– July 1965- Loral awarded 6 million dollar contract by navy to produce radar sets
– upon signing contract, solicited bids for 40 precision gear components needed to produce the radar sets, and awarded Austin 23 such parts.
o Commenced delivery in early 1966
– May 1966 – Loral was awarded a 2nd navy contract – Austin bid on all 40 gear components – Austin was notified that it would only be awarded for which it was the lowest bidder on.
– ***Next day, Austin told Loral that Austin would cease delivery on the existing contract unless Loral consented to substantial increases in the prices provided for by that agreement – for both parts delivered, and future parts that will be delivered.
– July 22nd, after feverishly to find other manufactures of Austin’s product, went to the next 10 producers, Loral came back to Austin and HAD to listen to the new demands if they were to accomplish there contract with the navy on time.
– After last delivery of the second contract, in July, 1967 – Loral sued Austin.
o Recover an amount of $17,750 which was still due on the second subcontract.
o Loral should have contacted the government to ask for an extension to enable purchasing parts from other suppliers
Court – Loral wanted to perform well, and new suppliers were not guaranteed to meet there required deadlines.
• Non-performance of a sub-contractor is not an excuse to not perform the main agreed upon contract for Loral to give to the government.
o Loral lost any rights to obtain the money for duress because they waited till July, 1967 to do so – long after contract was made.
Loral sued three days after last delivery from Austin.
• Court – legit reason for Loral to fear stoppage if they did not agree to pay when Austin wanted them too…they had done it in the past as well.
o 22,250 – aggregate of the price increase under the first contract, on the ground of economic duress.
o Liquidated damages and threat of default.
o No just but to accept Austin’s changes with the new contract.
– Court of appeals, N.Y., 1971
– Lower court (no economic duress)
o Favored Austin recovering 17,750 for un-paid contract
o Dismissed Loral’s complaint because they stated that “Loral because they couldn’t show that they couldn’t obtain licenses from other sub-contractors.
– Was Loral under economic duress when they agreed to the new prices of the contract?
– 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 free will.
o Immediate possession of needful goods is threatened.
o Mere threat is not good enough – it must also show that the threatened party could not obtain goods from another source or supply and that ordinary remedy of action of breach of contract would not be adequate.
– Judge’s reasoning (perfectly reasonable to be under duress during negotiations)
o Loral was deprived of its free-will due to threat of stopping deliveries.
o Relationship with government is glaring – clauses in contract that stated possible cancellation on default orders .
o In July, Loral was concerned with meeting deliveries of Sept, Oct, Nov…..
o Substantial portion of business with the government.
o Contacted ten other approved vendors to no avail.
Highly specific piece and quality was needed for this project.
o ***Loral had NO choice but to accept the new terms and then sue for money later.
o Ordinary action for breach of contract would not have worked – Loral would have lost its contract with the navy.
– Reverse Austin’s judgment.
– And remand Loral’s claims for lower court to hear.
– Dissenting opinion
o States that the facts were not as similar as the court states.