In the

United States Court of Appeals

For the Seventh Circuit

No. 00-4189

ZEMCO MANUFACTURING, INCORPORATED,

Plaintiff-Appellant,

v. 

NAVISTAR INTERNATIONAL TRANSPORTATION

CORPORATION,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of Indiana, Fort Wayne Division.

No. 97 C 260--William C. Lee, Chief Judge.

ARGUED SEPTEMBER 13, 2001--DECIDED November 5, 2001

 Before RIPPLE, ROVNER and EVANS, Circuit

Judges.

 RIPPLE, Circuit Judge. Zemco

Manufacturing, Inc., ("Zemco") filed this

action against Navistar International

Transportation Corp. ("Navistar")

alleging that Navistar had breached two

distinct, but interrelated, agreements

with Zemco ("Count I" and "Count II") and

had conspired to interfere with a

contract ("Count III"). Earlier in this

litigation, the district court granted

Navistar’s motion for summary judgment on

Count III, and we affirmed./1 We

remanded the remainder of the case to the

district court. While on remand, the

district court recommended and the

parties consented to separate trials for

the remaining contract claims. The

parties opted to litigate Count I first,

and a jury returned a verdict for

Navistar. Before Count II proceeded to

trial, the district court granted

Navistar’s motion for summary judgment on

this claim finding that the consideration

supporting the contract had failed. For

the reasons set forth in the following

opinion, we reverse the judgment of the

district court as to Count II and remand

this case for further proceedings. 

I
BACKGROUND

A. Facts

 Navistar manufactures heavy-duty

machinery ranging from diesel engines to

semi-trailer trucks. As in the case of

most manufacturers, however, Navistar

cannot produce all of the parts required

to complete its goods; rather, it relies

on outside suppliers to furnish many of

the components used in its final product.

One of these suppliers, Zemco

Manufacturing, provided Navistar with

parts including spring shackles and air

manifolds.

 This particular relationship between

Navistar and Zemco originated in a

written contract ("Contract AZ010B")

which the parties signed in 1983.

Although the parties executed several

written addenda extending Contract AZ010B

in yearly increments, they ended this

practice in 1987. Nevertheless, despite

the absence of a written agreement,

Navistar continued to purchase its parts

from Zemco. In the summer of 1995,

however, Navistar began to withdraw its

business from Zemco and to obtain parts

from a different supplier. Believing that

the parties had agreed to an oral

extension of Contract AZ010B, Zemco

objected to Navistar’s actions. In an

effort to resolve these differences, rep

resentatives from both companies met with

each other several times during the late

summer months of 1995.

 During these meetings, Zemco’s

president, Vincent Tippmann, maintained

that Navistar’s conduct breached Contract

AZ010B. However, Tippmann apparently

indicated that Zemco would cooperate with

Navistar’s efforts to move its business

to another supplier. More precisely,

Zemco’s president allegedly stated: "I’m

going to do any transition you want. I

said I will not withhold anything, won’t

shut [you] down. You guys do whatever

you’re going to do. I said I have

differences, I’m going to hold you bound.

But I said [it will have] no reflection

in the operation." R.120, Ex.B at 79.

However, still concerned that Zemco would

cease providing parts during the

transition period, a Navistar

representative apparently pressed for

further assurances. Tippmann reiterated

his company’s earlier stance--"I assured
her . . . that I was going to cooperate.

I told her I’d been through this before."

R.120, Ex.B at 103. 

 While Navistar slowly established its

ties with the new supplier, Zemco

continued to furnish the necessary parts

to Navistar. However, having grown

impatient with this situation, Zemco sent

a letter to Navistar in October of 1995

demanding that it honor Contract AZ010B

and end the transition to the alternate

supplier. 

 On December 7, 1995, Doug Willard, a

buyer for Navistar, sent a letter

("December Contract") to Zemco that

stated:

 Navistar will now continue the

outsourcing of its products from Zemco,

first confirmed verbally to you on July

19, 1995. As I told you then, Navistar

will work with you during the transition.

You agreed to cooperate 100%.

 Please send me a list of all parts in

process or finished. Also any raw

material (by size and alloy) that you

have left. As you know, Navistar only

commits to sixty day’s worth of parts. We

will purchase any material over this

sixty day commitment, providing this

matter [the dispute over Contract AZ010B]

will be concluded without litigation. Fax

the lists to me . . . as soon as

possible.

R.20, Ex.F.

 Within a few weeks, Zemco had sent the

requisite list detailing the parts and

raw materials it possessed. Over the next

nineteen months, Zemco repeatedly sought

payment from Navistar for the items

contained on the list plus accrued

interest and storage costs. During this

period, Zemco refrained from commencing

any action on Contract AZ010B. Navistar,

however, did not make payments under the

December Contract.

B. District Court Proceedings

1.

 In July of 1997, Zemco filed suit

against Navistar. Count I alleged that

Navistar had breached the parties’

purported agreement to extend Contract
AZ010B into June of 1996 when it began to

purchase parts from another supplier./2

Count II contended that Navistar had

breached the December Contract when it

failed to purchase the raw materials and

miscellaneous parts referenced in this

document. With the consent of the

parties, the district court scheduled

separate trials for the individual

contract claims. Count I proceeded to

trial first. A jury concluded that the

parties had not agreed to an extension of

Contract AZ010B. Absent an underlying

agreement, Navistar could not be held

liable for breach of contract on this

count. 

 Soon after this victory, Navistar moved

for summary judgment on Count II.

Navistar contended that the consideration

underlying the December Contract had

failed and thus the agreement was

void./3 Navistar argued that Zemco’s

agreement to refrain from litigating on

Contract AZ010B provided the only

consideration for the December Contract.

In Navistar’s view, the first paragraph

of the December Contract merely

referenced a prior dealing between the

parties and did not supply additional

consideration for the agreement.

According to Navistar, Zemco’s filing of

Count I, alleging a breach of Contract

AZ010B, constituted a failure to perform

its obligation under the contract.

Navistar argued that, because Zemco had

failed to satisfy its portion of the

agreement, Zemco could not now seek

enforcement of the contract in court. 

 Zemco, however, maintained that its

promise to cooperate in the transition

provided additional consideration for the

agreement. It emphasized that the first

portion of the December Contract

explicitly referenced this particular

promise. Because Zemco had cooperated, it

maintained that it could enforce the

contract. At a minimum, it further

submitted, the December Contract was

sufficiently ambiguous as to the

consideration underlying it to preclude

summary judgment. 

2.

 After considering the parties’

positions, the district court granted

summary judgment for Navistar on Count

II. In interpreting the December
Contract, the district court held that

this two-paragraph agreement between the

parties was unambiguous and that it

failed for lack of consideration. More

precisely, the court determined that

Zemco’s promise not to sue on Contract

AZ010B formed the sole consideration for

the December Contract. When Zemco filed

suit on AZ010B, the consideration

underlying the December agreement, which

was in the nature of an accord and

satisfaction, vanished./4 The district

court therefore rejected Zemco’s view

that its earlier oral promise to

cooperate in the transition, described in

the first paragraph of the agreement, was

additional consideration for the December

accord. Rather, the court determined that

the promise to cooperate was part of an

earlier, independent verbal agreement. As

Zemco could not enforce the contract, the

district court granted Navistar’s motion

for summary judgment. 

II

DISCUSSION

A. Standard of Review

 We review de novo the district court’s

decision to grant summary judgment. See

Thomas v. Pearle Vision, Inc., 251 F.3d

1132, 1136 (7th Cir. 2001). Summary

judgment is appropriate "if the

pleadings, depositions, answers to inter

rogatories, and admissions on file,

together with affidavits, if any, show

that there is no genuine issue as to any

material fact and that the moving party

is entitled to a judgment as a matter of

law." Fed. R. Civ. P. 56(c); see also

Celotex Corp. v. Catrett, 477 U.S. 317,

322-23 (1986). The court’s function is

not to weigh the evidence but merely to

determine if "there is a genuine issue

for trial." Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 249 (1986). We must

ask whether "there are any genuine

factual issues that properly can be

resolved only by a finder of fact because

they may reasonably be resolved in favor

of either party." Id. at 250. In

assessing whether a genuine issue of

material fact exists, we must construe

all facts and draw all reasonable

inferences in the light most favorable to

the nonmoving party. See id. at 255;

Basith v. Cook County, 241 F.3d 919, 926

(7th Cir. 2001). 
 Turning to the matter before us, we are

confronted with a single issue--the

interpretation of the following twoparagraph contract between the parties:

 Navistar will now continue the

outsourcing of its products from Zemco,

first confirmed verbally to you on July

19, 1995. As I told you then, Navistar

will work with you during the transition.

You agreed to cooperate 100%.

 Please send me a list of all parts in

process or finished. Also any raw

material (by size and alloy) that you

have left. As you know, Navistar only

commits to sixty day’s worth of parts. We

will purchase any material over this

sixty day commitment, providing this

matter will be concluded without

litigation. Fax the lists to me . . . as

soon as possible.

R.20, Ex.F.

 The district court found this contract

unambiguous. It determined that the

agreement to refrain from litigation

contained in the second paragraph

provided the only consideration for the

December Contract. Because Zemco did not

comply with this obligation when it chose

to pursue its potential claim under

Contract AZ010B, the consideration

underlying the December Contract failed.

In short, Zemco’s failure to perform its

obligation under the December agreement

precluded it from enforcing the

contract’s provisions. 

 Zemco argues that the December Contract

is susceptible to an alternate

interpretation. It submits that the terms

of the agreement indicate the promise to

cooperate during the transition provided

additional consideration for the December

Contract. Because Zemco believes that it

fully complied with this obligation to

cooperate, it contends that Navistar

cannot avoid the December agreement with

a failure of consideration defense.

Navistar’s position on appeal tracks the

rationale of the district court’s

decision.

B. Principles Governing Contract

Interpretation

 Before turning to the submissions of the
parties concerning the December Contract,

we set forth the general principles that

will guide our inquiry. There does not

seem to be any significant disagreement

between the parties about the governing

principles of Indiana contract law.

 This court has stated that, as a general

rule, "interpretation of an unambiguous

contract is a question of law." Bechtold

v. Physicians Health Plan of N. Ind.,

Inc., 19 F.3d 322, 325 (7th Cir. 1994)

(citing Ryan v. Chromalloy Am. Corp., 877

F.2d 598, 602 (7th Cir. 1989)); see also

Tri-Central High Sch. v. Mason, 738

N.E.2d 341, 344 (Ind. Ct. App. 2000)

(noting that interpretation of a contract

is a question of law for which summary

judgment is particularly appropriate).

The Indiana law that governs

interpretation of a contract is well

settled. First, "a court will endeavor to

ascertain the parties’ intent by language

used in the agreement to express

obligations." Tri-Central High Sch., 738

N.E.2d at 344. The contract terms,

including individual words, phrases and

sentences, should be given their plain

and ordinary meaning. See Ecorp, Inc. v.

Rooksby, 746 N.E.2d 128, 131 (Ind. Ct.

App. 2001). However, the court cannot

read portions of an agreement "exclusive

of other contractual provisions."

Grandview Lot Owner’s Ass’n, Inc. v.

Harmon, 2001 WL 925721 (Ind. Ct. App.

Aug. 21, 2001). Rather, the document must

be read as a whole when attempting to

determine the parties’ intentions. See

First Fed. Sav. Bank of Ind. v. Key

Markets, Inc., 559 N.E.2d 600, 603 (Ind.

1990).

 If this methodology indicates that the

contract is unambiguous, the court may

not consider any evidence "beyond the

four corners of the document to determine

the parties’ intent." Tri-Central High

Sch., 738 N.E.2d at 344; see also

Crawford County Cmty. Sch. Corp. v.

Enlow, 734 N.E.2d 685, 690 (Ind. Ct. App.

2000). Ambiguity does not exist simply

because the parties dispute the meaning

of the contract’s terms. Ecorp, 746

N.E.2d at 131. Rather, an agreement

contains ambiguities if "reasonable

people could come to different

conclusions about the contract’s

meaning." Id. Ambiguity may be generated

by lack of clarity in the syntax of a

sentence. See J. Allan Farnsworth,
Contracts sec. 7.8 at 455-56 (3d ed.

1999). Moreover, just as the structure of

a statute may cloud its meaning, the

overarching structure of a contract may

generate ambiguities as well. To the

extent ambiguities exist, a contract "may

be explained or supplemented by evidence

of consistent additional terms." Ind.

Code 26-1-2-202(b). With these principles

in mind, we turn to the text of the

December Contract.

C. Interpretation of the December

Contract

1.

 Taking the view that the two paragraphs

set forth above were unambiguous, the

district court held that Zemco’s promise

to refrain from litigation with respect

to contract AZ010B was the sole

consideration that Zemco gave in return

for Navistar’s commitment to purchase at

least sixty days worth of parts and to

purchase any remaining material and

inventory that Zemco may have. The

agreement to cooperate during the

transition period described in the first

paragraph was considered to be a mere

reference to an earlier oral promise./5

 Some factors support this reading of the

December Contract. The words and phrases

the parties used to express their

agreement provide some plausible evidence

that the promise not to sue formed the

sole consideration for the December

Contract. A good deal, although not all,

of the contract’s first paragraph is cast

in the past tense. This section of the

agreement states "as I told you then;"

furthermore, as if referencing some prior

arrangement between the parties, it

continues "You agreed to cooperate 100%."

In some sense, this language lends itself

to Navistar’s position that the first

paragraph merely references some past

agreement between the parties. If the

first paragraph is read as an attempt to

place the relationship of the parties in

some historical context, this section

would not provide additional

consideration for Navistar’s promise to

purchase Zemco’s remaining inventory. 

 In addition, the location of the

pertinent sentences also bolsters

Navistar’s interpretation of the December

Contract. The sentence "You agreed to
cooperate 100%" is a simple declaratory

statement. It arguably lacks a textual

connection with Navistar’s promise

contained in the second paragraph to

purchase raw materials and inventory. In

contrast, the agreement to refrain from

litigation on Contract AZ010B is embedded

in the text relating to Navistar’s

promise to purchase these goods from

Zemco. Finally, the bulk of the language

in the second paragraph is cast in the

future tense. 

 A reasonable person, construing these

factors, could determine that the promise

to refrain from litigation provided the

sole consideration for the December

Contract. This interpretation of the

agreement raises the possibility that

there has been a failure of

consideration. Indiana law provides that

consideration fails "when a party to a

contract . . . [does not] perform the

acts promised." Alber v. Standard Heating

& Air Conditioning, Inc., 476 N.E.2d 507,

510 (Ind. Ct. App. 1985). If the

agreement not to sue on Contract AZ010B

formed the only consideration for the

December Contract, Zemco would have a

difficult time proving that it satisfied

its end of the bargain. Having sued on

Contract AZ010B, Zemco’s failure to

perform the acts promised would foreclose

its attempts to enforce the agreement.

See, e.g., Crumpacker v. Farrell, 516 F.

Supp. 276, 281 (N.D. Ind. 1981); Licocci

v. Cardinal Assoc., Inc., 492 N.E.2d 48,

52 (Ind. Ct. App. 1986) (indicating that

a party in material breach of a contract

cannot maintain an action on that

contract). Under this interpretation of

the December Contract, the district

court’s ultimate decision to prohibit

Zemco’s suit would not only be plausible

but would most likely be correct.

However, the contract seems susceptible

to other interpretations. 

2.

 Although the above interpretation of the

December Contract is a plausible one, it

is not the only reasonable reading of the

agreement’s language. Specifically, the

agreement could be construed to have

imposed a broad obligation on Zemco to

cooperate throughout the transition

period. In return, Navistar agreed to

purchase certain parts, inventory and raw

materials from this supplier. Both the
syntax of the sentences and structure of

the overall agreement indicate the

plausibility of this reading. 

 Notably, at oral argument, counsel for

Navistar took the position that the

correctness of the district court’s

ruling turned on the differences in tense

employed in the two paragraphs. However,

a closer examination of the December

Contract reveals that the language of the

first paragraph is not cast exclusively

in the past tense. Indeed, the contract

begins "Navistar will now continue the

outsourcing of its products from Zemco."

This language can be construed as stating

that Navistar would continue to purchase

parts from Zemco as long as Zemco

continued to cooperate. Moreover, when

focusing on the contract in its entirety,

this reading of the first paragraph is

quite compatible with the text of the

second paragraph. In particular,

paragraph two may be read to set forth a

mere example of the type of cooperation

that might be expected--no litigation

over Contract AZ010B. In short, rather

than reading each paragraph as a distinct

element of the agreement, the December

writing can be read as a totality. A

reasonable person could construe the

document as creating a binding agreement

as of December 7 that governed how the

parties would conduct themselves during

the transition period; Zemco would

cooperate in the transition while

Navistar continued to purchase not only

parts but also any excess raw material

and inventory held by the supplier.

 Under this interpretation of the

contract, the district court’s conclusion

that a complete failure of consideration

rendered the contract unenforceable is

far from inevitable. At first blush, the

second interpretation of the agreement

appears to implicate Indiana’s doctrine

of partial failure of consideration. See,

e.g., Alber, 476 N.E.2d at 510. A partial

failure of consideration occurs when an

individual does not deliver a portion of

his promised performance. See id. Unlike

complete failure of consideration,

partial failure does not render the

entire contract unenforceable. Instead,

"if the undelivered consideration is

allocable to an independent covenant by

the other party, the contract may be

avoided on a pro tanto basis." Id.

(citing Beal v. Beal, 79 Ind. 280
(1881)). However, the application of the

doctrine poses problems under the second

interpretation of the contract. Assuming

that Zemco’s decision to sue on Contract

AZ010B amounts to partial nonperformance,

the undelivered "consideration" could not

be allocated to an independent provision

of the December Contract. Because the

partial performance is not conducive to

allocation, Navistar could not avoid the

contract on a pro tanto basis. 

 The more apt inquiry under this reading

of the agreement is whether Zemco has

substantially performed its obligations

underneath the December Contract. As we

have emphasized, failure of

consideration, whether partial or

complete, relates to a party’s

performance of its contractual promises.

When a party does not perform at all, the

case resolves itself; there is a failure

of consideration, and the party cannot

enforce the contract. When an individual

does perform some of its contractual

obligations, a more complicated situation

arises. The early common law

traditionrequiring perfect compliance

with the terms of a contract has long

been ameliorated by the doctrine of

substantial performance. See Dove v. Rose

Acre Farms, Inc., 434 N.E.2d 931, 933

(Ind. Ct. App. 1982); Richard A. Lord,

Williston on Contracts sec. 44.52, at

217-18 (4th ed. 2000). The doctrine of

substantial performance "applies when

performance of a nonessential condition

is lacking, so that the benefits received

by a party are far greater than the

injury done to him by the breach of the

other party." Dove, 434 N.E.2d at 933.

Rather than permitting a slight breach to

preclude recovery, the doctrine allows a

party to maintain its cause of action on

the contract in spite of minimal

noncompliance. See F. McConnell & Sons,

Inc. v. Target Data Sys., Inc., 84 F.

Supp. 2d 961, 978 (N.D. Ind. 1999); Dove,

434 N.E.2d at 933. Whether a party

substantially performed its contractual

obligations generally poses a question of

fact. See F. McConnell & Sons, Inc., 84

F. Supp. 2d at 978-79; E. Allan

Farnsworth, Farnsworth on Contracts sec.

8.12, at 467 (2d ed. 1998). Such a fact

question exists under the second

interpretation of the agreement.

 The December Contract can be read to

impose a broad obligation on Zemco to
cooperate with Navistar during the

transition period. Upon reviewing the

record, a fact question exists whether

Zemco has performed its portion of the

agreement. In particular, Zemco supplied

Navistar with the necessary parts

throughout the transition period. Zemco

never attempted to shut down Navistar’s

assembly lines by withholding supplies.

This course of performance creates a fact

question whether Zemco substantially, if

not completely, complied with its

contractual obligations under the

December agreement. Thus, the district

court’s conclusion that the contract was

unenforceable due to a failure of

consideration is not compelled under the

second reading of the agreement.

3.

 Indeed, the previous interpretations of

the agreement are not the only plausible

readings of the December Contract. There

is a third variation of the contractual

language that is also reasonable. The

first paragraph of the agreement can be

read to impose on Zemco a general

obligation to cooperate in the

transition. The specific cooperation of

refraining from litigating the parties’

disputes over Contract AZ010B serves as

specific consideration for Navistar’s

purchase of the excess material over the

sixty-day commitment.

 Under this interpretation of the

agreement, the contractual consideration

for Navistar’s purchase of the parts was

Zemco’s cooperation. Zemco’s obligation

entailed making the parts available to

Navistar in a timely fashion. Simply put,

Zemco agreed not to shut down Navistar’s

operations by refusing to supply the much

needed parts. In contrast, the more

specific promise to refrain from

litigation over Contract AZ010B served as

consideration for Navistar’s purchase of

the excess material inventory over its

sixty-day commitment. Zemco’s suit

against Navistar for the breach of

Contract AZ010B would constitute a

failure of consideration with respect

only to the purchase of the excess

material inventory. 

 Unlike previous readings of the

contract, this interpretation of the

agreement would implicate the doctrine of

partial failure of consideration. As we
noted earlier, partial failure of

consideration occurs when a party

performs only a portion of its

contractual obligations. To the extent

the failure to perform is allocable to a

specific provision of the contract, the

agreement "may be avoided on a pro tanto

basis." Alber, 476 N.E.2d at 510. The

third interpretation of the contract

binds Zemco’s promise to refrain from

litigation to Navistar’s commitment to

purchase the excess material inventory.

As the failed performance is allocable to

a specific provision of the contract,

Navistar could avoid this portion of the

agreement. However, if Zemco cooperated

in the transition, then Navistar would

remain liable on the remainder of the

December Contract. 

4.

 Because reasonable people could come to

different conclusions about the

agreement’s meaning and resort to

extrinsic evidence will be appropriate,

we hold that a genuine issue of material

fact exists concerning the precise

consideration supporting the December

Contract. Accordingly, we reverse the

entry of summary judgment for Navistar. 

 We, along with the Indiana courts, have

noted that contract interpretation is

often a question of law well suited for

disposition on summary judgment. See

Bechtold, 19 F.3d at 325; Ferrel v.

Dunescape Beach Club Condominiums, 751

N.E.2d 702, 709 (Ind. Ct. App. 2001)

(citing Rogier v. American Testing &

Eng’g Corp., 734 N.E.2d 606, 614 (Ind.

Ct. App. 2000)). However, when a contract

contains ambiguities that the parties

must explain through extrinsic evidence,

the trier of fact, not this court, must

resolve the conflicting interpretations

of the agreement. Upon viewing the terms

of the agreement in the light most

favorable to Zemco, we believe that the

December Contract is susceptible to at

least three distinct interpretations. As

we have already noted, the district court

correctly ruled that Zemco had the right

to use the late summer conversations to

explain the December Contract if the

agreement contained ambiguities. Given

the alternate reasonable interpretations

of the December Contract, Zemco, as well

as Navistar, may introduce extrinsic

evidence to explain but not alter or
contradict the terms of the written

accord.

 We note that if the three

interpretations merely resulted in the

same ultimate conclusion--the contract

failed for lack of consideration--then

summary judgment would remain

appropriate. However, as we have already

indicated, the distinct interpretations

of the agreement may produce radically

different resolutions to the litigation

on Count II. Were a trier of fact to find

that the promise to refrain from

litigation provided the only

consideration to the December Contract,

Navistar could raise successfully its

failure of consideration defense. If a

trier of fact were to determine that the

entire contract was supported by Zemco’s

promise to cooperate fully and by its

promise not to sue on Contract AZ010B, it

will be necessary to determine whether

there has been substantial performance by

Zemco. If the finder of fact determined

that the agreement not to sue on Contract

AZ010B was specific consideration only

for the agreement to purchase materials

over the sixty-day commitment, Navistar

could avoid the contract only on a pro

tanto basis. Given the ambiguities in the

December Contract and the importance that

resolution of this issue will have on the

ultimate outcome of the litigation,

summary judgment is precluded on Count

II. 

5.

 It might seem incongruous for us to hold

that there is a genuine issue of triable

fact with respect to the December

Contract after a jury has determined that

the purported extension of Contract

AZ010B never occurred. But, upon

reflection, it does not appear that such

a conclusion would be necessarily

illogical. During litigation on Count I,

Zemco argued that Contract AZ010B with

Navistar had been a requirements contract

that the parties had agreed to extend

beyond its original termination date. The

jury disagreed with this theory and

rendered a verdict for Navistar. This

determination does not preclude the

possibility that the December Contract

embodies an entirely different

understanding between the parties. In

particular, as we have previously

discussed, the December Contract can be
read as creating an agreement as to how

the parties would conduct themselves

during the transition period. If the

contract is interpreted in this light,

this agreement would appear to bind the

parties regardless of the outcome of the

litigation on Contract AZ010B. The

relevant inquiry is the parties’

performance of their obligations under

the December Contract; the outcome of

Count I would not necessarily affect

those promises. 

Conclusion

 Because the December Contract is

susceptible to reasonable alternate

interpretations, we conclude that the

agreement is ambiguous thereby precluding

summary judgment. Accordingly, we reverse

the judgment of the district court and

remand this case for further proceedings.

Zemco may recover the costs of this

appeal.

REVERSED and REMANDED

FOOTNOTES

/1 This case comes to us on a successive appeal. In

our first encounter with this case, see Zemco

Mfg., Inc. v. Navistar Int’l Transp. Corp., 186

F.3d 815 (7th Cir. 1999), we addressed Counts I

and III of Zemco’s claim. Although affirming the

grant of summary judgment on Count III, see

Zemco, 186 F.3d at 823, we reversed and remanded

the grant of summary judgment on Count I. See id.

at 822. Count II, the portion of Zemco’s claim

before us today, was not at issue in the earlier

appeal because the district court had directed

entry of final judgment only for Counts I and III

pursuant to Federal Rule of Civil Procedure

54(b). See Zemco, 186 F.3d at 816 n.1.

/2 More precisely, Zemco alleged that the parties

had entered an exclusive requirements contract

when they extended Contract AZ010B. Initially,

the district court determined that, as a matter

of law, the parties had not entered a requirements contract and, in the alternative, the

extension had violated the statute of frauds. On

the initial appeal, we reversed the entry of

summary judgment on Count I. See Zemco, 186 F.3d

at 822. We concluded that a triable issue of fact

existed concerning the agreement’s status as a

requirements contract. See id. at 818. Likewise,

we held that a genuine issue of fact existed

whether the relevant documentation satisfied the

statute of frauds. See id. at 821-22. Because of

this factual dispute, we reversed the entry of

summary judgment on Count I and remanded the case
for further proceedings. See id. at 823. 

/3 As commentators have noted, the phrase "failure

of consideration" is a misnomer. See, e.g., John

P. Calamari & Joseph M. Perillo, The Law of

Contracts sec. 11.21, at 428 (4th ed. 1998); E.

Allan Farnsworth, Contracts sec. 8.9, at 553-58

(3d ed. 1999); John Edward Murray, Jr., Murray on

Contracts sec. 108A (3d ed. 1990). A party asserting the defense of failure of consideration

is not really arguing that the contract lacks the

necessary bargained for exchange. Rather, the

party contends that his adversary has failed to

perform her obligation under the contract. If the

breach or failure to perform goes to the essence

of the agreement, the adversary cannot sue to

enforce the contract. See, e.g., Crumpacker v.

Farrell, 516 F. Supp. 276 (N.D. Ind. 1981).

However, because the district court’s opinion and

the parties’ arguments are couched in terms of

failure of consideration, we employ this terminology in our opinion. However, we underscore

that the true nature of this phrase relates to a

party’s failure to perform its obligation under

the contract.

/4 The district court noted that Zemco could have

sued solely to enforce the December Contract

without negating the consideration underlying

that agreement.

/5 Navistar submits that, at an earlier stage of

this litigation, before the litigation was bifurcated, Zemco had argued that the December 7

letter constituted written confirmation of an

earlier oral agreement made between the parties

during their late summer meetings of 1995. Navistar further submits that, in response to a

motion in limine, Zemco altered its position to

argue that the December 7 letter was the agreement. Navistar now claims that Zemco has returned

to its former position that the discussions

during the summer meetings were the agreement and

that the December writing is simply a memorialization of that agreement. Navistar has not characterized Zemco’s position correctly. Although

the district court ultimately rejected Zemco’s

argument that the first paragraph set forth

cooperation as consideration for Navistar’s

commitment to purchase parts and remaining material, it correctly ruled that Zemco had the right

to use the late summer conversations to explain

the December 7 letter if there was an ambiguity

in the contract.