In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 04-1598

FIDELITY AND DEPOSIT COMPANY OF MARYLAND and

AMERICAN HOME ASSURANCE COMPANY,

Plaintiffs-Appellants,

v.

ROTEC INDUSTRIES, INC.,

Defendant-Appellee.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 01 C 5829—William J. Hibbler, Judge.

____________

ARGUED NOVEMBER 9, 2004—DECIDED DECEMBER 28, 2004

____________

Before FLAUM, Chief Judge, and CUDAHY and POSNER,

Circuit Judges.

POSNER, Circuit Judge. The appeal in this diversity suit

governed by Illinois law requires us to examine a doctrine

of contract law known as “divisibility.” Rotec, the defendant, had a contract with Guy F. Atkinson Construction

Company relating to China’s damming of the Yangtze

River—the $25 billion “Three Gorges” project that is due to

be completed in 2009. Soon after the contract was signed,

Atkinson declared bankruptcy and, as debtor in possession,
2 No. 04-1598

rejected (with immaterial exceptions) its executory contracts,

pursuant to 11 U.S.C. § 365(a). The plaintiffs, a pair of

insurance companies, bought Atkinson’s contract rights,

including its rights under the contract with Rotec, and then

filed this suit against Rotec for breach of contract. Rotec

argued, and the district judge, granting summary judgment

in its favor, agreed, that the contract was executory, and so,

having been rejected, and thus terminated, by Atkinson,

could not have been acquired by the plaintiffs—there was

nothing to acquire—and so they had no basis for their suit.

But what if, as the plaintiffs argued unsuccessfully to the

district court, the contract was divisible into two parts and

the first, having been fully executed by Atkinson, had not

been rejected when Atkinson rejected its executory contracts? Then it would be as if there were two separate

contracts, one performed, one executory, with only the

second having been rejected in bankruptcy and the first

having passed to the plaintiffs in the sale to them of

Atkinson’s contract rights. Stewart Title Guaranty Co. v. Old

Republic Nat’l Title Ins. Co., 83 F.3d 735, 741-42 (5th Cir. 1996)

(per curiam); Monument Square Associates, Inc. v. Resolution

Trust Corp., 792 F. Supp. 874, 876-77 (D. Mass. 1991); cf. In re

Gardinier, Inc., 831 F.2d 974 (11th Cir. 1987). But is “as if”

enough? The parties assume so, with support in the cases

we’ve cited plus In re Murexco Petroleum, Inc., 15 F.3d 60, 62-

63 (5th Cir. 1994) (per curiam), cases that rely on a dictum

in NLRB v. Bildisco & Bildisco, 465 U.S. 513, 522 n. 6 (1984),

based in turn on some scanty legislative history to section

365(a). And yet divisible contract is not two (or more)

separate contracts; if it’s broken, it’s broken entirely. The

only significance of its divisibility is that the contract price

will be used to determine the value of any partial performance of the contract. Kimco Corp. v. Murdoch, Coll &

Lillibridge, Inc., 730 N.E.2d 1143, 1148 (Ill. App. 2000);
No. 04-1598 3

Metropolitan Trust Co. v. Fishman, 55 N.E.2d 837, 839-40 (Ill.

App. 1944); Filet Menu, Inc. v. C.C.L. & G., Inc., 94 Cal. Rptr.

2d 438, 444 (App. 2000); Restatement (Second) of Contracts

§ 240 and comment b (1981). But we’ll allow the parties their

assumption that the plaintiffs should win if there is

divisibility, and save our doubts for a future case.

The first document Rotec and Atkinson signed was a

memorandum of understanding in January 1996. It states

that the Chinese corporation responsible for the Three

Gorges project has requested bids for dam-construction

machinery, that Rotec intends to bid for the contract, that

Atkinson will be a subcontractor of Rotec, that Atkinson and

Rotec possess “complementary technology, products, knowhow . . . [etc.] which, taken together, would allow the Parties

to perform the Project according to the highest international

standards,” and that the parties’ objective is “to cooperate

in preparing a proposal for submission” to the Chinese “to

obtain the award of a contract” and “take all other actions

necessary to performance thereunder, including entering

into . . . Performance Agreement(s) for the performance of

the Project and any other agreements necessary to the

successful performance of the Project.”

The following month the parties signed a supplement

to the memorandum of understanding in which they

“agreed that Atkinson shall be paid a fee by Rotec for the

use of its name by Rotec with respect to the Project.” The fee

was to be between $2 million and $3 million, the exact

amount being left to negotiation between the parties. Rotec

also agreed to pay Atkinson another $1 million for “its

involvement in the Project. Such involvement shall include

providing advice and technical support services under

subcontract to Rotec in connection with Rotec’s performance

under the Contract.”
4 No. 04-1598

Rotec submitted its bid, and in the fall of 1996 won a $30

million contract. Eight months later, Rotec and Atkinson signed another supplement to their memorandum of

understanding. This supplement modified the preceding

one by specifying that Atkinson would receive $1 million

(rather than $2 to $3 million) for having permitted its

name to be used in winning the initial $30 million contract

with the Chinese and that if Rotec succeeded in enlarging

the contract to cover an additional $15 million in equipment

sales, Atkinson would receive a 5 percent fee on those sales.

This supplement further states that “Atkinson is keen and

willing to help ROTEC increase the size of the order of

equipment and to participate in the site operations (erection,

and commissioning etc.).”

A few days after the execution of the second supplement,

Rotec sent Atkinson a check for $129,000 in partial payment of the $1 million fee for the use of Atkinson’s name.

Three weeks later, Atkinson declared bankruptcy and

walked away from the parties’ contract, which by this time

consisted of the memorandum of understanding plus the

two supplements.

Atkinson (which for the sake of simplicity we’ll pretend

is the plaintiff, rather than the insurance companies that

purchased its contract rights) argues that the “Project” to

which its tripartite contract with Rotec refers was just the

preparation of the bid for which it was to receive $1 million

plus 5 percent of any additional orders by the Chinese. And,

the argument continues, that divisible contract segment was

fully performed by Atkinson when the bid was accepted,

thus entitling Atkinson to $1 million plus the 5 percent fee

for subsequent orders—and there were subsequent orders,

as a result of which Atkinson claims to be out not just the $1

million fee for its name (minus the $129,000 that it received)
No. 04-1598 5

but almost $1.3 million more. Rotec ripostes that there was

a single, indivisible contract that required Atkinson to

cooperate with Rotec not only in the preparation of the bid

but also in providing services relating to the construction of

the dam in the event that the bid was accepted, as it was.

Atkinson broke the contract when upon declaring

bankruptcy it withdrew from the dam project, and this

breach excused Rotec from further performance on its

side—that is, from having to complete payment of the $1

million “name” fee and to pay in addition the 5 percent fee

on the additional orders by the Chinese.

Atkinson would nevertheless be entitled to claim compensation in a suit for quantum meruit for the value of the

services that it had rendered to Rotec before the breach,

minus any damages that Rotec suffered from the breach.

Fieldcrest Builders, Inc. v. Antonucci, 724 N.E.2d 49, 60 (Ill.

App. 1999); Evans & Associates, Inc. v. Dyer, 615 N.E.2d 770,

778 (Ill. App. 1993); Micro Data Base Systems, Inc. v. Dharma

Systems, Inc., 148 F.3d 649, 656 (7th Cir. 1998); Kutzin v.

Pirnie, 591 A.2d 932, 937-41 (N.J. 1991); Restatement, supra, §

374(1) and comment a. So whether a great deal turns on a

finding of divisibility is doubtful; that is so in general, and

would be in this case as well were it not for Atkinson’s

rejection of the contract in bankruptcy. If the contract

was divisible, Atkinson was entitled to the contract price for

the divisible portion of its performance that it completed. If

not, it was entitled to the value of its performance and a

court would look to the contract price as a guide to that

value, Mor-Wood Contractors, Inc. v. Ottinger, 562 N.E.2d

1247, 1255 (Ill. App. 1990); Newfield House, Inc. v. Massachusetts Dept. of Public Welfare, 651 F.2d 32, 39 (1st Cir. 1981);

Constantino v. American S/T Achilles, 580 F.2d 121, 122-23 (4th

Cir. 1978); Restatement, supra, § 374 comment b; E. Allen

Farnsworth, Contracts § 8.14, p. 560 (4th ed. 2004), especially

in a case such as this in which there is no readily ascertain-
6 No. 04-1598

able market price to which it could look instead. Bausch &

Lomb Inc. v. Bressler, 977 F.2d 720, 730 (2d Cir. 1992).

There is greater definiteness when the contract price

provides not merely a guide, but the definitive specification

of the performing party’s entitlement; that presumably is the

reason for the doctrine of divisibility. But what is really

involved is the exchange of one uncertainty, that of the

value of performance, for another, that of deciding

divisibility—of deciding, that is, whether “both parties have

divided up their performance into units or installments in

such a way that each past performance is the rough compensation for a corresponding past performance by the other

party. The test is whether, had the parties thought of it, they

would be willing to exchange the part performance irrespective of what transpired subsequently or whether the divisions made are merely for the purpose of requiring periodic

payments as the work progresses.” Trapkus v. Edstrom’s Inc.,

489 N.E.2d 340, 346 (Ill. App. 1986); see also Kimco Corp. v.

Murdoch, Coll & Lillibridge, Inc., supra, 730 N.E.2d at 1148-49.

Maybe on balance the doctrine increases certainty—or

maybe not, when we consider the following language from

the Trapkus opinion: “whether it is proper to regard the

parts of each pair as agreed equivalents will usually depend

on considerations of fairness. This means that the parts of

the pair must be of roughly equivalent value to the injured

party in terms of his expectations with respect to the total

agreed exchange.” 489 N.E.2d at 346; see also Restatement, supra, § 240 comment e; Farnsworth, supra, § 8.13,

pp. 554-55.

Because the application of the doctrine depends on

evidence of “agreed equivalents,” the use of the contract

price to determine entitlements when the contract has

not been fully performed is defensible only when the
No. 04-1598 7

contract itself can be said to specify the price for partial

performance. See 5 Arthur Linton Corbin, Corbin on Contracts § 1111 (1964). That condition will rarely be satisfied.

If an employment contract is for a year and the employee

quits after his first week on the job, it is artificial to suppose

that the contract entitles him to one week’s wages, for had

he insisted in the contract negotiations that he be free to

leave after a week the employer would probably have

refused to hire him at all, or at least at the agreed wage. Id.

The fact that many courts nevertheless treat employment

contracts as divisible probably has less to do with the logic

of the doctrine than with a policy, embodied in state wagepayment laws, e.g., Cal. Labor Code § 204; Del. Code tit. 19

§ 1102; 820 ILCS 115/3; Ind. Code § 22-2-5-1; Mich. Comp.

Laws § 408.472; N.J. Stat. 34:11-4.2; N.Y. Labor Law § 191;

Ohio Rev. Code § 4113.15; 43 Pa. Cons. Stat. § 260.3; Tex.

Labor Code § 61.011, of protecting wage earners.

Setting the employment cases to one side as inapplicable

to the type of contract involved in the present case, we think

the district judge was correct to hold the contract indivisible.

Atkinson’s argument that the term “project” refers only to

the bid preparation offends language and common sense.

Not that the service rendered by Atkinson at the bidding

stage in lending its prestigious name to Rotec’s proposal

was trivial. At least until its plunge into bankruptcy,

Atkinson was an illustrious dam builder. Founded in 1926,

it had been involved in the construction of the Bonneville

and Grand Coulee dams and of the Guri dam in Venezuela

and in many other major projects, including an underground excavation in New Jersey in which it moved 12

million cubic tons of rock. Its signature on the bid certified

that Rotec was competent to perform the contract if its bid

was accepted. Atkinson also helped Rotec prepare the

proposal.
8 No. 04-1598

But the contract contemplated more. Representations were

made to the Chinese in connection with the bid that implied

that Atkinson would remain active in the performance

phase of the contract should the contract be awarded to

Rotec. The cover letter of the bid is signed by both companies, states that “Rotec intends to submit to the Three

Gorges Corporation a bid, with Atkinson and Mitsui as

subcontractors,” and concludes by stating that “their”—not

its—“commitment to the Yangtze Three Gorges Project will

be no less than their past commitment to the international

construction field.” The use of the future tense signals an

intention by Atkinson to remain involved in Rotec’s piece of

the dam project after the bid is accepted. Also telling is

Rotec’s agreeing to pay Atkinson $1 million (over and above

the $2 to $3 million “name” fee) for “its involvement in the

Project. Such involvement shall include providing advice

and technical support services under subcontract to Rotec in

connection with Rotec’s performance under the Contract.”

The reference to “Project” is clearly to the performance stage

of Rotec’s contract with the Chinese rather than to the bidsubmission stage.

It is true that the details of Atkinson’s participation at the

performance stage were left undefined. But we do not

understand Atkinson to be arguing that its “commitment”

was so vague that if the day after the bid was accepted

it had told Rotec that it was quitting now and wanted its

$1 million and its 5 percent (if and when additional orders

were submitted to Rotec), that would not have been a

breach. Such a defection would have left Rotec high and

dry, deprived of necessary advice and assistance. It might

have jeopardized Rotec’s relations with the Chinese,

who might think Rotec had deliberately misled them

into believing that Atkinson would participate in the

project. Atkinson’s name was valuable to the Chinese and

hence to Rotec—but only if the name connoted participation
No. 04-1598 9

beyond the bestowal of a Good Housekeeping seal of

approval. And so we are persuaded that “it is impossible to

affirm that [Rotec] would have assented to any part [of the

contract] unless [it] assented to all.” Trapkus v. Edstrom’s Inc.,

supra, 489 N.E.2d at 347; see also Gladstone v. McHenry

Medical Group, 553 N.E.2d 1174, 1179-81 (Ill. App. 1990);

Klubeck v. Division Medical X-Ray, Inc., 439 N.E.2d 506,

510-11 (Ill. App. 1982).

But Atkinson, noting that the district court decided the

case for Rotec on summary judgment, tells us that the

question whether a contract is divisible is one of fact, not

of law, and so there must be a trial. Kel-Keef Enterprises,

Inc. v. Quality Components Corp., 738 N.E.2d 524, 538

(Ill. App. 2000), on which Atkinson relies, so holds, but

Trapkus v. Edstrom’s Inc., supra, 489 N.E.2d at 344-45, leans

the other way, leaving us uncertain what the rule in Illinois

should be taken to be. The cases from other jurisdictions are

split. Compare Equity Control Associates, Ltd. v. Root, 638

N.W.2d 664, 671 (Iowa 2001); Carvel Co. v. Spencer Press, Inc.,

708 A.2d 1033, 1035 (Me. 1998); Magic Valley Radiology

Associates, P.A. v. Professional Business Services, Inc., 808 P.2d

1303, 1312 (Idaho 1991), and Ellison v. Tubb, 749 S.W.2d 650,

651 (Ark. 1988), all of which deem it an issue of fact, with

Estate Landscape & Snow Removal Specialists, Inc. v. Mountain

States Telephone & Telegraph Co., 844 P.2d 322, 328 (Utah

1992); Sisk v. Parker, 469 S.W.2d 727, 732 (Tex. App. 1971);

Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 674-75 (6th

Cir. 2003) (Ohio law), and Harris v. Dial Corp., 954 F.2d 990,

993 n. 2 (4th Cir. 1992) (Arizona law), which deem it one

of law.

None of the cases contains an illuminating discussion

of the choice; and the parties to the present case have

overlooked the decisions of this court that hold, in con-
10 No. 04-1598

formity with decisions of the Supreme Court beginning with

Byrd v. Blue Ridge Rural Electric Cooperative, Inc., 356 U.S. 525

(1958), that in all cases in federal court, including diversity

cases, the allocation of responsibility between judge (“law”)

and jury (“fact”) is governed by federal rather than state

law. Mayer v. Gary Partners & Co., 29 F.3d 330, 333 (7th Cir.

1994); Coplay Cement Co. v. Willis & Paul Group, 983 F.2d

1435, 1438 (7th Cir. 1993); Barron v. Ford Motor Co. of Canada

Ltd., 965 F.2d 195, 199-201 (7th Cir. 1992); Binakonsky v. Ford

Motor Co., 133 F.3d 281, 290 (4th Cir. 1998); Villarini-Garcia

v. Hospital Del Maestro, Inc., 8 F.3d 81, 86 (1st Cir. 1993). The

practical consideration behind these cases is that the

allocation depends on the relative capabilities of judges and

jurors and of trial and appellate courts, and on other factors

specific to a particular court system, including rules of

evidence and procedure, rather than on policies rooted in

substantive state law, which under the Erie doctrine supplies the rules of decision in diversity cases. The line frays,

however, when the procedural rule is generated by a

substantive policy; and it is possible to view the fact-law

distinction in contract cases in that light, as designed to

reduce contractual transaction costs by allowing most

contract disputes to be resolved without a trial. Cf. Harbor

Ins. Co. v. Continental Bank Corp., 922 F.2d 357, 364-65 (7th

Cir. 1990). The rule that the meaning of a written contract is

an issue of law if no evidence besides the contract itself is

presented is such a rule, and a rule determining whether

divisibility is to be deemed a legal or a factual question

could be thought a corollary of that rule.

We need not pursue the matter in this, or perhaps in any,

case, as there is less to the division of authority on the issue

than meets the eye. To spare contracting parties the expense

and uncertainty and other angst of trial, courts endeavor, as

we have just noted, to resolve contract disputes on the basis
No. 04-1598 11

of the language of the contract, supplemented by commercial or common sense—hence as a “question of law,” which

just means that it is to be answered without a trial. When

the courts can’t do this because the language and circumstances fail to dispel ambiguity, they say the contract

presents a question of fact, meaning that there has to be a

trial. There is no reason why this approach shouldn’t serve

when the question is whether a contract is divisible. See L.U.

Cattle & Co. v. Wilson, 714 P.2d 1344, 1349 (Colo. App. 1986).

No trial is necessary here in any event, if only because

Atkinson has failed to indicate what if any evidence it might

wish to present at a trial, beyond the documents constituting

the contract, that would bear on the issue of divisibility. All

the pertinent evidence is thus before us and as it supports

only one conclusion—that of indivisibility—there is no

occasion for a trial.

The judgment in Rotec’s favor is

AFFIRMED.
12 No. 04-1598

A true Copy:

Teste:

 _____________________________

Clerk of the United States Court of 

Appeals for the Seventh Circuit 

USCA-02-C-0072—12-28-04