Case brief: template
| Case name: | Austin Instrument, Inc., v. Loral Corporation |
| Court: | COURT OF APPEALS OF NEW YORK |
| Citation; Date: | 29 N.Y.2d 124 (1971) |
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PROCEDURAL HISTORY |
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| Trial court: | Appeal court (for appeal cases only): | ||
| Plaintiff: | Austin Instrument | Appellant: | |
| Defendant: | Loral | Respondent: | |
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| Facts of the case: | |
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In July of 1965, Loral 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 latter thereupon solicited bids for some 40 precision gear
components needed to produce the radar sets, and awarded Austin a subcontract to supply 23
such parts. That party commenced delivery in early 1966. In May 1966, Loral was awarded a second Navy contract for the production of more radar sets and again went about soliciting bids. Austin bid on all 40 gear components but, on July 15, a representative from Loral informed Austin's president, Mr. Krauss, that his company would be awarded the subcontract only for those items on which it was low bidder. The Austin officer refused to accept an order for less than all 40 of the gear parts and on the next day he told Loral that Austin would cease deliveries of the parts due under the existing subcontract unless Loral consented to substantial increases in the prices provided for by that agreement -- both retroactively for parts already delivered and prospectively on those not yet shipped -- and placed with Austin the order for all 40 parts needed under Loral's second Navy contract. Shortly thereafter, Austin did, indeed, stop delivery. After contacting 10 manufacturers of precision gears and finding none who could produce the parts in time to meet its commitments to the Navy, Loral acceded to Austin's demands; in a letter dated July 22, Loral wrote to Austin that "We have feverishly surveyed other sources of supply and find that because of the prevailing military exigencies, were they to start from scratch as would have to be the case, they could not even remotely begin to deliver on time to meet the delivery requirements established by the Government. . . Accordingly, we are left with no choice or alternative but to meet your conditions." After Austin's last delivery under the second subcontract in July 1967, Loral notified it of its intention to seek recovery of the price increases. On September 15, 1967, Austin instituted this action against Loral to recover an amount in excess of $ 17,750 which was still due on the second subcontract. On the same day, Loral commenced an action against Austin claiming damages of some $ 22,250 -- the aggregate of the price increases under the first subcontract -- on the ground of economic duress. The two actions were consolidated |
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| Remedy sought: | The defendant, Loral Corporation, seeks to recover payment for goods delivered under a contract which it had with plaintiff Austin Instrument, Inc., on the ground that the evidence establishes, as a matter of law, that it was forced to agree to an increase in price on the items in question under circumstances amounting to economic duress. |
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| Court opinion (including key issues and arguments): | |
| following a
trial, Austin was awarded the sum it requested and Loral's complaint against Austin was
dismissed on the ground that it was not shown that "it could not have obtained the
items in question from other sources in time to meet its commitment to the Navy under the
first contract." A closely divided Appellate Division affirmed (35 A D 2d 387). The applicable law is clear and, indeed, is not disputed by the parties. 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 . . . The existence of economic duress or business compulsion is demonstrated by proof that "immediate possession of needful goods is threatened" . . . or, more particularly, in cases such as the one before us, by proof that one party to a contract has threatened to breach the agreement by withholding goods unless the other party agrees to some further demand . . . However, a mere threat by one party to breach the contract by not delivering the required items, though wrongful, does not in itself constitute economic duress. It must also appear 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. We find without any support in the record the conclusion reached by the courts below that Loral failed to establish that it was the victim of economic duress. On the contrary, the evidence makes out a classic case, as a matter of law, of such duress. It is manifest that Austin's threat -- to stop deliveries unless the prices were increased -- deprived Loral of its free will.... Loral had to plan ahead, and the substantial liquidated damages for which it would be liable, plus the threat of default, were genuine possibilities. Moreover, Loral did a substantial portion of its business with the Government, and it feared that a failure to deliver as agreed upon would jeopardize its chances for future contracts.... Considering that the best offer Loral received from the other vendors it contacted was commencement of delivery sometime in October, which, as the record shows, would have made it late in its deliveries to the Navy in both September and October, Loral's claim that it had no choice but to accede to Austin's demands is conclusively demonstrated. We find unconvincing Austin's contention that Loral, in order to meet its burden, should have contacted the Government and asked for an extension of its delivery dates so as to enable it to purchase the parts from another vendor. Aside from the consideration that Loral was anxious to perform well in the Government's eyes, it could not be sure when it would obtain enough parts from a substitute vendor to meet its commitments. Loral, as indicated above, also had the burden of demonstrating that it could not obtain the parts elsewhere within a reasonable time, and there can be no doubt that it met this burden. The 10 manufacturers whom Loral contacted comprised its entire list of "approved vendors" for precision gears, and none was able to commence delivery soon enough. It is hardly necessary to add that Loral's normal legal remedy of accepting Austin's breach of the contract and then suing for damages would have been inadequate under the circumstances, as Loral would still have had to obtain the gears elsewhere with all the concomitant consequences mentioned above. In other words, Loral actually had no choice, when the prices were raised by Austin, except to take the gears at the "coerced" prices and then sue to get the excess back. Austin's final argument is that Loral, even if it did enter into the contract under duress, lost any rights it had to a refund of money by waiting until July 1967, long after the termination date of the contract, to disaffirm it. It is true that one who would recover moneys allegedly paid under duress must act promptly to make his claim known . . . In this case, Loral delayed making its demand for a refund until three days after Austin's last delivery on the second subcontract. Loral's reason -- for waiting until that time -- is that it feared another stoppage of deliveries which would again put it in an untenable situation. Considering Austin's conduct in the past, this was perfectly reasonable, as the possibility of an application by Austin of further business compulsion still existed until all of the parts were delivered. Dissent: Austin's version of events was that a threat was not made but rather a request to accommodate the closing of its plant for a customary vacation period in accordance with the general understanding of the parties. The demonstration is replete in the direct testimony of Austin's witnesses and on crossexamination of Loral's principal and purchasing agent that the availability of practical alternatives was a highly controverted issue of fact. |
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| Disposition of case: | |
| The order appealed from should be modified, with costs, by reversing so much thereof as affirms the dismissal of defendant Loral Corporation's claim and, except as so modified, affirmed. | |
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ECONOMIC ANALYSIS OF THE CASE |
| Efficiency/incentive issues discussed in the court opinion: |
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| Other efficiency/incentive issues relevant to the case: |
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| Assessment of the economic consequences of the court decision: |