## Facts

- Kelsey-Hayes manufactured brake assemblies for automakers and used castings supplied by Galtaco.
- In 1987, the parties entered a three-year requirements contract making Galtaco the sole-source supplier of specified castings through April 1990, with fixed prices and scheduled reductions.
- Kelsey-Hayes also purchased additional castings under blanket purchase orders.
- By 1989, Galtaco faced significant financial losses and stated it would cease foundry operations unless customers accepted a 30% price increase.
- Kelsey-Hayes sought alternative suppliers but could not secure adequate replacement castings in time to avoid production disruption.
- Kelsey-Hayes faced potential shutdowns at its customers, substantial damages exposure, and reputational harm if casting supply stopped.
- Under this pressure, Kelsey-Hayes agreed to the price increase(s) in 1989 while contemporaneously protesting that the demand breached the 1987 contract.
- Kelsey-Hayes later withheld payment of amounts attributable to the 1989 increases for certain shipments.

## Issues

1. Whether the 1989 price-increase modifications were voidable because Kelsey-Hayes assented under economic duress under Michigan law.
2. Whether Kelsey-Hayes waived or superseded claims under the 1987 requirements contract by entering the 1989 agreements and continuing performance.
3. Whether Galtaco was entitled to summary judgment on Kelsey-Hayes’ claims and on Galtaco’s counterclaim for unpaid sums.
4. Whether Kelsey-Hayes should be granted leave to file a second amended complaint adding breach allegations tied to purchase orders.

## Decision

- The court denied Galtaco’s motion for summary judgment.
- The court held the record permitted a reasonable factfinder to conclude Kelsey-Hayes accepted the 1989 increases under economic duress, making the modifications potentially voidable.
- Because duress could negate waiver/supersession, summary judgment was improper on Galtaco’s contention that the 1989 agreements barred claims under the 1987 contract.
- The court granted Kelsey-Hayes leave to file a second amended complaint.

## Legal Principles

- Under Michigan law, economic duress (business compulsion) may render a contract modification voidable when assent is induced by an improper threat and the victim has no reasonable alternative, even without independently tortious or criminal conduct.
- A threatened cessation of performance in a sole-source supply setting, coupled with the buyer’s inability to obtain timely substitute supply and the risk of severe business consequences, can create a triable issue of “no reasonable alternative.”
- Continued performance and acceptance of goods, particularly when accompanied by protest, does not necessarily establish waiver as a matter of law where the alleged modification may be voidable for duress.
- Summary judgment is inappropriate where material fact disputes exist concerning the presence of economic duress and the resulting effect on waiver and enforceability of modifications.
- Leave to amend under Rule 15(a) may be granted to add related breach allegations when the case posture supports permitting amendment.

## Conclusion

The court allowed Kelsey-Hayes to proceed on a theory that sole-source price increases extracted under threat of shutdown could constitute economic duress, defeating summary judgment on waiver and modification enforceability, and permitted amendment to add additional breach claims tied to purchase orders.


Kelsey-Hayes Co. v. Galtaco Redlaw Castings Corp., 749 F. Supp. 794 (E.D. Mich. 1990)