Austin Instrument, Inc. v. Loral Corp.

29 N.Y.2d 124, 324 N.Y.S.2d 22, 272 N.E.2d 533 (1971)

 

RULE:

A contract is voidable on the ground of duress when it is established the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of free will. However, a mere threat by one party to breach the contract, though wrongful, does not in itself constitute economic duress. It must also appear the threatened party could not obtain in an action for breach of contract.

FACTS:

In July of 1965, a businessman was awarded a $ 6,000,000 contract by the Navy for the production of radar sets. The contract contained a schedule of deliveries, a liquidated damages clause applying to late deliveries and a cancellation clause in case of default by Loral. The businessman solicited bids for some 40 precision gear components needed to produce the radar sets, and subcontracted 23 to a third party. The next year, more Navy contracts were awarded and after the contract began, subcontractor refused to deliver parts unless the businessman agreed to price increases. Businessman agreed after being unable to find substitute contractors and facing stiff penalties if it failed to complete the contract requiring the parts. Shortly after, the subcontractor stopped making deliveries and the businessman filed suit for damages worth $ 22,250 based on economic duress. The subcontractor filed for $ 17,750 still owed by the business. After consolidating the cases, the trial court ruled in favor of the subcontractor. On appeal, the appellate court affirmed. The case was elevated to the Court of Appeals of New York on review.

ISSUE:

Was economic duress present?

ANSWER:

Yes.

CONCLUSION:

The Court reversed and held that appellant made out classic case of economic duress. The businessman was clearly faced with an emergency situation and deprived of free will. Businessman faced substantial penalties if it did not complete its underlying contract and faced losing future business. He had no other suppliers who could definitely deliver the required parts and thus met its burden to prove it could not obtain the parts elsewhere. Businessman was reasonable in waiting until after subcontractor's last delivery to sue given his conduct.

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