Austin Instrument, Inc. v. Loral Corp.

• Decision Date: 17 December 1970
• Parties: AUSTIN INSTRUMENT, INC., Plaintiff-Respondent, v. LORAL CORPORATION, Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 528

316 N.Y.S.2d 528

35 A.D.2d 387

AUSTIN INSTRUMENT, INC., Plaintiff-Respondent, v. LORAL CORPORATION, Defendant-Appellant.

Supreme Court, Appellate Division, First Department.

Dec. 17, 1970.

Alvin A. Simon, New York City, for defendant-appellant.

Herbert L. Ortner, New York City, of counsel (Morris Dershowitz, New York City, with him on the beief; Salon, Ortner, Yavers, Dershowitz & Raybin, New York City, attorneys) for plaintiff-respondent.

Before EAGER, J.P., and MARKEWICH, NUNEZ, McNALLY and STEUER, JJ.

EAGER, Justice Presiding.

Following a trial before Honorable Thomas A. Aurelio, Special Referee, the plaintiff (Austin) was awarded judgment for the full amount of the balance owing under subcontracts with defendant (Loral), including agreed upon price increases, for the manufacture and delivery of precision gear parts and assemblies used in connection with a quantity of Radar Dopplers which Loral had agreed to furnish for Navy use under contracts with the United States government. Tried at the same time as Austin's action was an action brought by Loral against Austin to recover damages for alleged economic duress in the extorting of price increases for the gear parts and assemblies covered by a first subcontract. The referee concluded that Loral had failed to establish its alleged cause of action against Austin and dismissed Loral's complaint.

Agreeing fully with the conclusions of the referee, we affirm the judgment for the plaintiff Austin. We conclude that the findings of the referee are fully supported by the evidence except insofar as the same may be inconsistent with the findings herein set forth.

In December of 1965, Loral had placed with Austin firm orders for the purchase of gear parts and assemblies needed for the Navy radar sets (this forming the 'first subcontract' between the parties). After Austin had entered upon the performance of that subcontract, Loral was awarded an additional contract by the government for radar equipment and Austin sought to supply Loral with the machine parts to be used by Loral in performing this newly procured contract. Austin about this time demanded retroactive price increases on the items agreed to be furnished by it under the first subcontract and also demanded that it be given the right to furnish all of the similar machine parts and assemblies which Loral needed in performing the additional Navy contract. Negotiations between the parties continued during which Loral was considering the bids submitted by Austin and others for the parts needed under the second Navy contract. Austin claimed that it was losing a substantial sum on the existing job; that it could not afford this; and that the prices being paid to it were only a fraction of what it was entitled to. Parenthetically, we may note that it is well known that in this time of continual rising of material and manufacturing costs, renegotiation of contract prices does sometimes occur in business and commercial dealings. As a matter of fact, these parties were talking and negotiating for a period of some three to four weeks concerning the performance by Austin under the first subcontract, the awarding to it of price increases covering such subcontract, and its demand that it be awarded a second subcontract to cover all the similar gears and assemblies required by Loral to fill the second Navy contract.

The talks between the parties continued until about the middle of July, 1966, and then, according to Loral's contentions, Austin actually stopped all work under the first subcontract and refused to proceed thereunder unless Loral met Austin's demands for the price increases and awarded to it a second subcontract for the additional items. As a matter of fact, however, Loral in July, 1966, did receive deliveries of machine parts covered by the first subcontract. On July 18th, the vacation period of two weeks started in Austin's plant and this would normally result in a general slowdown of work and deliveries, and Loral was so advised. Although there is sufficient evidence to support a finding that Loral was then told that deliveries would be stopped, the situation was still fluid in the sense that Austin could be prevailed upon to resume normal deliveries following the vacation period.

On July 22, 1966, following the considerable negotiations between the parties and the alleged stopping of work by Austin, Loral wrote a selfserving letter to Austin noting that the latter had stopped work on the items, that Loral feared 'drastic consequences' if it defaulted under the Navy contract, and that it was left 'no choice or alternative but to meet your conditions'. Then, some two weeks later (on August 4, 1966), Loral issued revised purchase orders binding it to the price increases for the items covered by the first subcontract and also issued to Austin purchase orders covering the items needed by Loral to fill the second Navy contract. The delivery of these purchase orders was accompanied by another self-serving letter dated August 4th. These letters of July 22nd and August 4th indicate that the defendant was deliberately acting with the intent of attempting to lay the basis for an alleged cause of action for economic duress and we conclude that it was voluntarily doing so.

Loral's claim of duress, based on the foregoing facts, rests upon its contention, as alleged in its complaint, that it was 'obliged to yield and capitulate' to Austin's demands because of fear of 'liability for breach, default, reprocurement damages, liquidated damages and other possible legal consequences' which would result from a failure of Loral to meet the delivery requirements under the first Navy contract. As a matter of fact, however, Loral was at no time under any immediate urgency or government pressure for deliveries under the Navy contract. There had not been any default under such contract nor had Loral received any warning or notice from the government of dissatisfaction. Loral did not find it necessary to contact the government or seek any extension from it. Certainly, its 'self-imposed, undisclosed and subjective fears do not constitute an act of duress by the defendant cognizable in law.' (Joseph F. Egan, Inv. v. City of New York, 17 N.Y.2d 90, 98, 268 N.Y.S.2d 301, 305, 215 N.E.2d 490, 494.)

Furthermore, as indicative of the fact that Loral was under no immediate pressure, it is significant that, following the negotiations between Loral and Austin and their agreement as to the price increases, Loral extended until September, 1966, the time for delivery of all but one of the remaining 23 items covered by the first subcontract. Upon a consideration of all the circumstances, we find that Loral was acting calmly and with considerable deliberation rather than because of an immediate urgency due to fear of governmental reprisals.

Under the circumstances, Austin's threat to break the first subcontract by a work stoppage does not constitute the basis for a recovery on the theory of actionable duress. '* * * (A) threat to break a contract does not in itself constitute duress. Before the coercive effect of the threatened action can be inferred, there must be evidence of some probable consequences of it to person or property for which the remedy afforded by the courts is inadequate.' (Hartsville Oil Mill v. United States, 271 U.S. 43, 49, 46 S.Ct. 389, 391, 70 L.Ed. 822, citing cases. See, also, Doyle v. Rector, etc., Trinity Church, 133 N.Y. 372, 377, 31 N.E. 221, 222; Clasen v. Doherty, 242 App.Div. 502, 275 N.Y.S. 958; Halperin v. Wolosoff, 282 App.Div. 876, 124 N.Y.S.2d 572, leave denied, 306 N.Y. 983.)

Accordingly, as the special referee put it, 'a party who enters into a new agreement modifying one already existing may not disavow the new agreement for economic duress asserted to have been exercised throught threat of a breach of the original agreement, without establishing that his normal legal remedy for the breach would be inadequate or ineffectual in the situation in which he finds himself and that no other means of immediate relief is available to him (Gallagher Switchboard Corp. v. Heckler Electric Co., Inc., 34 Misc.2d 256, 229 N.Y.S.2d 623; s.c. on amended answer, 36 Misc.2d 225, 232 N.Y.S.2d 590; and cases cited.) (See, also, 30 East End v. World Steel Products Corp., Sup., 110 N.Y.S.2d 754 (n.o.r.); Manno v. Mutual Benefit Health & Acc. Assn., 18 Misc.2d 80, 187 N.Y.S.2d 709; J. J. Little & Ives Co. v. Madison Paper Stock Co., Sup., 169 N.Y.S. 104 (n.o.r.); Silliman v. U.S., 101 U.S. 465, 25 L.Ed. 987; Tri-State Roofing Company of Uniontown v. Simon, 187 Pa.Super. 17, 142 A.2d 333; Joyce v. Year Investments Inc., 45 Ill.App.2d 310, 196 N.E.2d 24; Hartsville Oil Mill v. United States, Supra; 79 A.L.R. 655, 668, 'Business Compulsion'.)

Austin was a responsible manufacturer and it was not established that its claims for retroactive price increases were made other than in good faith. If Loral really believed that Austin would run the risk of a suit for breach of contract, the proper course for Loral to have followed was to procure from others the items still deliverable by Austin under the first subcontract and thereby lay the basis for a suit for breach of that contract. If the items were so procurable, then there was no necessity to submit to Austin's price demands. But as the referee found, 'Loral's proof does not satisfactorily establish that with reasonable effort it could not have obtained the items in question from other sources in time to meet its commitment to the...