Modification of contracts as a result of duress

Get excited, its bully time. Tonight we’re talking about contracts, or at least one contract, that is basically held hostage for more money from one of the parties, because the delivering company must have realized how important their deliveries are.

In Austin Instrument, Inc. v. Loral Corp., 29 N.Y.2d 124 (1971) the original plaintiff, Loral, wins a $6,000,000 contract with the Navy to build and delivery of various radar sets. They bid out to subcontractors for component pieces, and Austin is the winner of one of the bids, the enter into a contract. While in the midst of this contract, Loral was awarded yet another bid for more radar sets from the Navy, and put out the same type of subcontract bids. At which point the facts become a little fuzzy, but essentially Austin holds out on delivery of their widgets in exchange for a vast increase in price. Loral, seeing that they have few other options(which is debated in the dissenting opinion of this decision) respond stating that despite the unethical behavior, they needs the parts, and will pay. They do, and Austin delivers. Immediately upon the completion of all deliveries and subsequent manufactures, Loral contacts Austin to notify them of their intent to sue and recover for the excess charges.

Their contention in this matter is that they were induced to modify their contract under economic duress, and this court finds that to be the case, with a dissenting opinion.

I suppose that Justice Bergan would have preferred that Loral hire one of the alternative suppliers to complete the job under duty to the Navy, and then sue Austin in breach and collect expectation damages after the fact. While this may have been the best option logistically, the court found that what they did was also recoverable.

Moral of the story, contracts are modifiable, if there is mutual assent from both parties to do so, in cases like this, holding the other party hostage is not acceptable. I’m wondering how this type of action, at least on the part of Austin, is similar to the concepts of Anticipatory Repudiation, which we’ll cover in later chapters…

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