Court Opinion

ID: 2995342
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:19:49.704499+00
Date Added: 2024-06-11T11:45:25.066492
License: Public Domain

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 two-
paragraph 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 require-
ments 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 as-
serting 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 termi-
nology 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 bifur-
cated, 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. Navi-
star further submits that, in response to a
motion in limine, Zemco altered its position to
argue that the December 7 letter was the agree-
ment. 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 memoriali-
zation of that agreement. Navistar has not char-
acterized 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 mate-
rial, 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.