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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