Austin Instrument, Inc. v. Loral Corp.

In 1965, Loral Corporation (Loral) (defendant) was awarded a $6,000,000 contract from the United States Navy to produce radar sets. Loral solicited bids for the 40 precision gear components needed to produce the radar sets and awarded a subcontract for 23 components to Austin Instrument, Inc. (Austin) (plaintiff). Austin began delivery of the components in early 1966. In May 1966, Loral was awarded a second contract with the Navy for radar screens. Loral again solicited bids, and Austin bid on all 40 required components. Loral informed Austin it would only be awarded a subcontract for components on which it was the lowest bidder. Austin refused to accept a subcontract for less than all 40 components and informed Loral it would cease delivery of parts due under the first subcontract unless Loral consented to substantial price increases for all parts already delivered and scheduled for delivery on the first subcontract. Loral refused, and Austin ceased delivery. Loral contacted 10 other manufacturers and could not find another that could produce the required components in time for Loral to avoid breaching its Navy contract. Loral required parts to be delivered in September 1966 and could only find a manufacturer that could deliver in October. Loral informed Austin it would accept the price increases and gave Austin until September 1966 to resume delivery. Austin delivered the parts in August and September 1966, and Loral fulfilled both its Navy contracts. Three days after Loral’s second subcontract with Austin ended, Loral informed Austin it would not pay the demanded price increases on the ground that they constituted economic duress. Austin brought suit in New York state court to recover the price increases agreed to by Loral. The trial and appellate courts held in Austin's favor, and Loral appealed.