                                In the

United States Court of Appeals
                  For the Seventh Circuit

No. 10-3178

W INFORGE, INC., et al.,
                                                 Plaintiffs-Appellants,
                                    v.

C OACHMEN INDUSTRIES, INC., et al.,

                                                Defendants-Appellees.


               Appeal from the United States District Court
        for the Southern District of Indiana, Indianapolis Division.
              No. 1:06-CV-619—Sarah Evans Barker, Judge.



        A RGUED O CTOBER 25, 2011—D ECIDED JULY 30, 2012




  Before E ASTERBROOK, Chief Judge, H AMILTON, Circuit
Judge, and M YERSCOUGH District Judge.
  M YERSCOUGH, District Judge. Winforge, Inc. (“Winforge”),
and its president, Byron McMahon (“McMahon”),
brought this diversity suit against Mod-U-Kraf Homes,
LLC (“Mod-U-Kraf”), All-American Homes, LLC (“All-




    Of the Central District of Illinois, sitting by designation.
2                                               No. 10-3178

American”), and Coachmen Industries, Inc. (“Coachmen”),
alleging that the defendants breached the terms of a
hotel development agreement between the parties.
Winforge and McMahon claimed that the defendants’
alleged breach resulted in delay and costs that caused
the plaintiffs to default on the separate construction loan
agreement between the parties. The defendants filed a
cross-complaint alleging that Winforge and McMahon,
and not the defendants, breached the development agree-
ment.
  After a bench trial, the district court ruled in favor of
the defendants and found that the parties had never
entered into a final, enforceable contract. Additionally,
the district court found that, if a final contract had
been formed, the defendants had not breached the con-
tract. The district court entered final judgment in
favor of the defendants, entitling them to the funds still
due and owing on the construction loan as well as
any and all associated costs and fees. Winforge and
McMahon appealed. For the following reasons, we affirm.


                    BACKGROUND
   The district court provided detailed findings of fact in
its written decision. See Winforge, Inc., et al. v. Coachmen
Industries, Inc., et al., No. 1:06-CV-619, 2010 WL 3326856
(S.D. Ind. Aug. 20, 2010). Neither party contends that
the district court’s recitation of the facts is inaccurate.
The relevant facts are as follows.
No. 10-3178                                              3

1.   The Parties
  Appellant Winforge is a corporation organized under
the laws of North Carolina, with its principal place of
business in North Carolina, and has two shareholders.
Appellant McMahon, a citizen of North Carolina at the
time the Complaint was filed, holds an 80-percent share
of Winforge. Donny Thomas, who is not a party in this
case, owns a 20-percent share of Winforge. McMahon
and Thomas formed Winforge in 2004 for the purpose
of developing a large hotel in Pigeon Forge, Tennessee.
  Appellees Mod-U-Kraf and All-American are modular
manufacturers that build and deliver modular sections
for use as building components in construction at
project sites for project developers such as Winforge.
Mod-U-Kraf is a Virginia corporation with its principal
place of business in Virginia, and All American is an
Indiana corporation with its principal place of business
in Indiana. Appellee Coachmen is an Indiana corpora-
tion, with its principal place of business in Indiana, and
acted as the lender in this case.


2.   Pre-Agreement Developments
  In 2002, Mike Lee, who is not a party in this case, began
investigating the possibility of developing a large hotel
constructed with modular units. Lee is an experienced
developer of hotel projects and the owner of Flagship
Development, LLC, a hotel development company.
During his investigation, Lee spoke with Mod-U-Kraf,
a modular manufacturer that had previously been suc-
4                                              No. 10-3178

cessful with modular construction for large building
projects.
  In fall of 2002, Lee met with Dan Brown, a sales repre-
sentative of Mod-U-Kraf, and Jeff Powell, Mod-U-Kraf’s
general manager, at Mod-U-Kraf’s Virginia factory. Lee
learned about Mod-U-Kraf’s previous experience with
modular construction and spoke with Brown and Powell
about a potential modular hotel project. At a second
visit to Mod-U-Kraf’s Virginia factory, Lee met with
Steve Kerr, Executive Vice-president of All-American,
and Joseph Tomczak, Chief Financial Officer of Coachmen.
Brown made a presentation about the possible ef-
ficiencies of building a large hotel using modular con-
struction.
  In November 2002, Lee sent a letter to John Trant,
a representative of Coachmen, outlining the broad para-
meters of a potential business relationship. No agree-
ment was reached, but Coachmen expressed interest in
entering into such an agreement. Next, Lee sought to
secure a franchisor for the hotel. Lee contacted Cendant, a
large hotel franchisor that owns the “Wingate” hotel
brand.1 Lee explained to Cendant what he had learned
about the benefits of modular hotel construction. In
April 2003, Lee sent a letter to Kerr of All American,
Tomczak of Coachmen, and Powell of Mod-U-Kraf in-
dicating that Cendant had recommended using Matrix
Hospitality, LLC, a hotel development company owned
by McMahon, to develop the contemplated hotel project.


1
    Cendant is now known as Wyndham Hotel Group.
No. 10-3178                                            5

In his April 2003 letter, Lee proposed that the hotel
would be a Wingate Inn hotel, that Mod-U-Kraf would
build the modular units, and that Coachmen would
provide the financing for the project.
  Later, in spring 2003, McMahon and Thomas
toured Mod-U-Kraf’s factory in Virginia. McMahon was
impressed with the factory and became convinced
that modular construction could be better built and more
cost-effective than traditional construction.
  On June 24, 2003, McMahon and Powell signed a letter
of intent outlining a preliminary understanding be-
tween Matrix Hospitality, Mod-U-Kraf, and Coachmen
with regard to the construction of a modular hotel in
Pigeon Forge, Tennessee. On August 19, 2003, McMahon
hired Lee as project manager for the Pigeon Forge pro-
ject. On September 28, 2003, McMahon, on behalf of
Winforge, signed a franchise agreement with Wingate
Inn, which secured the Wingate hotel brand for the
Pigeon Forge hotel.


3.   The Parties Sign the Development Agreement and Loan
     Agreement
  On April 13, 2004, Mod-U-Kraf and Winforge executed
a Development Agreement (“Agreement”) regarding the
development of a Wingate Inn Hotel in Pigeon Forge,
Tennessee (the “Project”). According to the Agreement,
Winforge sought to “utilize modular construction for
the buildings which will comprise a portion of the Pro-
ject.” For that purpose, “Winforge [sought] to purchase
6                                               No. 10-3178

from [Mod-U-Kraf] the modular sections for the
buildings to be incorporated into the Project and also to
engage [Mod-U-Kraf] to provide the setting of the
modular buildings.” The Agreement also provided that
Flagship Development, Lee’s company, would be the
project manager for the Project, contracted by Winforge.
Winforge and Flagship Development were to “prepare
the site” and select a general contractor for the Project
that was to be approved by Coachmen.
  Attached to the Agreement as Exhibit A was the “Pre-
liminary Scope of Work” provision, which described the
functions and work to be performed by Mod-U-Kraf,
Winforge, and the general contractor.2 The Preliminary
Scope of Work provision is the primary subject of the
parties’ dispute in this case. The April 13, 2004 Pre-
liminary Scope of the Work provided, in pertinent part:
    1.0 General
    1.1 The following document shall set out the specifica-
    tions, scope of work, drawings, and pricing as pre-
    pared by Mod-U-Kraf Homes LLC. The document
    further serves to set out the responsibilities of
    each of the following parties: Coachmen Industries,
    Inc. (COA), Lender; Winforge, Inc., Owner/Buyer
    (Winforge), Mod-U-Kraf Homes, LLC (MUK), Modular
    manufacturer.
    1.2 Mod-U-Kraf shall manufacture modular units
    at the Mod-U-Kraf manufacturing facilities in accor-



2
  The “Preliminary Scope of Work” provision was incorporated
into the Agreement at Section 1 of the Agreement.
No. 10-3178                                                 7

    dance with the approved Specifications and Drawings.
    Drawings to meet local, state, 3rd party and franchisor
    requirements. To include only materials and on-site
    services specified as supplied by MUK.
    1.3 MUK shall provide modular units and material
    noted on plans for installation and completion of
    a Wingate Inn. This will include all architectural
    drawings, structural calculations for modular unit
    construction, mechanical, electrical systems for
    modulars, and sprinkler system.
    1.4 WINFORGE will be responsible for overseeing
    the completion of the modular units tie-in and com-
    ponents such as the following to complete the
    Wingate Inn on-site:
    •   Plumbing connections between levels
    •   Plumbing connections to city sewer & water
    •   Electrical connections and equipment as noted on
        plans
    •   Elevator
    •   Roof Façade (Completion of Parapet Wall)
    •   Finish Decor at all common areas, drop ceiling,
        HVAC 3 System, Lights, Finish Floor, Drywall &
        Finish as shown, Entry Doors, FF&E materials, etc.
    •   For additional material and task, reference to
        plans[.]



3
  “HVAC” is an abbreviation for “heating, ventilation, and air
conditioning.”
8                                              No. 10-3178

  Pursuant to Section 4 (“Foundation”) of the Pre-
liminary Scope of Work, Mod-U-Kraf was responsible for
“provid[ing] architectural drawings and foundation
footprint . . . and receiv[ing] all state, local and county
approvals,” and the general contractor was “responsible
for the engineering of the foundation.” The Preliminary
Scope of Work also enumerated other responsi-
bilities relating to the transport of the modular units
from Mod-U-Kraf’s factory to the project site as well
as work to be completed on the project site.
  Throughout 2003 and early 2004, the parties’
pre-agreement negotiations focused on the provisions
of the Scope of Work, and the Scope of Work attach-
ment was revised at least ten times before being attached
to the April 13, 2004 Agreement as the “Preliminary” Scope
of Work. After signing the Agreement, the parties con-
tinued to negotiate the terms of the Scope of Work. In
July 2004, Mod-U-Kraf sent a proposal for a final version
of the Scope of Work to Lee. Lee testified that he did not
review it because it was not “red-lined” to highlight
the proposed changes and did not indicate changes in
pricing. In September 2004, Powell sent another draft of
the Scope of Work to Lee but, for the same reasons, Lee
did not review the draft.
  The parties dispute the finality of the Preliminary
Scope of Work. Winforge contends that the April 13, 2004
version was final and controlled the parties’ responsi-
bilities, but the defendants contend that the parties never
reached a final agreement regarding the Scope of Work.
The district court noted that, during a January 25, 2005
No. 10-3178                                             9

conference call between the parties, Lee stated that he
thought the Preliminary Scope of Work had been modi-
fied or was open to modification. However, McMahon
expressed his belief and hope that the parties would
continue to honor the Preliminary Scope of Work as final.
  Separate from the Agreement, Winforge and Coach-
men entered a loan agreement on April 14, 2004 (“Loan
Agreement”), under which Coachmen agreed to provide
financing for the Project for a term of 150 days.


4.   Winforge and Mod-U-Kraf Begin Development of the
     Project
  From April 13, 2004 to June 23, 2004, Mod-U-Kraf acted
as the modular manufacturer under the Agreement. On
June 23, 2004, Mod-U-Kraf, with Winforge’s agreement,
passed all of its rights and responsibilities under the
Agreement to All American.
   Prior to All American’s assumption of those rights
and responsibilities, Mod-U-Kraf had begun to perform
its part of the Agreement. On April 22, 2004, Cendant, the
franchisor, acknowledged that Mod-U-Kraf’s architec-
tural plans for the modular units were “100% complete.”
Cendant informed Winforge of this fact. However, other
aspects of the planning for the Project, separate from the
modular unit designs, remained incomplete and were
required for State approval. These aspects included a
number of Mod-U-Kraf’s obligations, such as the designs
10                                           No. 10-3178

for the PTAC 4 (air conditioning) units and the sprinkler
system, and a number of Winforge’s obligations, such as
the designs for the elevator, plumbing, HVAC, electrical,
and mechanical systems.
  Upon learning that the modular plans were 100%
complete, Winforge began on-site work in Pigeon Forge.
Winforge hired a site supervisor and retained an on-site
engineering firm and a foundation-engineering firm.
  At this time, as the district court described in its
findings, the Project “proceeded in fits and starts.”
Mod-U-Kraf did not prepare or submit a finished plan
for State approval because Mod-U-Kraf believed that
Winforge was required to provide Mod-U-Kraf with
design information for a number of aspects of the
Project, including the elevator, plumbing, HVAC, elec-
trical, and mechanical systems, before Mod-U-Kraf could
submit its plans for State approval. Further, Winforge
instructed Mod-U-Kraf not to complete certain tasks
that were originally Mod-U-Kraf’s responsibility under
the Preliminary Scope of Work.
  Specifically, in June 2004, Winforge instructed
Mod-U-Kraf not to proceed with the development and
design of the sprinkler system, which had been de-
signated Mod-U-Kraf’s responsibility under the Prelimi-
nary Scope of Work. By agreement of the parties,
Winforge assumed responsibility for the design and
approval of the sprinkler system. Winforge also verbally


4
  “PTAC” is an abbreviation for “packaged terminal air
conditioner.”
No. 10-3178                                               11

agreed to take over responsibility for providing plans
for the PTAC units, EPDM roof membrane, parapet wall
removal, and fire alarm system, all of which were
initially Mod-U-Kraf’s responsibility under the Prelim-
inary Scope of Work.5 Mod-U-Kraf, believing that Mod-U-
Kraf required Winforge’s approval on these portions of
the Project, never developed designs or entered into
sub-contracts for these portions of the Project.
  On June 22, 2004, Mod-U-Kraf submitted its plans for
approval by the State of Tennessee’s third-party adminis-
trator, T.R. Arnold and Associates (“T.R. Arnold”). T.R.
Arnold is a review agency approved by the State to con-
duct design review and approval on behalf of the State.
After reviewing submitted plans, T.R. Arnold commonly
issues a “deviation report” that identifies “deviations,” or
failures to comply with Tennessee State Code. Mod-U-Kraf
submitted its plans in June 2004, knowing that the
plans were a work in progress, in order to generate a
deviation report that would allow Mod-U-Kraf to refine
the plans while it awaited other designs from Winforge.
Mod-U-Kraf hoped that being aware of what issues
needed to be addressed, sooner rather than later, would
expedite the construction process.
  T.R. Arnold returned a deviation report that listed
twenty-three deviations. The deviations related to the
sprinkler design, elevator design, mechanical and
electrical plan design, fire alarm design, and insulation


5
  In exchange for Winforge’s assumption of these duties, Mod-
U-Kraf was to receive reduced payment from Winforge.
12                                              No. 10-3178

design. T.R. Arnold representative Ray Helmer testified
that such deviation reports are commonly issued and
are to be expected for modular designs.


5.   All-American Assumes Mod-U-Kraf’s Rights and Responsi-
     bilities Under the Agreement
  On June 23, 2004, all of Mod-U-Kraf’s rights and obliga-
tions under the Agreement passed to All-American.
Mod-U-Kraf informed Winforge that the substitution
had become necessary due to delays in the design pro-
cess. Winforge agreed to the transfer of responsibility.
  Between June and October 2004, Winforge obtained
designs of the sprinkler system and elevator, the need for
which had been identified in the June 2004 deviation
report issued by T.R. Arnold. After incorporating the
newly acquired designs, All American submitted revised
plans to T.R. Arnold in September 2004. This time, T.R.
Arnold issued a new deviation report that identified
only two items. The first item was a minor issue that All
American corrected quickly. The second item was a
more substantial deviation that called for the com-
pleted design of the mechanical and electrical plan for
the Project. Resolution of this item required the assistance
of professionals yet to be hired by Winforge. Although
overall approval of the plans still required the develop-
ment of the mechanical and electrical plan identified in
the deviation report, in October 2004, T.R. Arnold ap-
proved the modular portion of the plans, certifying
them as fully compliant with the Tennessee State Code.
No. 10-3178                                                   13

   Final approval by the State required the additional step
of submitting the plans to the State, which receives and
reviews plans approved by the third party administrator.
If the State approves the plans, the State issues a Letter
of Filing, which constitutes final State approval of the
plans. On October 19, 2004, the State of Tennessee’s
Code Enforcement Division found that T.R. Arnold had
performed a substandard review of the plans. On
October 21, 2004, the State sent a letter to T.R. Arnold
setting forth a list of areas in which the plans failed to
comply with the Tennessee Code. These areas included:
(1) failure to clearly identify whether All American or
Mod-U-Kraf was responsible for the modular construc-
tion; (2) failure to affix certain engineering seals; (3) failure
to complete HVAC, plumbing, and mechanical designs.
None of the deviations listed by the State related to
the design of the modular units themselves. Rather, the
deviations related only to other aspects of the Project. In
December 2004, T.R. Arnold issued another deviation
report to All American, reiterating the same issues identi-
fied by the State.
  Because of the stated deviations, the State refused to
issue a Letter of Filing. Under state law, All American
could not begin construction of the modular units
without a Letter of Filing. Helmer, T.R. Arnold’s represen-
tative, testified that the State’s decision to reject the
plans was “very unusual” and “contrary to the standard
way of doing business in the State of Tennessee.” Helmer
testified that, based on his experience, the State’s Letter
of Filing ordinarily related only to the modular unit
designs and not designs related to site work. Here, the
14                                                 No. 10-3178

modular units had been deemed fully compliant and
complete, but the State rejected the plans based on devia-
tions related to site work.


6. Coachmen Denies Further Draws on the Construction Loan
  In February 2005, Coachmen denied Winforge’s request
for a further draw on the construction loan under the
Loan Agreement and informed Lee that money would
be withheld until Winforge proceeded with its obliga-
tions to develop the Project. Up to this point, Coachmen
had provided Winforge with significant funding from
the construction loan. Despite receiving these funds,
Winforge had not hired a general contractor, as it was
required to do under the Agreement. Instead, Winforge
had chosen to assign Lee and McMahon to the role of
general contractor at various points. The defendants
believed that neither McMahon nor Lee was qualified
to perform those duties.


7. The State of Tennessee Issues the Letter of Filing
  On March 3, 2005, Winforge finally completed the
design of the mechanical and electrical plans. All
American incorporated those designs into the plans
and submitted revised plans to T.R. Arnold, which re-
sponded with a new deviation list. All American then
incorporated the necessary changes indicated in the
deviation report and submitted revised plans in
May 2005. T.R. Arnold approved the May 2005 plans
and forwarded those plans to the State.
No. 10-3178                                            15

   On May 13, 2005, the State responded with a list of
forty-eight deviations relating to three key substantive
design issues: a faulty sprinkler design, an inadequate
fire alarm design, and a faulty smoke egress design for
the lobby area. Again, none of the deviations related to
the modular plans themselves.
  In August 2005, Winforge successfully produced a
code-compliant sprinkler design. In the same month, the
parties also resolved the lobby egress issue. After in-
corporating the necessary changes, All American resub-
mitted the plans to T.R. Arnold, which once again ap-
proved the plans and forwarded them to the State. On
August 30, 2005, the State issued a Letter of Filing for
the Project, finally authorizing All American to begin
construction of the modular units.


8.   The City of Pigeon Forge Rejects the Building Permit
     Application for the Project
  Before All American could commence construction of
the modular units, however, a building permit had to be
obtained from the City of Pigeon Forge. Winforge was
supposed to obtain that permit. Although Winforge
produced a “Building Permit Application,” Winforge
never completed or submitted the document, leaving
certain items on the form blank or marked “TBD” (to be
determined). Because Winforge had not yet secured the
building permit and had still not hired a general contrac-
tor, All American hired a general contractor, D.F. Chase,
to seek the building permit. D.F. Chase filed a building
permit application with the City of Pigeon Forge. However,
16                                              No. 10-3178

on February 13, 2006, the City of Pigeon Forge rejected
the application because the City’s sewer system lacked
capacity to handle the Project. The rejection letter clearly
indicated that an earlier application would have likely
been approved because the sewer issue had not arisen
until just before D.F. Chase had applied for the permit.
This letter strongly suggested that the permit would
likely have been approved if Winforge had submitted
the permit application on time.
  Without a building permit, the Project was at a perma-
nent standstill. Therefore, All American never began
manufacturing the modular units, concluding that the
units could never be incorporated into the Project due
to the lack of a building permit.
  On February 23, 2006, Coachmen notified Winforge
that it was in default on the Loan Agreement. During
the course of the development of the Project, Lee and
McMahon had obtained draws on the construction
loan amounting to more than forty percent of the total
projected cost of the Project, paying themselves and
the entities they had employed on the Project approxi-
mately $1.2 million. However, neither Mod-U-Kraf nor
All-American had received any payment from the funds
obtained through the construction loan.
  On March 24, 2006, Coachmen notified Winforge that
Coachmen intended to institute foreclosure proceedings
and attached a Note of Foreclosure stating that the prop-
erty was to be sold on April 21, 2006. On November 15,
2006, the real estate was sold. Coachmen held the highest
bid and purchased the property for $1.8 million. On
No. 10-3178                                            17

January 30, 2007, Coachmen auctioned the personal
property that it held as collateral pursuant to a Security
Agreement between the parties. The net proceeds of
$283,142.79 were paid to Coachmen and applied against
the loan deficit.


9. Winforge and McMahon Bring Suit in District Court
   Winforge and McMahon brought suit against Mod-U-
Kraf, All-American, and Coachmen, believing that the
defendants were at fault for the losses incurred and had
caused the loan default. Winforge and McMahon sought
to defeat the foreclosure and hold Mod-U-Kraf, All Ameri-
can, and Coachmen responsible for breach of contract.
Mod-U-Kraf, All American, and Coachmen filed a counter-
claim against Winforge and McMahon, also alleging
breach of contract. The parties filed cross-motions for
summary judgment. The district court denied Winforge
and McMahon’s motion and granted in part and denied
in part the defendants’ motion. The defendants then
filed a motion to compel arbitration under the arbitra-
tion clause found in the Agreement. The district court
denied the motion, finding that the defendants had
already implicitly agreed to have the district court
resolve their legal dispute.
  After a four-day bench trial, the district court entered
judgment in favor of the defendants, finding that no final
contract was ever formed and that, even if there were
a contract, the defendants had not breached it. Winforge
and McMahon appealed, challenging both findings.
18                                                No. 10-3178

                       DISCUSSION
   Initially, we must determine whether we have subject-
matter jurisdiction. See Carroll v. Stryker Corp., 658 F.3d
675 (7th Cir. 2011) (“[W]e have an independent obliga-
tion to satisfy ourselves that jurisdiction is secure before
proceeding to the merits.”). Winforge and McMahon
rely on diversity of citizenship for federal jurisdiction
under 28 U.S.C. § 1332. At oral argument, we questioned
the parties as to whether the requirements of diversity
of citizenship under § 1332 was satisfied. Winforge is a
North Carolina corporation with its principal place of
business in North Carolina. Coachmen and All American
are Indiana corporations with their principal place of
business in Indiana, and Mod-U-Kraf is a Virginia corpora-
tion with its principal place of business in Virginia.
McMahon’s citizenship, however, was not clear from
the parties’ jurisdictional statements. The complaint
stated that McMahon was a “resident” of North Carolina,
but the district court’s written opinion states that
McMahon is a “resident” of Athens, Greece. The plain-
tiffs’ docketing statement filed with this Court states
that McMahon is a resident of North Carolina. Both
the plaintiffs’ supplemental statement of jurisdiction
and the jurisdictional section of the plaintiffs’ brief assert
that McMahon is a citizen of North Carolina.
   An allegation of residence is not sufficient to estab-
lish citizenship, which requires domicile. See Heinen v.
Northrop Grumman Corp., 671 F.3d 669, 670 (7th Cir.
2012) (citing Gilbert v. David, 235 U.S. 561, 35 S. Ct. 164, 59
L. Ed. 360 (1915); Steigleder v. McQuesten, 198 U.S. 141, 25
No. 10-3178                                                 19

S. Ct. 616, 49 L. Ed. 986 (1905); Denny v. Pironi, 141 U.S.
121, 11 S. Ct. 966, 35 L. Ed. 657 (1891); Robertson v. Cease,
97 U.S. 646, 24 L. Ed. 1057 (1878)). Further, a United States
citizen who establishes domicile in a foreign country is
no longer a citizen of any State of the United States and
destroys complete diversity under 28 U.S.C. § 1332.
Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 828, 109
S. Ct. 2218, 2220-21 (1989).
   At oral argument, we directed the parties to file addi-
tional jurisdictional statements to clarify McMahon’s
citizenship. The parties’ amended jurisdictional state-
ments indicate that McMahon was a citizen of the United
States residing and domiciled in North Carolina on
April 17, 2006, the date on which the complaint was
filed. McMahon moved to Athens, Greece about two
years later. Because we determine jurisdiction based on
citizenship at the time the case was filed, we conclude
that McMahon is a citizen of North Carolina for pur-
poses of diversity jurisdiction in this case. See Hukic v.
Aurora Loan Servs., 588 F.3d 420, 427 (7th Cir. 2009) (citing
Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 124
S. Ct. 1920, 158 L. Ed. 2d 866 (2004)). Accordingly, we
find that the requirements of diversity jurisdiction are
satisfied.


I.    Standard of Review
  In an appeal from a bench trial, we review the district
court’s findings of fact and applications of law to those
findings of fact for clear error. Trustees of Chi. Painters and
20                                                No. 10-3178

Decorators Funds v. Royal Int’l Drywall and Decorating, Inc.,
493 F.3d 782, 785 (7th Cir. 2007) (quoting Keach v. United
States Trust Co., 419 F.3d 626, 634 (7th Cir. 2005)). “A
finding is ‘clearly erroneous’ when although there is
evidence to support it, the reviewing court on the entire
evidence is left with the definite and firm conviction that
a mistake has been committed.” United States v. United
States Gypsum Co., 333 U.S. 364, 395, 68 S. Ct. 525, 542, 92 L.
Ed. 746 (1948). “The party alleging error bears the burden
of demonstrating that particular factual findings were
clearly erroneous.” Carnes Co. v. Stone Creek Mech., Inc., 412
F.3d 845, 847 (7th Cir. 2005). We review the district court’s
conclusions of law de novo. Platinum Tech., Inc. v. Fed. Ins.
Co., 282 F.3d 927, 930-31 (7th Cir. 2002).


A. This Court Reviews the District Court’s Determination that
   No Contract Existed for Clear Error.
  Winforge argues that we should apply de novo review
to the district court’s determination that no contract
existed. Winforge contends that under both federal law
and Virginia law, the existence of a contract is a question
of law that should be reviewed de novo where, as
argued here, the facts surrounding contract formation
are undisputed.
  In this Court, “[t]he fixing of the boundary between
questions of law and questions of fact, is a matter of
federal procedural law and therefore governed by federal
rather than state law in diversity as in other federal suits.”
Dilworth v. Dudley, 75 F.3d 307, 309 (7th Cir. 1996). Under
No. 10-3178                                                  21

federal procedural law, the existence of a contract is a
mixed question of law and fact that is subject to clear error
review. E.C. Styberg Eng’g Co., 492 F.3d 912, 917 (7th Cir.
2007).
  In this case, the facts were in dispute. The district court
considered the facts surrounding contract formation,
particularly the parties’ words and actions, and deter-
mined, as a matter of fact, that the parties never
intended to be bound by the Agreement and attached
Preliminary Scope of Work signed on April 13, 2004.
Based on its findings of fact, the district court concluded
that the Agreement was not an enforceable contract
because the parties never achieved mutuality of assent
to the central terms of the Agreement. Accordingly,
we review the district court’s determination that no
contract existed for clear error. See E.C. Styberg Eng’g Co.,
492 F.3d at 917; see also Thomas v. Gen. Motors Acceptance
Corp., 288 F.3d 305, 307 (7th Cir. 2002)).


B. This Court Reviews the District Court’s Determination
   Regarding Breach of Contract for Clear Error.
   “Although the interpretation of an established written
contract is generally a question of law for the court, the
question of whether or not a particular breach of a
contract is material is a question of fact.” Int. Prod. Special-
ists, Inc. v. Schwing Am., Inc., 580 F.3d 587, 594 (7th Cir.
2009) (citations omitted). Therefore, we interpret the
contract de novo and review the district court’s determina-
tion of whether the contract was materially breached
for clear error. Id. at 594-95.
22                                                   No. 10-3178

II. The District Court’s Determination that No Contract
    Existed Was Not Clear Error.
  The district court found that the parties never
achieved a “distinct intention common to both” as to the
central aspects of the contract. Winforge, 2010 WL 3326856,
at *9 (citing Moorman v. Blackstock, Inc., 276 Va. 64, 75,
661 S.E.2d 404, 409 (Va. 2008)). Therefore, the district
court found that the contract lacked mutuality of assent
as to essential terms and that no contract ever existed.
Winforge, 2010 WL 3326856, at *9. On appeal, Winforge
urges this Court to find the Agreement enforceable
because (1) the parties thoroughly negotiated and signed
the Agreement and (2) the defendants waived objection
to the validity of the contract by acknowledging its
validity before and after the district court’s entry of
judgment.6



6
  In its brief, Winforge also contends, without citing to any
authority, that the Agreement is a valid contract because the
parties mutually undertook to perform according to the terms
of the Agreement for a period of 20 months after signing the
Agreement. However, in its reply brief, Winforge clarifies
that “Winforge’s reliance on the parties’ conduct is not
intended to establish, but rather to explain, the terms of the
agreement.” Based on this clarification, we need not discuss
Winforge’s initial argument that the Agreement should be
enforced based on the parties’ course of dealing. Moreover,
we note that examination of the parties’ performance after
signing the Agreement certainly does not help Winforge’s
case. In its findings of fact, the district court determined that
                                                     (continued...)
No. 10-3178                                               23

A. The District Court Did Not Clearly Err in Its Determina-
   tion that the Agreement Lacked Mutuality of Assent and,
   Therefore, Was Not a Valid Contract.
  We first address Winforge’s argument that the district
court should have found the Agreement enforceable
because the parties thoroughly negotiated and signed it.
Winforge argues that the district court erred in finding
that subsequent drafts of the Scope of Work indicated
lack of assent to the original Agreement signed on April 13,
2004 and that the district court erred in failing to
consider the “legal presumption of assent that arises
under Virginia law when an agreement is written and
signed.” Appellants’ Brief 20 (citing Browne v. Kline
Tysons Imp., Inc., 190 F. Supp. 2d 827, 830 (E.D. Va. 2002)).
In support, Winforge draws our attention to the fact
that, prior to signing the Agreement, the parties
negotiated the terms of the Agreement and Preliminary
Scope of Work for almost ten months and exchanged
at least ten drafts of the Scope of Work. Winforge also
argues that the fact that the Agreement required that any
change to the Agreement or Scope of Work be done by a
written change order further establishes that the Agree-
ment was final.


6
  (...continued)
Winforge failed to perform a number of tasks clearly assigned
to it under the Agreement, including hiring a general con-
tractor. Winforge also failed to timely complete the designs
of the elevator, mechanical and electrical system, HVAC
system, and plumbing system and failed to secure the neces-
sary building permit from the City of Pigeon Forge.
24                                              No. 10-3178

  We find no error in the district court’s conclusion that
the Agreement, although negotiated and signed, was not
an enforceable contract. The parties are in agreement that,
pursuant to the terms of the Agreement, Virginia law
applies to the resolution of all contractual disputes be-
tween the parties. Under Virginia law, Winforge and
McMahon, as the parties seeking to enforce the contract,
bore the burden of proving the existence of the contract.
Brown v. Brown, 53 Va. App. 723, 728, 674 S.E.2d 597,
599 (2009). Winforge was required to establish mutuality
of assent, or “the meeting of the minds” of the parties,
which is an essential element of any contract. Moorman, 276
Va. at 75, 661 S.E.2d at 409 (citing Phillips v. Mazyck, 273
Va. 630, 636, 643 S.E.2d 172, 175 (2007)). “Until the parties
have a distinct intention common to both . . . there is a
lack of mutual assent and, therefore, no contract.” Id.
Mutual assent is determined “exclusively from those
expressions of [the parties’] intentions which are com-
municated between them.” Lucy v. Zehmer, 196 Va. 493,
503, 84 S.E.2d 516, 522 (1954) (citations and internal
quotation marks omitted); see also Phillips, 273 Va. at 636,
643 S.E.2d at 175 (stating that courts are to determine
mutual assent from the parties’ words or acts). Winforge
and McMahon also had the burden of proving that the
Agreement contained essential terms. McKay Consulting
v. Rockingham Mem’l Hosp., No. 5:09-CV-00054, 2010 WL
3200061, at *9 (W.D. Va. Aug. 11, 2010). In Virginia, the
essential terms of an agreement for services include “the
nature and extent of service to be performed, the place
where and the person to whom it is to be rendered, and
the compensation to be paid.” Reid v. Boyle, 259 Va. 356,
No. 10-3178                                               25

370, 527 S.E.2d 137, 145 (2000) (quoting Mullins v. Mingo
Lime & Lumber Co., 176 Va. 44, 10 S.E.2d 492, 494 (1940)).
An agreement lacking these terms will not be enforced.
Mullins, 176 Va. at 50, 10 S.E.2d at 494.
  The district court’s conclusion that the Agreement
lacked mutuality of assent is supported by the evidence.
In reaching its conclusion, the district court cited evidence
that the parties continued to exchange new drafts of
the Scope of Work even after they had signed the Agree-
ment on April 13, 2004. The court noted that, in July 2004,
Mod-U-Kraf sent a proposed final draft of the Scope of
Work to Lee, who was working on behalf of Winforge.
Lee did not review the July 2004 draft and, instead, re-
quested that Mod-U-Kraf provide a “red-lined” version
of the Scope of Work that would highlight the changes
and describe how the newly proposed terms would
affect the pricing of the Project. In September 2004, Mod-U-
Kraf sent another proposed draft of the Scope of Work
to Lee, but Lee again did not review the draft because
it was not red-lined to highlight changes. The district
court noted that “[n]othing in the record indicates that
Lee declined to review these proposed revisions because
he believed the negotiations were already complete.”
Winforge, 2010 WL 3326856, at *9. The district court consid-
ered these facts to be evidence that the terms of the
Scope of Work remained under negotiation and were not
agreed upon well into the summer of 2004. The district
court also cited evidence that Lee and McMahon had
different views regarding the finality of the Preliminary
Scope of Work. During a January 25, 2005 conference
call between the parties, Lee stated that he thought
26                                              No. 10-3178

the Preliminary Scope of Work had been modified or was
open to modification, but McMahon expressed his
belief and hope that the parties would continue to
honor the Preliminary Scope of Work as binding.
  Based on Lee’s and McMahon’s statements, evidence
that the parties continued to negotiate the Scope of Work
long after they had signed it, and the fact that no final
version of the Scope of Work had been agreed upon, the
district court concluded that the Agreement, with the
attached Preliminary Scope of Work, was preliminary
and not final. The district court concluded as follows:
     Given these clear indications by the parties that
     the Scope of Work accompanying the Develop-
     ment Agreement was ‘Preliminary,’ as well as signifi-
     cant evidence that the parties continued to negotiate
     the Scope of Work well after the date they signed the
     Development Agreement and that no final version of
     the Scope of Work was ever agreed upon, it is obvious
     that the parties’ initial ‘preliminary’ agreement as to
     these key performance terms was not, in fact, final.
     Thus, because the essence of the parties’ dispute in
     this litigation regards different interpretations and
     understandings of the terms contained in that Pre-
     liminary Scope of Work, the parties never achieved a
     ‘distinct intention common to both’ as to central
     aspects of the contract. Moorman, 661 S.E.2d at 409.
     Accordingly, the contract between the parties lacked
     mutuality of assent as to essential terms; indeed, no
     contract ever, in fact, existed. Id.
Winforge, 2010 WL 3326856, at *9.
No. 10-3178                                              27

  Winforge argues that the district court erred in con-
sidering facts related to Mod-U-Kraf’s July 2004 draft of
the Scope of the Work to be an indication that the Agree-
ment remained under negotiation. Winforge contends
that Mod-U-Kraf’s July 2004 draft of the Scope of Work
was a “request to modify” the existing contract rather
than an indication that no contract existed. According
to Winforge, Mod-U-Kraf’s proposed revision could not
have reached “back in time” to invalidate an agreement
that had already been negotiated and signed and “con-
tained all necessary material terms.” Winforge contends
that Lee’s decision not to review the July 2004 draft
was evidence of Lee’s lack of assent to the new pro-
posed terms but not lack of assent to the already formed
contract. Winforge additionally argues that the fact that
changes were proposed does not mean that the parties
lacked assent to the original Agreement because the
original Agreement contemplated changes, which were
required to be in writing pursuant to Section 14 of the
Agreement.
  We find no clear error in the district court’s conclusion
that Mod-U-Kraf’s July and September 2004 drafts of the
Scope of Work, coupled with Lee’s responses to those
drafts, indicated that the parties had not mutually as-
sented to the April 2004 Preliminary Scope of Work. We
conclude that the district court’s findings that the parties
continued to exchange drafts of the Scope of the Work
long after signing the Agreement, that no final Scope of
Work had been agreed upon, and that Lee and McMahon
had different views regarding the finality of the document
provide substantial and sufficient support for the court’s
28                                              No. 10-3178

conclusion that the parties never reached mutuality
of assent as to the Agreement.
  Winforge further argues that the district court, in
finding that the Agreement lacked mutual assent, failed
to consider the legal presumption of assent that arises
under Virginia law when an agreement is written and
signed. Winforge cites Browne, 190 F. Supp. 2d at 830,
for the proposition that “[o]ne who signs a contract is
presumed to know and assent to the terms contained
therein.” However, even a signed writing is not a con-
tract if there is no mutual assent or “distinct intention
common to both,” which is essential to any contract.
Moorman, 276 Va. at 75, 661 S.E.2d at 409 (citing Phillips,
273 Va. at 636, 643 S.E.2d at 175). Here, the district court
found, and we agree, that the parties never agreed as to
the essential terms of the Agreement. In Browne, the
court considered whether a consumer had agreed to
submit all claims to arbitration when he signed a Buyer’s
Order consummating the sale of a used car, where the
back of the Buyer’s Order stated that the claim would
be resolved by binding arbitration. 190 F. Supp. 2d at 830.
The court found that the consumer’s intent to submit
all claims to arbitration was shown through his signature
on the Buyer’s Order because “[o]ne who signs a con-
tract is presumed to know and assent to the terms con-
tained therein.” Id. at 830. In Browne, the issue of whether
the parties had mutually assented to the contract was not
before the court. In the present case, by contrast, the
issue is not whether the parties were aware of the terms
in the Agreement when they signed it; rather, the issue
is whether the parties mutually assented to the terms
No. 10-3178                                           29

necessary to form a contract. The district court con-
cluded that no contract had been formed because the
parties never mutually assented to the essential terms.
We find no clear error in that finding.
  Finally, Winforge asks this Court to determine as a
matter of law that the Agreement contained all terms
necessary for formation. Specifically, Winforge con-
tends that Mod-U-Kraf’s obligations were clearly set
forth in sections 1.2, 1.3, 4.1, and 10.4 of the Scope of
Work. Winforge also contends that the Agreement set
forth the timing for the completion of the obligations
and set forth the contract price pursuant to exhibits to
the Agreement.
  The district court did not make specific conclusions as
to whether essential terms were lacking from the con-
tract. Instead, the court held that the contract lacked
mutual assent as to essential terms. Because we have
already concluded that the district court did not clearly
err in finding that the contract lacked mutual assent as
to essential terms, we need not decide the question
of whether the contract lacked specific essential terms.


B. Defendants Have Not Waived Their Challenge to the
   Validity of the Agreement
  Winforge argues that the defendants should be pre-
cluded from contesting the validity of the Agreement
because they “consistently and repeatedly reaffirmed” the
validity of the Agreement in pleadings before and after
the district court’s entry of judgment. Winforge first
30                                              No. 10-3178

claims that the defendants acknowledged the validity of
the Agreement because they did not challenge its validity
in their Answer. We disagree. We first note that con-
testing the validity of an alleged contract is not an enumer-
ated affirmative defense that is waived if not included
in an answer. See Fed. R. Civ. P. 8(c). This Court has
previously noted that the appropriate analysis for deter-
mining whether a defense is an affirmative defense
when not specifically listed in Rule 8(c) “is not well
settled, especially in diversity cases.” Brunswick Leasing
Corp. v. Wis. Cent., Ltd., 136 F.3d 521, 530 (7th Cir. 1998).
This Court has identified two approaches for deter-
mining whether a defense not specifically enumerated in
Rule 8(c) is an affirmative defense: a defense is an affirma-
tive defense (a) “if the defendant bears the burden of
proof” under state law or (b) “if it [does] not controvert
the plaintiff’s proof.” Brunswick Leasing Corp., 136 F.3d at
530. Under either approach, contesting the validity of
the contract in a breach of contract action is not an af-
firmative defense because, under Virginia law, the exis-
tence of the contract is an issue on which the plaintiff
bears the burden of proof. See Brown, 53 Va. App. at 728,
674 S.E.2d at 599. The defendants did not bear the
burden of proving that the Agreement was not a
valid contract.
  Winforge next argues that Defendants have waived
their challenge to the validity of the Agreement because,
at trial, Powell (Mod-U-Kraf’s general manager) testified
regarding the negotiation and execution of the Agree-
ment but never suggested that it was not a valid contract.
However, admitting that the Agreement was negotiated
and signed certainly does not amount to an admission
No. 10-3178                                                31

that the Agreement was a valid contract. As we stated
above, even a signed, written contract is not enforceable
if it lacks mutual assent, as was the case here. Moorman,
276 Va. at 75, 661 S.E.2d at 409. Further, it is well-estab-
lished that waiver only applies when there has been
“ ‘the voluntary or intentional relinquishment of a known
right.’ ” Vershaw v. Northwestern Nat’l Life Ins. Co., 979
F.2d 557, 560 (7th Cir. 1992) (citation omitted). The trial
transcript shows that Powell never voluntarily or inten-
tionally relinquished the defendants’ challenge to the
validity of the contract.
  Winforge also argues that the defendants have waived
their challenge to the validity of the contract because
the defendants’ Motion to Compel Arbitration, brought
before the district court, asserted entitlement to relief that
arose exclusively out of the Agreement. We disagree. The
defendants’ attempt to compel arbitration was not an
admission that the Agreement was valid and enforceable.
Further, disputes concerning the validity of a contract may
properly be the subject of arbitration when the parties
so intend. See Matterhorn, Inc. v. NCR Corp., 763 F.2d
866, 868, 872 (7th Cir. 1985). We also disagree with
Winforge’s position that the defendants’ Motion for
Attorneys Fees, also before the district court, constituted
an acknowledgment of the validity of the Agree-
ment. That Motion sought relief under the separate
Loan Agreement between the parties and did not
mention the Development Agreement.
  Additionally, Winforge claims that the defendants
are precluded from challenging the validity of the
contract because the district court, in its Order on Sum-
32                                              No. 10-3178

mary Judgment, found that the parties entered into the
Agreement. Winforge raised the same argument before
the district court. The district court, in its Findings of
Fact and Conclusions of Law, responded that the defen-
dants were not precluded from raising their defense
to formation because the court’s previous “finding” in
the summary judgment order that the parties had entered
into the Agreement “was not based on any specific
factual or legal findings as to validity or enforceability,
which issues manifested fully at trial.” Winforge, 2010
WL 3326856, at *8 n.11 (citing Occidental Fire & Cas. Co. v.
Cont’l Bank N.A., 918 F.2d 1312, 1230 (7th Cir. 1990)).
We agree with the district court and conclude that the
defendants are not precluded from arguing that no
contract existed.
  In sum, we find that the district court did not err in
concluding that the Agreement is not a valid contract
because it lacked mutuality of assent, and we find that
the defendants never waived their claim that the Agree-
ment is not a valid contract.


III. The District Court Did Not Err in Finding that
     the Defendants Did Not Breach the Contract.
 The district court also found that, even if the Agreement
were a valid contract, the defendants had not breached it.7
The district court found that Mod-U-Kraf had completed



7
  For convenience, we refer to the Agreement and Preliminary
Scope of Work, together, as the “contract” in this section of
the opinion.
No. 10-3178                                              33

all of its obligations to produce building plans and
obtain approvals for those plans as defined by the clear
language of the contract and modified by a June 2004 oral
modification. Any failure to obtain the approvals on time,
the district court concluded, was due to Winforge’s—not
Mod-U-Kraf’s—failure to timely perform its obligations
under the contract. The district court also concluded that,
even though the defendants were obligated under the
contract to construct the modular units, their failure to
do so was not a breach because that failure was due to
Winforge’s deficient performance of Winforge’s duties
under the contract.
  On appeal, Winforge challenges the district court’s
conclusion that the defendants did not breach the
contract and argues: (1) the district court incorrectly
interpreted the plain language of the contract to find
that Mod-U-Kraf’s obligation to prepare plans and
obtain approvals for those plans was limited to its respon-
sibility to provide modular units and did not extend to
the building as a whole; (2) the district court erred in
concluding that the parties had orally modified the con-
tract in June 2004 to assign a number of Mod-U-Kraf’s
responsibilities under the contract to Winforge; and (3) the
district court erred by excusing Mod-U-Kraf’s obligation
to construct the modular units. Underlying all three
arguments is Winforge’s main contention that, under the
plain language of the contract, Mod-U-Kraf and All-
American were required to prepare all drawings, designs,
and plans for the entire hotel building—not just for the
modular units—and obtain all necessary approval for
34                                              No. 10-3178

those plans, including all building permits, by Decem-
ber 31, 2004. Winforge maintains that the defendants’
failure to timely do so constituted breach of the contract,
as did their failure to construct any of the modular units.
  Although we have already concluded that the Agree-
ment is not an enforceable contract, we nonetheless
have considered Winforge’s arguments on appeal and
find that the district court did not clearly err in finding
that, even if the Agreement were a valid contract, the
defendants had not breached it.
  In Virginia, “ ‘[t]he elements of a breach of contract
action are (1) a legally enforceable obligation of a defen-
dant to a plaintiff; (2) the defendant’s violation or breach
of that obligation; and (3) injury or damage to the
plaintiff caused by the breach of obligation.’ ” Sunrise
Continuing Care, LLC v. Wright, 277 Va. 148, 154, 671
S.E.2d 132, 135 (2009) (quoting Filak v. George, 267 Va.
612, 619, 594 S.E.2d 610, 614 (2004)). A plaintiff bears the
burden of proving a breach by the defendant. Sunrise
Continuing Care, LLC, 277 Va. at 154, 671 S.E.2d at 135.
  It is undisputed that Mod-U-Kraf was responsible
for providing the modular units under the contract and
that Mod-U-Kraf ultimately did not construct any
modular units. However, Mod-U-Kraf could not com-
mence construction of the modular units until the neces-
sary plans were prepared and then approved by the
appropriate entities. Therefore, as the district court
noted, the parties’ dispute over who breached the
contract centers on who was responsible for the failure
to obtain timely approval of the Project plans from the
No. 10-3178                                              35

State and the City of Pigeon Forge. That question, in
turn, depends on who was responsible for preparing the
plans and securing the approvals. Winforge argues that
the failure to obtain timely approval was the defendants’
fault because the contract assigned to the defendants
the responsibility of completing all plans related to the
hotel building and securing all franchiser, third-party,
state, and local approvals for those plans by December 31,
2004. The defendants argue, and the district court found,
that the failure to obtain timely approval was the fault
of Winforge. The district court found that, under the
contract, the defendants’ design and approval duties
were limited to the modular unit design and those
other duties specifically enumerated, and the defendants
successfully fulfilled those obligations. The district court
found that, under the terms of the contract, as orally
modified in June 2004, Winforge was responsible for a
number of other designs that had to be incorporated
into the Project plans before the plans could be approved.
The district court concluded that Winforge’s delay in
providing those designs caused the defendants’ delay
in obtaining State approval. Additionally, the district
court found that Winforge was responsible for obtaining
the final building permit from the City of Pigeon Forge
and that Winforge’s failure to timely apply for that
permit resulted in the permanent stagnation of the Project.
  On appeal, Winforge first argues that the district court
incorrectly interpreted the plain language of the Agree-
ment and Scope of Work with respect to the parties’
responsibilities to complete the plans for the building
and obtain approval of those plans. Winforge contends
36                                             No. 10-3178

that the plain language of the Scope of Work makes
clear that Mod-U-Kraf was solely responsible for pro-
viding “all architectural drawings needed in order to
obtain approval involving the building itself from the
ground up” by December 31, 2004. Therefore, Winforge
contends, Mod-U-Kraf’s failure to obtain timely approval
constituted breach of the contract. Winforge argues that
the district court incorrectly interpreted Sections 1.2 and
1.3 of the Scope of Work to mean that Mod-U-Kraf’s
obligation to prepare “drawings” and obtain approval
for those drawings was “clearly limited to its responsi-
bility for providing modular units, not to the building
project as a whole.” According to Winforge, there is no
distinction between “modular units” and “the building
project as a whole” because the building consisted only
of modular units. Winforge contends that it was only
responsible for the design and approval of plans related
to the area outside of the building.
  In the absence of ambiguity, a court interprets the
agreement by examining solely the language of the con-
tract. School Bd. of City of Newport News v. Commonwealth
of Virginia, 279 Va. 460, 467-68, 689 S.E.2d 731, 735
(2010). “ ‘The primary goal in the construction of written
contracts is to determine the intent of the contracting
parties, and intent is to be determined from the
language employed, surrounding circumstances, the
occasion, and apparent object of the parties.’ ” Flippo v.
CSC Assocs. III, LLC, 262 Va. 48, 64, 547 S.E.2d 216, 226
(Va. 2001) (quoting Christian v. Bullock, 215 Va. 98, 102,
205 S.E.2d 635, 638 (1974)).
No. 10-3178                                                   37

  We agree with the district court that the plain language
of Section 1.2 and 1.3 of the Preliminary Scope of Work
does not support Winforge’s argument that Mod-U-
Kraf was responsible for all the drawings and approvals
related to the entire building. Sections 1.2 and 1.3 of the
Preliminary Scope of Work read as follows:
    1.2 Mod-U-Kraf shall manufacture modular units at
    the Mod-U-Kraf manufacturing facilities in ac-
    cordance with the approved Specifications and Draw-
    ings. Drawings to meet local, state, 3rd party and
    franchiser requirements. To include only materials
    and on-site services specified as supplied by MUK.
    1.3 MUK shall provide modular units and material
    noted on plans for installation and completion of
    a Wingate Inn. This will include all architectural
    drawings, structural calculations for modular unit
    construction, mechanical, electrical systems for
    modulars, and sprinkler system.
  These two provisions make clear that Mod-U-Kraf was
responsible for preparing all architectural drawings for
the modular units, securing local, state, third party, and
franchiser approval for those drawings, and pro-
viding the structural calculations, mechanical system, and
electrical system for the modular units. The provision
also states that Mod-U-Kraf was responsible for the
sprinkler system.8 Nowhere in these provisions is there


8
  The district court found that Winforge subsequently trans-
ferred the responsibility for the sprinkler design from Mod-U-
                                                   (continued...)
38                                              No. 10-3178

any indication that Mod-U-Kraf was responsible for
preparing drawings for the entire building. Rather, all
references to Mod-U-Kraf’s responsibility to prepare
drawings or obtain approvals for those drawings are in
reference to Mod-U-Kraf’s responsibility to provide
modular units.
   The district court properly applied the principle of
ejusdum generis to conclude that Sections 1.2 and 1.3 refer
specifically to Mod-U-Kraf’s duty to manufacture and
provide modular units for the Project. Under this rule,
“ ‘when general and specific words are grouped, the
general words are limited by the specific.’ ” Wood ex rel.
Wood v. Henry County Pub. Schs., 255 Va. 85, 94-95, 495
S.E.2d 255, 260 (1998) (citation omitted). In Section 1.2,
Mod-U-Kraf’s responsibility to prepare “[d]rawings to
meet local, state, 3rd party and franchiser requirements”
is clearly limited by the preceding sentence, which
states that Mod-U-Kraf is responsible for manufac-
turing modular units “in accordance with the approved
Specifications and Drawings.” Similarly, Section 1.3 is
limited by its first sentence, which states that Mod-U-Kraf
“shall provide modular units and material noted on
plans for installation and completion of a Wingate Inn.”
Section 1.3 then states, “This will include all architectural
drawings.” Mod-U-Kraf’s responsibility to complete “all
architectural drawings” is limited by the preceding sen-


8
  (...continued)
Kraf to Winforge in June 2004 through oral modification of
the Agreement.
No. 10-3178                                             39

tence, which refers to Mod-U-Kraf’s responsibility to
produce modular units. In sum, the plain language of
Sections 1.2 and 1.3 of the Scope of Work indicates that
Mod-U-Kraf’s responsibilities to prepare drawings and
obtain approvals were limited to Mod-U-Kraf’s responsi-
bility to manufacture modular units. Sections 1.2 and 1.3
clearly do not assign Mod-U-Kraf responsibility for
designing plans and obtaining approvals for the entire
building, from the ground up, as Winforge claims.
  Winforge further argues that the building consisted
“only of modular units.” Therefore, Winforge argues, Mod-
U-Kraf’s responsibility to provide “all architectural draw-
ings,” even if interpreted to mean all drawings for the
modular units, must refer to all drawings for the entire
building. We are not convinced by this argument. The
Scope of Work explicitly refers to building components,
to be completed on-site, that are distinct from the
modular units. Section 1.4 of the Scope of Work assigns
the task of “overseeing the completion of” a number
of those components to Winforge:
   1.4 WINFORGE will be responsible for overseeing the
   completion of the modular units tie-in and com-
   ponents such as the following to complete the
   Wingate Inn on-site:
   • Plumbing connections between levels
   • Plumbing connections to city sewer & water
   • Electrical connections and equipment as noted on
     plans
40                                               No. 10-3178

     • Elevator
     • Roof Facade (Completion of Parapet Wall)
     • Finish decor at all common areas, drop ceiling,
       HVAC System, Lights, Finish Floor, Drywall & Finish
       as shown, Entry Doors, FF&E materials, etc.
     • For additional material and task, reference to plans[.]
The plumbing connections between levels of the building,
electrical connections, elevator, roof facade, parapet
wall, and HVAC system are all components of the
building itself, to be completed on-site, that are distinct
from the modular units.
  Winforge argues that Section 1.4 refers only to
Winforge’s responsibilities “to provide labor and
material after the design, approval and construction of
the modular units in connection with assembly of
modular units on site.” Winforge insists that the design
and approval of these components were exclusively the
responsibility of Mod-U-Kraf, while Winforge was only
tasked with construction-related activities. We disagree
with Winforge’s reading of this provision. Section 1.4
clearly assigns to Winforge the responsibility of com-
pleting these crucial building components, and nowhere
else in the Agreement or Scope of Work—certainly not
in Section 1.2, 1.3, or 1.4—is the design or approval of
these components separately identified as the responsi-
bility of Mod-U-Kraf.
  Winforge also argues that the district court incorrectly
concluded that Winforge was responsible for obtaining
No. 10-3178                                             41

the necessary and crucial building permit from the City
of Pigeon Forge. According to Winforge, Mod-U-Kraf
was responsible for obtaining all building approvals,
including the permit from the City. However, Section 9
of the Agreement makes clear that Mod-U-Kraf was not
responsible for all building approvals. Section 9 pro-
vides that Winforge was responsible for other “licenses,
permits, approvals” for which Mod-U-Kraf would not
be responsible, “including the building permits”:
   9. BUILDING PERMIT, FEES AND APPROVALS.
   Except for those licenses, permits and fees related to
   the Work which are the responsibility of MUK pursu-
   ant to this Agreement, Winforge and the General
   Contractor or the Project Manager shall secure and
   pay for all other licenses, permits, approvals . . .
   required for the development, construction, use or
   occupancy of permanent structures or for permanent
   changes in existing facilities, including the building
   permits.
  Based on this provision, we agree with the district court
that Winforge was responsible for obtaining the building
permit from the City of Pigeon Forge. Additionally, the
parties’ actions show that the parties understood that
responsibility to be Winforge’s. The district court found
that Winforge had prepared an incomplete application
for the building permit from the City of Pigeon Forge. It
was only after Winforge had delayed submitting the
application that Mod-U-Kraf, on its own initiative, hired
a general contractor, who completed and submitted the
application.
42                                            No. 10-3178

  We conclude that the plain language of the contract
provides that Mod-U-Kraf’s responsibilities to complete
designs and obtain approval were limited to its responsi-
bilities to provide the modular units and certain other
specifically noted responsibilities, such as the sprinkler
design (which was later transferred to Winforge through
oral modification). Winforge was responsible for ob-
taining the building permit from the City. Moreover,
we note that undisputed facts cited by the district court
clearly show that the parties understood Mod-U-Kraf’s
design and approval responsibilities to be generally
limited to the modular units and that the parties under-
stood Winforge to be responsible for the design of a
number of building components distinct from the
modular units. Mod-U-Kraf was repeatedly delayed in
securing State approval of its plans because it was
waiting for Winforge to provide code-compliant designs
necessary for State approval, including designs for the
HVAC, plumbing, mechanical, and sprinkler systems.
Winforge ultimately completed those tasks in sum-
mer of 2005.
  Winforge’s next argument is that the district court
erred in its finding that Mod-U-Kraf’s obligations to
complete certain designs had been transferred to
Winforge due to a June 2004 oral modification to the
Agreement. Winforge argues that because the Agreement
provided that all modifications had to be in writing, the
fact that there was no written modification establishes
that no modification ever occurred.
  Modification of a contract may be established with
evidence of the parties’ course of dealing. Cardinal Dev.
No. 10-3178                                               43

Co. v. Stanley Constr. Co., 255 Va. 300, 305, 497 S.E.2d 847,
851 (1998). This is true even where the contract required
all modifications to be in writing. Reid, 259 Va. at 369-70,
527 S.E.2d at 145. We find that the district court did not
clearly err in concluding that the parties accomplished
an oral modification of the contract in June 2004
whereby Winforge assumed responsibility for a number
of duties that were originally assigned to Mod-U-Kraf
under the Agreement. The district court cited evidence
showing that in June 2004, Winforge communicated
verbally to Mod-U-Kraf that Winforge would take
over responsibility for providing the designs for the
sprinkler system, PTAC units, and other mechanical and
electrical components of the building, tasks that were
originally assigned to Mod-U-Kraf under the Agreement.
The court also found that before that time, Winforge
had instructed Mod-U-Kraf not to work on the sprinkler
system design. The district court also found that, in
exchange for Winforge’s assumption of the duty to
provide the designs for these components, Mod-U-Kraf
would receive less money from Winforge. The court
found that Mod-U-Kraf agreed to the changes and did not
pursue designs of these components after that time. The
district court concluded that these events constituted
an oral modification of the Agreement, even though
the Agreement stated that modifications were to be
made in a written change order. The court also found
that, consistent with the modification, Winforge later at-
tempted to obtain designs and State approval for those
components. In some cases, Winforge succeeded in
completing those tasks. Based on these facts, the dis-
44                                                 No. 10-3178

trict court concluded that the parties had modified
the Scope of Work through the oral modification in
June 2004. We find that the evidence sufficiently sup-
ports the conclusion that the parties had agreed to an
oral modification of the contract.
  Finally, Winforge argues that the district court erred
when it excused Mod-U-Kraf’s obligation to construct the
modular sections. Winforge claims that Mod-U-Kraf’s
failure to construct the modular units constituted
breach because the Agreement unambiguously required
Mod-U-Kraf to manufacture and deliver the modular
units by December 31, 2004. Winforge argues that Mod-U-
Kraf “is not entitled to relief from its obligation to con-
struct the modular units based upon its own prior breach.”
  We agree that the Agreement assigned to Mod-U-Kraf
the task of manufacturing and delivering the modular
units.9 However, we find that the district court properly


9
   Winforge repeatedly argues that the Agreement stated that
Mod-U-Kraf was responsible for completing the design, ap-
proval, and construction of the modular units by December 31,
2004, citing to the Schedule of Work attached to the Agree-
ment as Exhibit D. We have reviewed the text of the Agree-
ment and Exhibit D, and the December 31, 2004 deadline
is nowhere to be found. Exhibit D only states the following:
“Modular rough set operations shall commence no later
than ______, 2004 and shall be substantially complete by ______,
2004. Siding shall be substantially complete by ______, 2004.”
Moreover, Winforge, in its brief, incorrectly claims that the
district court determined that the express language of the
                                                  (continued...)
No. 10-3178                                              45

excused Mod-U-Kraf’s performance of this obligation
based on a number of critical factors. First, the Project
plans were rejected by the City of Pigeon Forge
in August 2005, which meant that the Project was at a
permanent standstill. At that time, it was reasonable
for Mod-U-Kraf to decide that it would be futile to con-
struct the modular units knowing that they could never
be used for the Project. Second, we think the district
court did not err in its determination that the failure
to secure the building permit from the City was due
to Winforge’s failures, not Mod-U-Kraf’s or All Amer-
ican’s failures. Winforge never hired a general contractor
and never paid Mod-U-Kraf, despite being required to
do so under the Agreement. Additionally, the evidence
shows that Winforge failed to timely complete the
designs for a number of building components that were
its responsibility under the Agreement, as orally modified
in June 2004, including the elevator, plumbing, HVAC,
electrical, and mechanical systems. These designs were
crucial to the approval process because they were
required to be incorporated into Mod-U-Kraf’s plans
before those plans could receive State approval. Deviation
reports issued by the State showed that the deviations
related largely to those components for which Winforge
was responsible. Winforge’s failure to timely provide


9
  (...continued)
Agreement obligated Mod-U-Kraf to construct and deliver the
modular units by December 31, 2004. The district court never
stated that December 31, 2004 was Mod-U-Kraf’s deadline for
constructing and delivering the units.
46                                              No. 10-3178

those designs resulted in delay in the approval process.
Finally, the district court found that Winforge failed
to timely submit a completed building permit applica-
tion to the City, even though securing that permit was
Winforge’s responsibility under Section 9 of the Agree-
ment. The evidence indicates that, if Winforge had sub-
mitted the application on time, the City would have
approved it. Based on our interpretation of the contract
and our consideration of the district court’s findings
of fact, we find that the district court did not err in con-
cluding that the delays in getting approval by the State
were the fault of Winforge and not Mod-U-Kraf.
   Therefore, we find that, based on its findings of fact,
the district court reasonably concluded that the Mod-U-
Kraf’s failure to construct any modular units did not
constitute a breach of the contract because its failure to
do so was due to Winforge’s deficient performance of
its obligations under the contract, not Mod-U-Kraf’s or
All American’s deficiencies.


                     CONCLUSION
  For the foregoing reasons, we A FFIRM the district court’s
judgment.
                                                 A FFIRMED




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