Austin Instrument, Inc. v. Loral Corp.

Facts

In July of 1965, the Navy awarded Loral a $6,000,000 contract to produce radar sets. The contract set a delivery schedule, imposed liquidated damages (a sum fixed in advance) for late delivery, and allowed cancellation if Loral defaulted. Loral gave Austin a subcontract to supply 23 of some 40 precision gear parts it needed, and Austin began delivering in early 1966. In May 1966, Loral won a second Navy contract and again sought bids. Austin bid on all 40 parts. On July 15, Loral told Austin's president that Austin would get only the items on which it was low bidder. He refused to take less than all 40. The next day he said Austin would stop delivering under the first subcontract unless Loral agreed to higher prices, both for parts already delivered and for parts not yet shipped, and gave Austin the order for all 40 parts. Austin then stopped delivering. Loral contacted 10 manufacturers, its entire list of approved vendors for precision gears. None could produce the parts in time to meet its Navy commitments. The best reply promised deliveries starting sometime in October. Loral agreed to Austin's demands, and Austin received the second subcontract. Loral met its Navy deadlines. After Austin's last delivery in July 1967, Loral said it would seek to recover the price increases.

Issues

1. Did Austin's threat to stop delivering parts under an existing contract, unless Loral agreed to higher prices and gave Austin a new order, amount to economic duress as a matter of law?
2. Did Loral's duress claim fail because it did not ask the Government for an extension, or because it waited until July 1967 to demand a refund?

Holding

On these facts, Austin's threat to stop deliveries deprived Loral of its free will. Loral could not get the parts elsewhere in time, and a damages suit would have been inadequate. The record showed economic duress as a matter of law, so Loral could recover the price increases.