Question

Loral Corporation had a contract with the U.S. government to manufacture radar sets. Loral subcontracted with Austin Instrument for the production of precision parts to be used in the radar sets. In the middle of production, Austin told Loral that it would deliver no more parts unless Loral agreed to pay Austin a good deal more than originally agreed upon. Loral could not obtain the same parts in time from any other company. As a result, Loral agreed to the price increase. After delivering the radar sets, Loral sued Austin and asked the court to rescind the price increase. Did the court grant Loral’s request? Explain.

Answer 1

Answer: Defendant Loral Corporation had a contract with the Navy in which defendant was to manufacture radar sets by a specific date. In return the Navy was to pay the defendant $6 million. The contract provided that if Loral did not meet the deadline it would have to pay a substantial amount of money specified in the contractas damages. Loral received a second contract and sought bids from several suppliers. Plaintiff Austin Instrument, Inc. threatened to discontinue unless defendant agreed to only purchase from plaintiff and increase prices paid for materials under the first contract. Defendant attempted to replace Plaintiff completely, but failed. Defendant then agreed to Plaintiff’s demands. Plaintiff sued defendant for money still due on the second contract upon completion and defendant countered suit to recover price increases under the first contract, claiming economic duress. Court ruled in favor of the defendant due to grounds of economic duress allowing a contract to become voidable.