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Timestamp: 2019-04-18 21:01:33+00:00

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Austin Instrument, Inc. v. Loral Corp., 272 N.E.2d 533 (1971).
LexRoll.com > Law Dictionary > Contracts Law > Austin Instrument, Inc. v. Loral Corp.
Citation: 29 N.Y.2d 124 (1971).
One-Sentence Takeaway: A contract is voidable on the grounds of duress by the party who was forced to agree to it by means of a wrongful threat precluding the exercise of his free will.
Summary: Loral Corp. (“Defendant”) was awarded a lucrative contract by the Navy to provide certain radar systems. The radar systems required 40 precision gear components and Defendant subcontracted the production of 23 of those components to Austin Instrument, Inc. (“Plaintiff”).
Later, the Navy awarded Defendant another contract for radars that again required 40 precision gear components. Plaintiff informed Defendant that this time Plaintiff should be awarded the subcontract for all of the 40 components required under the second contract and, in addition, the price under the second subcontract and the remaining components under the first subcontract will be higher or Plaintiff will not deliver the components remaining under the first subcontract.
Defendant looked around for other manufacturers who could supply the components that remained due from Plaintiff under the first subcontract, but was unable to find any and acquiesced to Plaintiff’s demands.
After delivery of all of the components under the first and second subcontracts, Defendant stopped paying and Plaintiff sued for the $17,750 that remained outstanding. Defendant also sued Plaintiff to recover the $22,250 in increased price that Plaintiff had charged, and Defendant had paid, for the components. The two cases were consolidated.
The trial court ruled in favor of Plaintiff and dismissed Defendant’s complaint. Defendant appealed.
The court held that Defendant had met the foregoing requirements. After Plaintiff threatened to stop production under the first subcontract, Defendant looked around but was not able to find another manufacturer. Thus, Defendant was facing the threat of losing its contracts with the Navy if it did not succumb to Plaintiff’s demands.
Austin Instrument, Inc., Respondent, v. Loral Corporation, Appellant.
Chief Judge FULD.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.
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 [pg. 129] 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.
Loral thereupon consented to the price increases insisted upon by Austin under the first subcontract and the latter was awarded a second subcontract making it the supplier of all 40 gear parts for Loral’s second contract with the Navy.2Although Austin was granted until September to resume deliveries, Loral did, in fact, receive parts in August and was able to produce the radar sets in time to meet its commitments to the Navy on both contracts. After Austin’s last delivery under the second subcontract [pg. 130] in July, 1967, Loral notified it of its intention to seek recovery of the price increases.
It is manifest that Austin’s threat — to stop deliveries unless the prices were increased — deprived Loral of its free will. As bearing on this, Loral’s relationship with the Government is most significant. As mentioned above, its contract called for staggered monthly deliveries of the radar sets, with clauses calling for liquidated damages and possible cancellation on default. Because of its production schedule, Loral was, in July, 1966, concerned with meeting its delivery requirements in September, October and November, and it was for the sets to be delivered in those months that the withheld gears were needed. 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. These genuine concerns do not merit the label “`self-imposed, undisclosed and subjective'” which the Appellate Division majority placed upon them. It was perfectly reasonable for Loral, or any other party similarly placed, to consider itself in an emergency, duress situation. [pg. 132] Austin, however, claims that the fact that Loral extended its time to resume deliveries until September negates its alleged dire need for the parts. A Loral official testified on this point that Austin’s president told him he could deliver some parts in August and that the extension of deliveries was a formality. In any event, the parts necessary for production of the radar sets to be delivered in September were delivered to Loral on September 1, and the parts needed for the October schedule were delivered in late August and early September. Even so, Loral had to “work * * * around the clock” to meet its commitments. 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. The only promise which it received from the companies it contacted was for commencement of deliveries, not full supply, and, with vendor delay common in this field, it would have been nearly impossible to know the length of the extension it should request. It must be remembered that Loral was producing a needed item of military hardware. Moreover, there is authority for Loral’s position that nonperformance by a subcontractor is not an excuse for default in the main contract. (See, e.g., McBride & Wachtel, Government Contracts, § 35.10, .) In light of all this, Loral’s claim should not be held insufficiently supported because it did not request an extension from the Government.
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 [pg. 133] able to commence delivery soon enough.6 As Loral was producing a highly sophisticated item of military machinery requiring parts made to the strictest engineering standards, it would be unreasonable to hold that Loral should have gone to other vendors, with whom it was either unfamiliar or dissatisfied, to procure the needed parts. As Justice STEUER noted in his dissent, Loral “contacted all the manufacturers whom it believed capable of making these parts” (35 A D 2d, at p. 393), and this was all the law requires.
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. (See Oregon Pacific R. R. Co. v. Forrest, 128 N.Y. 83, 93; Port Chester Elec. Constr. Corp. v. Hastings Terraces, 284 App. Div. 966, 967.) 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.
In sum, the record before us demonstrates that Loral agreed to the price increases in consequence of the economic duress [pg. 134] employed by Austin. Accordingly, the matter should be remanded to the trial court for a computation of its damages.
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.
In summarizing the Special Term’s decision and its own, the Appellate Division decided that “the conclusion that Loral acted deliberately and voluntarily, without being under immediate pressure of incurring severe business reverses, precludes a recovery on the theory of economic duress” (35 A.D.2d 387, 391).
When the testimony of the witnesses who actually took part in the negotiations for the two disputing parties is examined, sharp conflicts of fact emerge. Under Austin’s version the request for a renegotiation of the existing contract was based on Austin’s contention that Loral had failed to carry out an understanding as to the items to be furnished under that contract and this was the source of dissatisfaction which led both to a revision of the existing agreement and to entering into a new one.
This is not necessarily and as a matter of law to be held economic duress. On this appeal it is needful to look at the facts resolved in favor of Austin most favorably to that party. 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.
Moreover, critical to the issue of economic duress was the availability of alternative suppliers to the purchaser Loral. The demonstration is replete in the direct testimony of Austin’s witnesses and on cross-examination of Loral’s principal and purchasing agent that the availability of practical alternatives was a highly controverted issue of fact. On that issue of fact the [pg. 135] explicit findings made by the Special Referee were affirmed by the Appellate Division. Nor is the issue of fact made the less so by assertion that the facts are undisputed and that only the application of equally undisputed rules of law is involved.
1. The best reply Loral received was from a vendor who stated he could commence deliveries sometime in October.
2. Loral makes no claim in this action on the second subcontract.
3. See, e.g., du Pont de Nemours & Co. v. Hass Co., 303 N.Y. 785, supra;Gallagher Switchboard Corp. v. Heckler Elec. Co., 36 Misc.2d 225, 226,supra; 30 East End v. World Steel Prods. Corp., 110 N.Y.S.2d 754, 757.
4. See, e.g., Kohn v. Kenton Assoc., 27 A.D.2d 709; Colonie Constr. Corp. v. De Lollo, 25 A.D.2d 464, 465; Halperin v. Wolosoff, 282 App. Div. 876; J. R. Constr. Corp. v. Berkely Apts., 259 App. Div. 830; Boss v. Hutchinson, 182 App. Div. 88, 92.
5. The suggestion advanced that we are precluded from reaching this determination because the trial court’s findings of fact have been affirmed by the Appellate Division ignores the question to be decided. That question, undoubtedly one of law (see Cohen and Karger, Powers of the New York Court of Appeals , § 115, p. 492), is, accepting the facts found, did the courts below properly apply the law to them.
6. Loral, as do many manufacturers, maintains a list of “approved vendors,” that is, vendors whose products, facilities, techniques and performance have been inspected and found satisfactory.

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