Austin Instrument, Inc. v. Loral Corp.
29 N.Y.2d 124 · New York Court of Appeals · 1971
Facts
Loral Corporation, a Navy contractor, subcontracted with Austin Instrument, Inc. for radar set components. When Loral received a second Navy contract, Austin threatened to stop deliveries on the first contract unless Loral agreed to substantial price increases and awarded it the entire second subcontract. Loral, unable to find alternative suppliers in time to meet its Navy deadlines, acceded to Austin's demands, but later sought to recover the price increases, claiming economic duress.
Procedural history
Austin instituted an action against Loral for payment due on the second subcontract, and Loral simultaneously commenced an action against Austin claiming damages for price increases due to economic duress. The two actions were consolidated, and following a trial, Austin was awarded its requested sum, and Loral’s complaint was dismissed. A closely divided Appellate Division affirmed this decision.
Issue
Did Austin's threat to breach the existing subcontract, coupled with Loral's inability to find alternative suppliers and the inadequacy of a breach of contract remedy, constitute economic duress, thereby making Loral's agreement to the price increases voidable?
Holding
The court held that Loral was a victim of economic duress as a matter of law. It reversed the lower court's dismissal of Loral's claim and remanded the case for a computation of damages.
Rule
A contract is voidable for economic duress when a party is forced to agree by a wrongful threat precluding free will, such as a threat to breach by withholding goods. This requires proof that the threatened party could not obtain the goods from another source and that the ordinary remedy of an action for breach of contract would be inadequate.
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