National Presto Industries, Inc. v. United States

• Decision Date: 16 October 1964
• Docket Number: No. 370-58.,370-58.
• Citation: 338 F.2d 99
• Parties: NATIONAL PRESTO INDUSTRIES, INC. v. The UNITED STATES.
• Court: U.S. Claims Court

338 F.2d 99 (1964)

NATIONAL PRESTO INDUSTRIES, INC. v. The UNITED STATES.

No. 370-58.

United States Court of Claims.

October 16, 1964.

COPYRIGHT MATERIAL OMITTED

Robert E. Sher, Washington, D. C., for plaintiff. Isadore G. Alk, Abraham J. Harris, James H. Heller, Washington, D. C., and Maslon, Kaplan, Edelman, Joseph & Borman, Minneapolis, Minn., of counsel.

David Orlikoff, Washington, D. C., with whom was Asst. Atty. Gen. John W. Douglas, for defendant.

Before JONES and WHITAKER, Senior Judges, and LARAMORE, DURFEE, and DAVIS, Judges.

DAVIS, Judge.

Toward the close of the Korean hostilities, in the late fall of 1952, the Ordnance Department of the Army sought proposals for the commercial production of 105-millimeter artillery shells. Along with other firms, plaintiff, a fabricator of pressure cookers which had turned to the manufacture of cartridge cases and shells during and after World War II, submitted a plan for the production of the shells (at its plant at Eau Claire, Wisconsin) by the conventional hot forge method — involving considerable heat twice applied, and two turning steps at which large amounts of excess steel are removed from the shell. While the proposals were under consideration, Ordnance mulled over a change in the procurement from the conventional method to the new hot cup-cold draw process. The central advantage of this mode is that the steel is heated only once and there is much less excess metal to be removed. The plaintiff already had an Ordnance contract for making 105-millimeter shells by the older method at its factory at Menomonie, Wisconsin, and its initial response to the Army's suggestion of a further contract was based on that system. However, plaintiff then considered conforming its proposal for Eau Claire manufacture to the newer process. In June 1953 the parties entered into two letter contracts, one for establishing lines to produce shells at Eau Claire and the other for the production there of one million 105-mm. shells. It was shortly agreed that the Eau Claire plant was to use the hot cup-cold draw method. After production of the shells immediately needed, the plant was to be retained in stand-by condition for the Army's use.

Under these letter contracts, which were preliminary to formal agreements, the plaintiff was to propose the equipment (and facilities) it believed to be needed for production. The defendant was to pay for the items upon which agreement was reached; in that sense the equipment was to be government-furnished property. Some months were consumed in plaintiff's preparation of its proposed equipment-schedule, and of a suggested fixed-price for making the shells by the new method. There were some tentative discussions. On November 10, 1953, the parties met to consider the final schedule to be incorporated in the formal facilities contract which would supersede the letter contract on facilities. Of concern to us was the discussion of the need for plunge grinders — devices mainly used to remove surface imperfections in steel. Plaintiff felt that the six new shell lines at Eau Claire should include 24 plunge grinders, four to each line. Ordnance thought them unnecessary; its principal representative informed plaintiff that he would not approve a facilities schedule which included plunge grinders; he also said that, if the grinders proved necessary in the course of performance, he would sanction their acquisition.¹ The plaintiff thereupon submitted its new price and a schedule omitting the grinders; that equipment was not included in the formal contracts which were executed in early December 1953. Production of the shells was to commence, after installation of the facilities yet to be acquired, in July 1954.

Plaintiff then began the detailed process leading to the acquisition and installation of the necessary equipment. In March 1954, before completion of the contractor's engineering studies and its placement of orders, the defendant told plaintiff that it was drastically curtailing its procurement of 105-mm. shells and that both plaintiff's Eau Claire and Menomonie contracts were terminated for all production scheduled for delivery after April 30, 1954. Following negotiations for a decrease rather than elimination of production, the defendant rescinded its notice of termination of the Eau Claire contract and, on June 30, 1954, the parties entered into a supplemental agreement (to that contract) providing that plaintiff should produce a new total of 1,100,000 105-mm. shells (in place of the former totals of the shells to be made at Menomonie and at Eau Claire), at a fixed price of $5.2499 per shell, to be manufactured at either plant as plaintiff wished. Production at Menomonie would follow the conventional hot forge method while the new hot cup-cold draw system would be used at Eau Claire.

Because the Menomonie plant was already operational, plaintiff began to supply the new total of 1,100,000 shells from that factory. By the end of August 1955, over 800,000 shells had been shipped from there. Since preliminary operations at Eau Claire did not begin until the summer of 1955, it appeared that the full quota of shells would be produced at Menomonie by the conventional process before the new method could be fairly sampled at Eau Claire. The Government was anxious to test the hot cup-cold draw system. Early in September 1955, the parties agreed that the conventional operations should be reduced so that some 180,000 shells would be left to be manufactured (by March 1956) under the new process.

Plaintiff suffered difficulties of various kinds in making the hot cup-cold draw system fully functional at Eau Claire. Only one of these problems is now alleged to be the defendant's responsibility — the need for turning equipment to shave excess metal. The first batch of shells, produced relatively slowly and using only one of the six lines at Eau Claire, did not require any such turning. But as production increased there, in the fall of 1955, it became doubtful that good shells could be made without a turning step; the shells were not concentric when they came out of the hot forge and some shaving (but still less than in the conventional method) was necessary. A final decision on this point was put off until April 1956 when it was decided by the parties to purchase a number of new lathes for this purpose (plunge grinders were never considered). Meanwhile, plaintiff, with the consent of Ordnance, transferred some older lathes from the Menomonie plant to perform this turning function. The remainder of the contract shells were produced at Eau Claire, using these Menomonie lathes. Production of the 180,000 shells to be made by the hot cup-cold draw process was not completed until September 1956. The defendant paid for the additional equipment and also remitted the full contract price. Nevertheless, plaintiff lost considerably over $700,000 on its production at Eau Claire. It attributes some $743,000.00 of this loss to the lack of turning equipment, timely furnished and adequate; plaintiff's claim is that it expended large sums (on labor, overhead, and materials) in trying for a long time to produce the shells without turning, and thereafter in using the Menomonie lathes. These expenses plaintiff charges directly to defendant's refusal to include plunge grinders in the original schedule of equipment and facilities.

I

The case has been wholly tried in this court² and we must decide whether the Government should assume all (or part) of the loss plaintiff incurred or whether that loss must stay with the contractor which has thus far shouldered it. The first subdivision of the claim is that the defendant broke its contractual obligation by refusing to authorize the acquisition and use of turning equipment at the outset of the contract. The theory is that, since the Government was to furnish the facilities for the production lines at Eau Claire, it was required to supply adequate devices to make the 105-mm. shells by the new hot cup-cold draw method. By omitting the plunge grinders (requested by the plaintiff) from the equipment to be furnished, the defendant (it is urged) breached an express and an implied warranty of adequacy, and also wrongly imposed its own mistaken judgment on the plaintiff. It is of no consequence, on this view, that the contractor initially proposed plunge grinders and later recommended and used lathes. The grinders were sought, it is said, because plaintiff foresaw from the beginning that it would still be necessary, even under the new process, to remove steel from the shells through use of some sort of turning equipment; the lathes which were actually utilized performed exactly that function.

On this phase of the case, we can assume, without deciding, that the defendant would be liable under the contract if the parties had left the specification of the government-paid-for equipment to be determined after the contract was made, and the defendant had then refused to authorize a tool or device which was needed to manufacture the shells in due time. We can also assume, likewise without deciding, that the request for plunge grinders equaled one for lathes.

The hurdle we cannot overcome is that in this case the discussion and decision on turning equipment (i. e., plunge grinders) all took place before the parties were legally bound. When the plaintiff proposed, and the defendant rejected, the inclusion of grinders in the schedule of equipment to be financed by the Government for the production of the shells, the parties were acting under two temporary letter contracts — one for the supply of the shells and one for the facilities and equipment. These were preliminary contracts contemplating agreement upon, and execution of, two formal contracts (supply and facilities) before substantial production was to be started. But the letter contracts also envisaged that the parties might not be able to concur in the terms of the formal agreements; both...