## Facts

- Loral Corporation held Navy prime contracts to manufacture radar sets with strict delivery schedules, liquidated damages for delay, and cancellation for default.
- Loral subcontracted Austin Instrument, Inc. to supply 23 of roughly 40 required precision gear components; deliveries began in early 1966.
- After Loral received a second Navy contract, Austin bid on all gear components; Loral advised Austin it would award Austin only items on which Austin was the low bidder.
- Austin rejected that proposal and threatened to stop deliveries under the existing subcontract unless Loral (1) accepted substantial retroactive and prospective price increases on the first subcontract and (2) awarded Austin all 40 parts for the second contract.
- Austin stopped deliveries; Loral contacted about 10 alternative suppliers but found none able to meet the Navy deadlines, and pursuing breach remedies would not ensure timely performance.
- Loral agreed in writing that it had “no choice or alternative” but to meet Austin’s conditions; Austin resumed performance and completed deliveries under both subcontracts, allowing Loral to satisfy the Navy contracts.
- After final delivery in July 1967, Loral notified Austin it intended to recover the amounts paid under the price increases, asserting economic duress.

## Issues

1. Whether Austin’s threatened and actual stoppage of deliveries unless Loral agreed to price increases and additional work constituted a wrongful threat supporting economic duress.
2. Whether Loral lacked a reasonable alternative to assent, such that its agreement to the modification was not the product of free will.
3. Whether Loral acted promptly to repudiate and seek restitution once the alleged duress ended.

## Decision

- The New York Court of Appeals modified the lower courts’ judgments.
- The court held that economic duress was established as a matter of law and that the modification was voidable at Loral’s option.
- Austin remained entitled to payment for goods delivered.
- Loral was entitled to recover the amounts paid in excess of the original subcontract prices that were extracted by duress.

## Legal Principles

- A contract or modification is voidable for economic duress when a party is induced by a wrongful threat that leaves no reasonable alternative, thereby precluding free will.
- A threat to breach an existing contract to obtain higher prices or additional unrelated business may be a wrongful threat for economic-duress purposes.
- The absence of practical alternatives is evaluated in commercial context, including whether substitute performance is available in time to avoid serious contractual penalties.
- A duress claim generally requires timely repudiation after the coercive pressure ends; continued performance during the period of coercion may be consistent with duress where repudiation would risk severe harm.

## Conclusion

The court treated a supplier’s threatened breach of an existing subcontract—used to extract higher prices and additional work in the face of the buyer’s inability to secure timely substitutes—as economic duress, rendering the modification voidable and permitting restitution of the coerced price increases.


Austin Instrument, Inc. v. Loral Corp., 29 N.Y.2d 124 (N.Y. 1971)