## Facts

- A manufacturer of aluminum wire products entered a long-term “Molten Metal Agreement” with an aluminum producer for toll conversion at the producer’s smelter.
- The manufacturer supplied alumina; the producer converted it into molten aluminum; the manufacturer then took delivery of the molten metal for further processing.
- The contract’s tolling charge included a price-adjustment mechanism keyed in part to the Wholesale Price Index—Industrial Commodities (WPI), with a contractual cap intended to limit escalation.
- The parties selected the WPI because they believed it would track the producer’s non-labor conversion costs (including energy and materials) over the contract term.
- During the 1970s, energy and other non-labor costs increased sharply, and the producer’s actual costs rose far faster than the WPI-based escalation, causing substantial losses.
- The producer sought equitable relief to revise the pricing mechanism and also asserted an oral modification theory; it attempted to terminate the agreement under an alternative theory that the contract was a sale of goods.
- The manufacturer denied entitlement to equitable relief and counterclaimed for damages and specific performance based on alleged under-deliveries of molten aluminum.
- The case was tried to the court, which resolved the requests for equitable relief and the counterclaims.

## Issues

1. Whether the price term could be reformed or equitably adjusted based on mutual mistake and frustration of the parties’ shared assumptions about the WPI’s suitability as a cost proxy.
2. Whether an enforceable oral modification changed the parties’ obligations.
3. Whether the agreement was a sale-of-goods contract (invoking Article 2 termination concepts) or a service/toll-conversion contract.
4. Whether the manufacturer was entitled to damages and specific performance for under-deliveries, or whether reduced deliveries were excused under the contract, including by a force majeure provision.

## Decision

- The court granted equitable relief reforming/equitably adjusting the contract’s pricing mechanism, finding a mutual mistake about the WPI’s ability to track relevant costs over time.
- The court rejected the claim of oral modification for lack of proof of a definite mutually assented change in terms.
- The court characterized the agreement as a service (toll conversion) contract rather than a contract for the sale of goods, and denied termination relief premised on sale-of-goods treatment.
- The court denied the manufacturer’s counterclaims for damages and specific performance, concluding the producer’s reduced deliveries were excused under the contract as construed, including under force majeure.

## Legal Principles

- A court in equity may reform or equitably adjust a contract term when a mutual mistake at formation defeats the parties’ shared assumptions that were central to the bargain.
- A pricing formula tied to an index may be subject to equitable correction when the parties did not consciously allocate the risk that the index would cease to track the economic measure it was chosen to represent.
- An asserted oral modification requires proof of a clear agreement and a meeting of the minds on definite changed terms; absent that proof, the written agreement governs.
- Contract classification turns on the transaction’s predominant character; where one party supplies raw material and the other performs conversion, the arrangement may be treated as a service contract rather than a sale of goods.
- Force majeure and related excuse provisions can bar damages and specific performance where contractually specified conditions excuse nonperformance or reduced performance.

## Conclusion

The court preserved the long-term relationship by reforming the contract’s index-based price term to reflect the parties’ mistaken shared assumption that the WPI would track conversion costs, while rejecting an alleged oral modification, declining to treat the agreement as a sale of goods for termination purposes, and denying counterclaims for under-delivery where reduced performance was excused under the contract.


Aluminum Co. of Am. v. Essex Grp., Inc., 499 F. Supp. 53 (W.D. Pa. 1980)