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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.
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