Austin Instrument, Inc. v.
324 N.Y.S.2d 22, 272 N.E.2d 533 (N.Y. 1971)
won a $6M contract to make some radar components for the US Navy.They subcontracted to Austin to
produce about half of the required components.
next year, Loral won a separate Navy contract, and again Austin bid as a
subcontractor, but this time they wanted to make all the components.
refused and said Austin would only be contracted to produce the components
that they had the low bid on.
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
Loral said no, Austin stopped delivery of all components.
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
contacted 10 different manufacturers, but were unable to cover.
the contract ended, Loral stopped payment and sued Austin for the amount
of the price increases, claimed they were exacted illegallyunder duress and shouldn't be enforced.
sued Loral to recover money still due on the second subcontract.
Court found for Austin. Loral appealed.
Court reversed and ruled for Loral.
Court found that this was a case of economic duress.
to the Court, "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."
actions left Loral with no choice because its government contract was so
big and important.
Court held that Loral has a burden to show that it could not get its
parts from another supplier (duty to mitigate).They felt Loral met this requirement.
dissent disagreed that Loral met the burden.
unsuccessfully argued that if Loral had been unhappy when they breached,
they should have simply sued for breach of contract at that time, instead
of agreeing and secretly planning on suing later, once the contract was
Appellate Court found that, even if Loral had won for breach of
contract, they would still be in a bad position since they would have
lost their government contract.
could possibly have claimed Austin was asking for an illegal contract
modification under UCC § 2-209,
but they appear to not have tried this claim.
case happened during the Vietnam War.If it hadn't been a company supplying the military in a
time of war, it might have ended differently.