Austin Instrument v. Loral Corp.

Appellate Division of the Supreme Court of New York · Contracts

Contractseconomic duresscontract modificationeconomic duressbusiness compulsioncontract modificationthreatened breachfree will

Facts

Loral had placed firm orders with Austin in December 1965 for gear parts and assemblies needed for Navy radar sets under a first subcontract. After Loral obtained an additional Navy contract, Austin demanded retroactive price increases on the first subcontract and also sought all of the similar parts work for the second Navy contract. Negotiations continued for several weeks, and although there was evidence that Austin threatened to stop deliveries, Loral still received some deliveries in July 1966 and Austin's plant then entered a normal two-week vacation slowdown. On August 4, 1966, after sending letters asserting it had no choice, Loral issued revised purchase orders granting the price increases and awarded Austin purchase orders for the second contract items.

Issue

Could Loral avoid the modified pricing and related purchase orders on the ground of economic duress where Austin allegedly threatened to stop work unless Loral accepted price increases and awarded additional business? More specifically, did Loral prove that Austin's conduct deprived it of free will and left it without an adequate legal remedy or alternative source of supply?

Rule

A threat to breach a contract does not by itself constitute actionable duress. A party seeking to disavow a contract modification on grounds of economic duress must establish a wrongful or unlawful act or threat that deprived the party of unfettered will, that ordinary legal remedies for the threatened breach were inadequate or ineffectual in the circumstances, and that no other means of immediate relief was available; the party asserting duress bears that burden of proof.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Pine Harbor Systems, a manufacturer in Buffalo, had an existing subcontract with Metro Forge Components for custom brackets. Midway through production, Metro Forge told Pine Harbor it would stop shipping unless Pine Harbor agreed to a 12% price increase, and Pine Harbor signed the modification the next day without investigating any other options.

If Pine Harbor later seeks to avoid the price increase on grounds of economic duress, which is the strongest argument against Pine Harbor?

Explanation. The majority held that a threatened breach does not itself constitute actionable duress. A party seeking to avoid a modification must also show that the threat deprived it of free will, that ordinary legal remedies were inadequate or ineffectual in the circumstances, and that no other immediate relief was available. Here, Pine Harbor signed without showing those additional elements. (Derived from Austin Instrument v. Loral Corp. (n.d.).)