## Facts

- The Army solicited proposals for commercial production of 105-mm artillery shells during the Korean War era.
- National Presto proposed manufacturing shells at its Eau Claire facility and initially contemplated a conventional hot-forge method.
- The parties shifted to a newer “hot cup–cold draw” process intended to reduce heating and metal removal.
- In June 1953, the parties executed two letter contracts: one to establish facilities and one to produce one million shells.
- Under the letter-contract framework, National Presto would propose required facilities/equipment and the government would fund mutually agreed items as government-furnished property.
- During negotiations to finalize the facilities schedule (November 1953), National Presto urged inclusion of plunge grinders to remove steel surface imperfections; government representatives refused, viewing them as unnecessary for the new process.
- The executed formal contracts omitted plunge grinders and did not expressly allocate the risk that the new process might require unanticipated equipment.
- Early tests did not clearly show that plunge grinders were required, but full-scale production later demonstrated they were essential to meet specifications.
- National Presto purchased the grinders at its own expense and, under a fixed-price arrangement, incurred substantial losses.
- National Presto sought monetary relief, alleging breach for failure to authorize/fund the grinders and, alternatively, mutual mistake warranting reformation.

## Issues

1. Whether the government breached the contracts by refusing to authorize and fund plunge grinders before execution of the formal agreements.
2. Whether both parties entered the contracts under a mutual mistake of fact about the necessity of plunge grinders for the hot cup–cold draw process.
3. If mutual mistake existed, whether equitable reformation should allocate the resulting losses between the contractor and the government.

## Decision

- The court rejected the breach claim, holding the government did not breach by refusing to include plunge grinders in the facilities schedule.
- The court found a mutual mistake: both parties shared an erroneous basic assumption that plunge grinders would not be necessary for successful production under the new process.
- Because the contracts did not clearly assign the risk of unforeseen equipment requirements to either party, the court granted equitable relief by reforming the arrangement to apportion the loss rather than placing it entirely on National Presto.

## Legal Principles

- A party’s pre-execution negotiation position (including refusal to fund specific equipment) is not a breach when the counterparty later executes the final written contract without a promise covering that equipment.
- Mutual mistake exists when both parties share an incorrect belief about a basic factual assumption underlying the contract, and the mistake materially affects performance costs or feasibility.
- In government contracts, where neither the text nor the parties’ dealings clearly allocate the risk of an unforeseen, mistake-driven contingency, a court may grant equitable reformation and allocate losses to avoid unjustly burdening one party.
- Fixed-price terms do not necessarily bar equitable relief when the price is predicated on a shared factual error not clearly assumed by one side.

## Conclusion

The Court of Claims held that the United States did not breach the contracts by declining to fund plunge grinders, but it reformed the contract on a mutual-mistake theory and awarded partial relief by sharing losses caused by the unanticipated need for that equipment.


National Presto Indus., Inc. v. United States, 338 F.2d 99 (Ct. Cl. 1964)