Austin Instrument v. Loral

A defense contractor who failed to deliver might have blown its chance of getting another contract with the U.S. military.

In 1965, Loral Corp. ("Loral") won a $6 million contract with the U.S. Navy to manufacture & deliver radar sets. In turn, Loral award Austin Instrument, Inc. ("Austin") a sub-contract for 23 of the 40 radar components.

In 1966, the next year, Loral received another contract from the Navy &, again, sought bids for the same 40 components.

Austin informed Loral that it would stop the current delivery unless the new 1966 contract for all 40 components would be for a higher price. After this ultimatum, Austin stopped delivering to Loral.

Facing with a dilemma of losing the Navy contract, Loral acceded to the higher demanded price by Austin for the 1965 sub-contract. However, after the delivery to the Navy, Loral sought to recover the price increases.

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Austin and Loral contracted that Austin would supply parts to Loral. Loral was in a contract with the Navy to supply radar devices.

After it was too late for Loral to find a new sub-contractor in time to fulfill its contract with the Navy, Austin said it would stop deliveries unless Loral paid more and awarded it another sub-contract for parts (for which Loral had just won another contract with the Navy.)

Loral agreed to Austin’s demands and awarded the second contract with Austin. Three days after the last delivery by Austin, Loral filed suit to recover the excess amount contracted for (for the first contract).

Austin sued Loral for the higher price for the 2nd (1966) contract.

At the same time, Loral sued Austin on the ground of economic duress.

The trial court awarded the sum Austin requested.

Does 1 party's threat to breach an agreement by withholding goods unless the other party agrees to some demand constitute economic duress sufficient to void the agreement?

Austin contended that Loral had option. For example, Loral could ask the Navy for an extension.

Yes. A party's threat to withhold goods unless the other party accedes to its demands constitutes economic duress.

Judgment reversed; remanded for trial.

Chief Judge Fuld: This case was an example of economic duress because Loral, the threatened party, couldn't get the goods from another source.

There was duress from Austin because Loral had no other choice but to go along with their demands. Austin used coercion.