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.
Dawson, pp. 562-565
Facts: 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 accede 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.
Issue: Was Loral forced to agree to the price increases
under circumstances that amount to economic duress as a matter of law?
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.”
Analysis: 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.
Conclusion: The dismissal of Loral’s complaint is reversed.
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