Austin Instrument, Inc. v. Loral Corp.
324 N.Y.S.2d 22, 272 N.E.2d 533 (N.Y. 1971)

  • Loral 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.
  • The 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.
  • Loral refused and said Austin would only be contracted 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.
    • After Loral said no, Austin stopped delivery of all 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.
    • They contacted 10 different manufacturers, but were unable to cover.
  • After the contract ended, Loral stopped payment and sued Austin for the amount of the price increases, claimed they were exacted illegally under duress and shouldn't be enforced.
    • Austin sued Loral to recover money still due on the second subcontract.
  • Trial Court found for Austin. Loral appealed.
  • Appellate Court reversed and ruled for Loral.
    • Appellate Court found that this was a case of economic duress.
      • According 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."
      • Austin's actions left Loral with no choice because its government contract was so big and important.
    • The 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.
      • The dissent disagreed that Loral met the burden.
    • Austin 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 complete.
      • The 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.
  • Loral 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.
  • This 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.