of Appeals of New York, 1971.
29 N.Y.2d 124, 324 N.Y.S.2d 22, 272 N.E.2d 533.
(economic duress)
Author: Judd Bean

Statement of Case:

*An action of breach of contract involving a radar components supplier against a radar supplier to the military for payment due upon the second subcontract.

*An action of coercion and breach of contract involving a radar supplier to the military against a radar components supplier for damages to the aggregate of the price increases under the first subcontract on the ground of economic duress.

Facts: (DURING VIETNAM)

Loral got a contract to make some radar stuff for the Navy.  They subcontracted to Austin to produce about half of some required precision gear components.  When they got another Navy contract, Austin bid again and wanted to make all the components.  Loral refused and said they would only be able to produce the components that they had the low bid on.  Austin threatened to stop delivery on the components under the original subcontract unless they got to make all 40 components in the new contract and get a substantially higher price for all the past and present components.  Loral looked for another supplier, but was eventually forced to acede to Austin’s demands because otherwise they wouldn’t have been able to meet the Navy’s deadline.  Austin sued Loral to recover money still due on the second subcontract, but Loral also sued Austin for the amount of the price increases, claimed they were exacted illegally under duress and shouldn’t be enforced.  The lower courts found for Austin, and Loral appealed to the Court of Appeals of New York.

Procedure:

The two actions were consolidated and, following a trial, the components supplier was awarded the sum it requested and the supplier to the military’s complaint was dismissed on the ground that it was not shown that “it could not have obtained the items in question from other sources in time to meet its commitment to the Navy under the first contract.”  On appeal, they found that there was no disagreement of the facts, and that there were no serious questions of law.  The difficulty lies in the application of the law to these facts.

Issue:

Whether a party is permitted to hold the other party to the terms of the original agreement in times of economic duress?

Holding:

No, The record demonstrates that the military supplier agreed to the price increases in consequence of the economic duress employed by the component supplier and that there were no reasonable alternatives, so they were forced to stay with that supplier!

Reasoning (Rules):

*Why doesn’t the court talk about 2-209?

Rule: “A contract is voidable on the ground of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will.”

The court finds that what happened to Loral is a “classic case” of economic duress.  Austin’s actions left Loral with no choice because its government contract was so big and important.

The court feels that Loral met its burden of showing that it couldn’t get the parts from another vendor.  The court also feels Loral wasn’t wrong in waiting to sue until after the last delivery from Austin because they feared reprisals.

The dissent argues that this is not a question of law but a question of fact and the factfinder should be given more deference.  Furthermore, the dissent says that there was a factual issue as to whether there were alternative suppliers that Loral hadn’t used before.  Also, Loral stated that they were rushing to close down the plant for vacation time.

Economic Duress Elements:

1)      The threat to withhold needed goods, unless…..

2)     The defendant’s threat was made in bad faith.

3)     No other practical alternatives for the plaintiff to obtain the goods from another source w/in a reasonable time.

4)      The plaintiff’s remedy at law would not be adequate.  (IN this case, Loral could have sued but they would have still had to obtain the gears elsewhere).

Disposition:

The order was modified with costs, and the military supplier’s claim was reversed in their favor.