Can a subcontractor's threat to stop deliveries, coupled with demands for price increases and a new contract, constitute economic duress that would invalidate the resulting agreement?

Loral Corporation held a $6 million Navy contract for radar sets and subcontracted Austin Instrument, Inc. to supply 23 precision gear components. When Loral received a second Navy contract, they sought bids for 40 gear components. Austin bid on all 40 parts but was only set to receive orders for items where it was the lowest bidder. Austin's president then refused to accept an order for less than all 40 parts and threatened to cease deliveries on the existing contract unless Loral agreed to price increases on the current contract and awarded Austin the contract for all 40 parts on the new Navy contract.

Austin halted deliveries, and Loral, unable to find alternative manufacturers to meet Navy deadlines, acquiesced to Austin's demands. Loral cited "prevailing military exigencies" and lack of alternatives as reasons for compliance. While Loral met its Navy commitments, they later sought to recover the price increases imposed by Austin.

Austin filed a lawsuit against Loral on September 15, 1967, seeking to recover over $17,750 owed on the second subcontract. On the same day, Loral countersued Austin, claiming damages of approximately $22,250 for economic duress related to price increases under the first subcontract. The court consolidated these two actions.

Following a trial, the court ruled in favor of Austin, awarding them the requested sum and dismissing Loral's complaint. Loral then appealed this decision to the Appellate Division, which affirmed the lower court's ruling in a split decision.

Subsequently, the case progressed to the New York Court of Appeals for further review.

(Fuld, J.)

Yes. A subcontractor's threat to stop deliveries, coupled with demands for price increases and a new contract, can constitute economic duress that invalidates the resulting agreement. Economic duress occurs when one party exploits the other's vulnerable position to extract concessions, depriving them of free will in the negotiation. The threat to cease deliveries, when coupled with the inability to obtain alternative supplies in time to meet contractual obligations, creates a coercive environment. This is particularly true when the threatened party faces significant consequences for failing to meet its own commitments, such as potential liquidated damages or contract cancellation. The inadequacy of normal legal remedies, like suing for breach of contract, further compounds the duress. In such circumstances, the threatened party has no reasonable alternative but to acquiesce to the demands. The coerced party's delay in disaffirming the agreement does not necessarily negate the claim of duress, especially if the threat of further disruptions remains. The key factors in determining economic duress include the nature and severity of the threat, the lack of reasonable alternatives, and the potential consequences of non-compliance. When these elements are present, the resulting agreement is voidable, as it was not entered into voluntarily. The law recognizes that contracts formed under such circumstances lack the essential element of mutual assent and are therefore unenforceable.

Dissent (Bergan, J.) The issue of economic duress is a factual matter that has already been resolved against Loral by both the Special Term and Appellate Division. There are sharp conflicts of fact in the testimony, particularly regarding the availability of alternative suppliers. These factual determinations should not be overturned by the Court of Appeals. Our role is not to reassess factual findings made by lower courts when there is evidence to support their conclusions.

Concurrence (Burke, J.) Concurred with the majority opinion without providing a separate written opinion.

Concurrence (Scileppi, J.) Concurred with the majority opinion without providing a separate written opinion.

Concurrence (Gibson, J.) Concurred with the majority opinion without providing a separate written opinion.

Dissent (Breitel, J.) Dissented with the majority opinion without providing a separate written opinion.

Dissent (Jasen, J.) Dissented with the majority opinion without providing a separate written opinion.