29 N.Y.2d 124, 324 N.Y.S.2d 22, 272 N.E.2d 533 (1971)
In July 1965, Loral Corporation received a $6,000,000 contract from the Navy to produce radar sets.1 The contract contained a schedule of deliveries, a liquidated damages clause applying to late deliveries, and a cancellation clause in case of default by Loral.2 Loral solicited bids for some 40 precision gear components needed to produce the radar sets and awarded Austin a subcontract to supply 23 such parts.3 Austin commenced delivery in early 1966.4
In May 1966, Loral was awarded a second Navy contract for the production of more radar sets and again went about soliciting bids.5 Austin bid on all 40 gear components but, on July 15, a representative from Loral informed Austin's president, Mr. Krauss, that his company would be awarded the subcontract only for those items on which it was low bidder.6 The Austin officer refused to accept an order for less than all 40 of the gear parts.7 On the next day he told Loral that Austin would cease deliveries of the parts due under the existing subcontract unless Loral consented to substantial increases in the prices provided for by that agreement—both retroactively for parts already delivered and prospectively on those not yet shipped.8 He also demanded that Loral place with Austin the order for all 40 parts needed under Loral's second Navy contract.9
Shortly thereafter, Austin did, indeed, stop delivery.10 After contacting 10 manufacturers of precision gears and finding none who could produce the parts in time to meet its commitments to the Navy, Loral acceded to Austin's demands.11 In a letter dated July 22, Loral wrote to Austin that "We have feverishly surveyed other sources of supply and find that because of the prevailing military exigencies, were they to start from scratch as would have to be the case, they could not even remotely begin to deliver on time to meet the delivery requirements established by the Government. ... Accordingly, we are left with no choice or alternative but to meet your conditions."12
Loral thereupon consented to the price increases insisted upon by Austin under the first subcontract.13 Austin was awarded a second subcontract making it the supplier of all 40 gear parts for Loral's second contract with the Navy.14 Although Austin was granted until September to resume deliveries, Loral did, in fact, receive parts in August and was able to produce the radar sets in time to meet its commitments to the Navy on both contracts.15 After Austin's last delivery under the second subcontract in July, 1967, Loral notified Austin of its intention to seek recovery of the price increases.16 On September 15, 1967, Austin instituted this action against Loral to recover an amount in excess of $17,750 which was still due on the second subcontract.17 On the same day, Loral commenced an action against Austin claiming damages of some $22,250—the aggregate of the price increases under the first subcontract—on the ground of economic duress.18 The two actions were consolidated and, following a trial, Austin was awarded the sum it requested and Loral's complaint against Austin was dismissed.19 A closely divided Appellate Division affirmed.20
Whether the evidence establishes as a matter of law that Loral was forced to agree to price increases under circumstances amounting to economic duress?21
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 his free will.22 The existence of economic duress or business compulsion is demonstrated by proof that one party to a contract has threatened to breach the agreement by withholding goods unless the other party agrees to some further demand.23 It must also appear that the threatened party could not obtain the goods from another source of supply.24 The ordinary remedy of an action for breach of contract would not be adequate.25
Yes. Austin's threat to stop deliveries under the first subcontract unless Loral agreed to substantial price increases retroactively and prospectively constituted a wrongful threat that deprived Loral of its free will.26 Loral awarded Austin the full order for the second Navy contract.27 Loral's contract with the Navy called for staggered monthly deliveries of the radar sets, with clauses calling for liquidated damages and possible cancellation on default.28 Loral did a substantial portion of its business with the Government and feared that a failure to deliver as agreed upon would jeopardize its chances for future contracts.29
Loral contacted its entire list of ten approved vendors for precision gears and found none able to commence delivery soon enough.30 The best offer Loral received from the other vendors it contacted was commencement of delivery sometime in October, which would have made it late in its deliveries to the Navy in both September and October.31 Loral's normal legal remedy of accepting Austin's breach of the contract and then suing for damages would have been inadequate. Loral would still have had to obtain the gears elsewhere with all the concomitant consequences. The evidence therefore makes out a classic case, as a matter of law, of economic duress.32
The evidence establishes as a matter of law that Loral was forced to agree to the price increases under circumstances amounting to economic duress.33
Related opinions on this issue
Joined by Judges Breitel And Jasen
Judge Bergan dissented on the ground that whether acts charged as constituting economic duress produce or do not produce the damaging effect attributed to them is normally a routine type of factual issue.3435 Here the fact question was resolved against Loral both by the Special Term and by the affirmance at the Appellate Division.36 When the testimony of the witnesses who actually took part in the negotiations for the two disputing parties is examined, sharp conflicts of fact emerge.37
Under Austin's version the request for a renegotiation of the existing contract was based on Austin's contention that Loral had failed to carry out an understanding as to the items to be furnished under that contract.38 This was the source of dissatisfaction which led both to a revision of the existing agreement and to entering into a new one.39 It was therefore at least a fair issue of fact whether under the circumstances such conduct was reasonable and made what might otherwise have been a commercially understandable renegotiation an exercise of duress.40 The order should be affirmed.41
Joined by Nunez, J.
Justice Steuer dissented on the ground that the established facts amounted to economic duress.42 Loral contacted every manufacturer it believed capable of producing the parts.43 Of these all but two reported that they were so involved in defense contracts that they could not consider further commitments.44
As to the remaining two, the best delivery time estimated for the items undelivered was 16 weeks, which, allowing time for assembly of the sets, would either involve the defendant in a default or subject it to penalties under its first contract with the Navy.45 Not every threatened breach of a contract is to be designated economic duress.46 It must in addition be shown that the ordinary remedy of suit for the breach of that contract would be inadequate and that no reasonable avenue to escape the consequences of the breach exists.47
The majority appears to feel that the defendant's acquiescence in the demands was motivated by a desire to have plaintiff, rather than some other contractor, as its supplier.48 The judgment should be vacated and judgment entered for defendant on its claim.49