Duress. In July 1965, Loral Corp. was awarded a $6 million contract to produce r

Question

Duress. In July 1965, Loral Corp. was awarded a $6 million contract to produce ra­dar sets for the Navy. For this contract Loral needed to purchase forty precision gear parts. Loral awarded to Austin Instrument, Inc., a subcontract to supply twenty-three of the forty gear parts. In May of 1966 Loral was awarded a second contract to produce more radar sets. Loral solicited bids for forty more gear parts. Austin submitted a bid for all forty but was told by Loral that the subcontract would be awarded only for items for which Austin was the lowest bidder. Austin’s president told Loral that it would not accept an order for less than forty gear parts and, one day later, told Loral that Austin would cease deliveries on the existing contract unless (1) Loral awarded Austin a con­tract for all forty gear part units and (2) Loral consented to substantial increases for the prices of all gear parts under the existing contract. Ten days later Austin ceased mak­ing deliveries. Loral tried to find other suppliers to furnish the gear parts, but none were available. Because of deadlines and liquidated damage clauses (clauses providing for money damages to be paid in the event of delays) in the Navy contract, plus the pos­sible loss of reputation by Lo­ral with the government, Loral agreed to Austin’s terms. After Austin’s last delivery, Loral filed suit to recover the increased prices Austin had charged on the grounds that the agreement to pay these prices was based on duress. Discuss Loral’s claim.

Explanation / Answer

As per the law related to economic duress, Loral's claim is justified as it agreed to a price increase under the threat of non-supply of components (required to complete the government contracts) by Austin. Loral tried to obtain the components from other suppliers but couldn't arrange the same. As a result, Loral couldn't exercise free will and was forced to obtain components from Austin at a higher price. In case of non-acceptance of price increase, Loral would have defaulted on the completion of government contracts which would have resulted in financial loss. It could have further affected its reputation in the market. Therefore, the Loral's claim of economic duress is correct as against Austin.

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