Austin Instrument, Inc. v. Loral Corp.

29 N.Y.2d 124 · New York Court of Appeals · 1971

Facts

Loral Corporation had a Navy contract for radar sets and subcontracted Austin Instrument, Inc. to supply precision gear components. Loral secured a second Navy contract and Austin bid on all 40 components. Austin refused to accept an order for less than all 40 parts for the second contract and threatened to stop deliveries on the existing subcontract unless Loral agreed to substantial price increases and awarded Austin the full second subcontract. Austin stopped deliveries, and Loral, unable to find alternative suppliers in time to meet its Navy commitments, acceded to Austin's demands. After Austin's final delivery, Loral notified Austin of its intent to recover the price increases.

Procedural history

Austin initiated an action against Loral for payment due on the second subcontract, and Loral simultaneously sued Austin for damages based on economic duress. The actions were consolidated, and the trial court dismissed Loral's complaint, finding it failed to show it could not obtain items elsewhere. A divided Appellate Division affirmed this decision.

Issue

Did Austin Instrument, Inc.'s actions constitute economic duress, thereby making Loral Corporation's agreement to increased prices voidable?

Holding

Yes, the court held that Loral Corporation was a victim of economic duress, reversing the lower courts' dismissal of Loral's claim and remanding for a computation of damages.

Rule

A contract is voidable on the ground of duress when a party is forced to agree by a wrongful threat precluding free will. Economic duress is established by proof that immediate possession of needful goods is threatened, or one party threatens to breach by withholding goods unless the other agrees to further demands. This requires that the threatened party could not obtain the goods from another source of supply and that the ordinary remedy of an action for breach of contract would not be adequate.

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