70 Pages Posted: 15 Oct 2006
Austin v. Loral, 29 N.Y.2d 124 (1971), is a favorite among Contracts casebooks because the New York Court of Appeals held that it was a "classic" example of economic duress. It involved Austin, a small gear part manufacturer, who had entered into a subcontract to provide gear parts to Loral, a publicly-traded defense industry supplier. Loral had a contract with the U.S. government to supply radar sets, to be used in the U.S. efforts in Vietnam. Midway through performance of the subcontract, Austin apparently refused to continue to deliver the gear parts unless Loral acceded to certain demands, which included a price increase on the gear parts. In a 4-to-3 decision, the New York Court of Appeals held that Loral had agreed to Austin's price demands under economic duress.
The first part of this article reconstructs and retells the rich and intricate story of Austin v. Loral. A theme emerges: with the escalation of the conflict in Vietnam came a market shift in the defense industry. The demand for radar caused the price of Austin's gear parts to see a substantial market increase. But, Austin's materials and labor costs also rose, causing Austin significant losses under the subcontract with Loral.
Using the reconstructed story of the case, and the theme that emerges from the trial testimony, this article then discusses the concept of framing in a legal sense and draws parallels to theories of framing in the field of cognitive linguistics. Applying these theories, the article presents the frames of contract modification and economic duress and discusses the doctrinal differences between them at the time of Austin v. Loral. Even though the contract involved a sale of goods, the courts made no reference to U.C.C. § 2-209, which addresses contract modifications and appears to apply squarely to the situation. The absence of reference to the U.C.C. is probably because the parties did not frame the litigation as a question of modification but, rather, solely as an issue of economic duress. Had Austin reframed the dispute as one of modification, the Court of Appeals might well have asked a different question, dictated by the comments to U.C.C. § 2-209: whether Austin acted in good faith in requesting modification of the subcontract. In assessing whether Austin was acting in good faith, the market changes and Austin's significant losses under the subcontract would have been doctrinally relevant.
Finally, while Austin could have reframed the legal dispute, it also could have argued for a more sensible doctrine of economic duress, one that did not solely focus on Loral's lack of choices. The doctrinal thesis of the article posits that, in the context of contract modification, duress jurisprudence seems to be (and should be) subsumed by solely a good faith inquiry. Using the context of Austin v. Loral as an example, the article discusses refocusing the duress doctrine in the modification context to ask solely whether the threat was made in good faith.
Keywords: contracts, contract modification, duress, economic duress, coercion, cognitive, cognition, framing, UCC
Suggested Citation: Suggested Citation
Miller, Meredith R., Revisiting Austin V. Loral: A Study in Economic Duress, Contract Modification and Framing. Hastings Business Law Journal, Vol. 2, p. 357, Summer 2006. Available at SSRN: https://ssrn.com/abstract=937372