                             In the
 United States Court of Appeals
               For the Seventh Circuit
                         ____________

Nos. 04-1015, 04-1107
UTICA MUTUAL INSURANCE COMPANY,
                              Plaintiff-Appellant/Cross-Appellee,

                                 v.


VIGO COAL COMPANY, INC., WILLIAM L. KOESTER,
and BETTY L. KOESTER,
                        Defendants-Appellees/Cross-Appellants,


                               and


ATLAS MINERALS, INC., WALTER J. PIEPER,
SUSAN S. PIEPER, and CHARLES W. SCHULTIES,
                                             Defendants-Appellees.
                         ____________
        Appeals from the United States District Court for the
         Southern District of Indiana, Evansville Division.
         No. EV 00-175-C H/H—David F. Hamilton, Judge.
                         ____________
   ARGUED OCTOBER 28, 2004—DECIDED DECEMBER 20, 2004
                         ____________


  Before POSNER, KANNE, and ROVNER, Circuit Judges.
  POSNER, Circuit Judge. This diversity suit for breach of a
suretyship contract, decided in favor of the defendants after
2                                       Nos. 04-1015, 04-1107

a bench trial, presents questions primarily relating to the
contract-law doctrine of “novation,” but more broadly to
principles of contract interpretation; all the questions are
governed by the common law of Indiana.
   In 1991 defendant Vigo purchased Buck Creek Coal, which
operated a coal mine and was required by both federal and
state law to post reclamation bonds as a condition of being
permitted to operate the mine. 30 U.S.C. § 1259(a); 30 C.F.R.
§ 800.20; Ind. Code § 14-34-6-1. In connection with the pur-
chase, Vigo, joined by defendant Atlas and by the owners of
Vigo and Atlas (the Koesters and the Piepers, respectively,
who are also defendants) and by Buck Creek Coal, signed a
“General Indemnity Agreement.” In it they agreed to
indemnify Utica insurance company for any losses that
Utica might incur from issuing reclamation bonds to the
Indiana state government on behalf of Buck Creek. The
following year (1992) another “General Indemnity Agree-
ment” was signed, identical to the first, except that the only
signers were defendant Schulties, who had not signed the
previous agreement, and the Piepers (who, remember, are
Atlas’s owners). Mr. Pieper signed both individually and as
president; and because of his having thus signed in his
official capacity, as it were, as an agent apparently autho-
rized to bind his principal, the district judge ruled that Atlas
was bound by the second agreement. E.g., Winkler v. V.G.
Reed & Sons, Inc., 638 N.E.2d 1228, 1232-33 (Ind. 1994); City
of Gary v. Conat, 810 N.E.2d 1112, 1115-16 (Ind. App. 2004);
DFS Secured Healthcare Receivables Trust v. Caregivers Great
Lakes, Inc., 384 F.3d 338, 343 (7th Cir. 2004) (Indiana law).
Atlas has not challenged that ruling, even though it appears
from the 1992 agreement that Pieper actually was signing in
his capacity as president of Buck Creek, not of Atlas. So
Atlas is bound; and to simplify our opinion we shall assume
that Atlas and Schulties were the signers of the second
Nos. 04-1015, 04-1107                                        3

agreement and Vigo and Atlas the signers of the first; in
other words, we’ll ignore not only the district court’s
unchallenged error but also the companies’ owners. With
this simplification, the case becomes Utica versus Vigo.
  The surety bonds were later “forfeited”; that is, Buck
Creek proving unable to fulfill its reclamation obligations,
the state required the surety, Utica, to do the reclamation.
Utica then brought this suit, against all the signers of either
agreement, for reimbursement of the expense—some
$400,000—of the reclamation.
   The district court concluded that the signers of the 1991
indemnity agreement were off the hook (except Atlas, since
it had signed the second agreement as well) because the
second agreement was a “novation,” that is, a replacement
of the first agreement, which therefore released the obligors
in that agreement. SSD Control Technology v. Breakthrough
Technologies, Inc., 685 N.E.2d 1136, 1137-38 (Ind. App. 1997);
Rose Acre Farms, Inc. v. Cone, 492 N.E.2d 61, 68-69 (Ind. App.
1986); T & N v. Pennsylvania Ins. Guaranty Ass’n, 44 F.3d 174,
186 (3d Cir. 1994); Restatement (Second) of Contracts § 280,
comment b (1981, 2004 supp.); 3 E. Allan Farnsworth,
Farnsworth on Contracts § 11.11, pp. 141-42 (3d ed. 2004); 30
Williston on Contracts § 76:1 (4th ed. 2004 supp., Richard A.
Lord ed.). But the judge also turned down these defendants’
counterclaim, in which they sought to recover the attorneys’
fees that they had incurred in defending against Utica’s
claim.
  Unable to recover its entire loss from the signers of the
1992 agreement (Atlas and Schulties—the latter now
bankrupt), and seeking therefore to enforce the 1991 agree-
ment against Vigo, Utica challenges the finding that the
1992 agreement was a novation.
  The agreement does not describe itself as a novation or a
substitute, or purport to release the signers of the first
4                                     Nos. 04-1015, 04-1107

agreement. The only clue in the agreements themselves that
the second one might be a novation is that Atlas signed
both, and if the only purpose of the second was to add an
indemnitor, namely Schulties, why did Atlas sign it, having
signed the identical first agreement, unless that wasn’t the
purpose, and the second agreement replaced rather than sup-
plemented the first? Additional evidence, that is, evidence
beyond the two agreements themselves, was presented at
the trial, and that evidence, together with the anomaly we’ve
just noted, persuaded the judge that the second agreement
was indeed a novation.
  That evidence revealed the following. In 1992, Vigo sold
the coal mine to Atlas and Schulties and they agreed to use
their best efforts to replace the existing reclamation bonds
and obtain a release of Vigo’s liability under those bonds.
They failed to do so, but an insurance agent named Jones
submitted a “reclamation bonding application” to Utica,
proposing to “transfer these bonds over and have new
Indemnity Agreements signed by Chuck Schulties.” There
was no mention of Vigo. The agent testified that the reason
Vigo was left off the second agreement was that it and its
owners, who had signed the 1991 agreement, “had no own-
ership, they had no control, they were not party to running
the company.” Asked at trial whether Vigo’s omission from
the agreement was “confirmatory of the conversations that
you’d had with [Utica’s Gerald Swarthout, who handled the
negotiations leading up to the 1992 agreement] that they
would not be indemnitors,” the agent replied “of course,
they were selling.”
  Swarthout gave contrary testimony, but the district judge
disbelieved it, in part because Schulties had (at the time!)
substantial assets. That fact, together with his substantial
expertise in coal mining, suggested that an indemnity agree-
ment signed by him as well as by Atlas would provide suf-
Nos. 04-1015, 04-1107                                       5

ficient security to persuade Utica or some other insurance
company to issue new reclamation bonds to replace those
that Utica had issued. For although the General Indemnity
Agreement (whether the 1991 or the 1992 version, since they
were identical except for the signers) embraced replacement
bonds, it was terminable by an indemnitor on 20 days’ notice.
And therefore as part of Vigo’s sale of the coal mine to Atlas
and Schulties, Atlas and Vigo could have withdrawn from
the 1991 agreement and Atlas and Schulties, with a net
worth between them of $7 million, could have persuaded
Utica or some other insurance company to issue new surety
bonds that Vigo, having withdrawn from the agreement,
would not have been a guarantor of. Utica does not deny
that its bonds could have been replaced in this fashion. Ind.
Code § 14-34-6-14.6.
  The consequence of replacing the bonds would have been
to release Vigo. But given Schulties’ financial wherewithal
and mining expertise, and Vigo’s natural reluctance to re-
main a guarantor of performance over which, as a result of
the sale, it would no longer have any control, the judge was
on solid ground in finding that Utica would have agreed to
an express novation rather than lose to another insurance
company a business relationship that yielded it significant
premiums ($18,000 a year) in exchange for assuming what
seemed at the time a modest risk. Modest because under-
ground coal mines (Buck Creek’s mine was an underground
mine) tend to require less expense to restore the surface
after the mind is exhausted than strip mines and because
two substantial-seeming parties, Atlas and Schulties, had
agreed to indemnify Utica for any loss.
  The judge’s reconstruction of the parties’ deal—his con-
clusion that they intended the second agreement to substitute
for rather than supplement the first—is not clearly errone-
ous. On the contrary, it makes commercial, economic, and
6                                         Nos. 04-1015, 04-1107

common sense; and good sense, or such synonyms as
commercial reasonableness, provides sound guidance for
interpreting ambiguous contracts, in Indiana as elsewhere.
Soames v. Young Oil Co., 732 N.E.2d 1236, 1239 (Ind. App.
2000); F.E. Gates Co. v. Hydro-Technologies, Inc., 722 N.E.2d
898, 903 n. 4 (Ind. App. 2000); Beanstalk Group, Inc. v. AM
General Corp., 283 F.3d 856, 859-61 (7th Cir. 2002) (Indiana
law); Morin Building Products Co., Inc. v. Baystone Construction,
Inc., 717 F.2d 413, 414-15 (7th Cir. 1983) (ditto); XCO Int’l
Inc. v. Pacific Scientific Co., 369 F.3d 998, 1005 (7th Cir. 2004);
Outlet Embroidery Co. v. Derwent Mills, 172 N.E. 462, 463 (1930)
(Cardozo, C.J.). As Judge Boudin explained recently, “Agree-
ments, especially commercial arrangements, are designed to
make sense. If one reading produces a plausible result for
which parties might be expected to bargain, that reading has
a strong presumption in its favor as against another reading
producing an unlikely result (e.g., windfall gains, conditions
that cannot be satisfied, dubious incentives).” National Tax
Institute, Inc. v. Topnotch at Stowe Resort & Spa, 388 F.3d 15,
19 (1st Cir. 2004).
   The difficult question is whether the district judge was
entitled to take evidence—to mine underground, as it were—
rather than to stay on the semantic surface of the two agree-
ments. A finding of novation is dynamite, as this case
illustrates. Instead of supplementing a previous contract, it
wipes it out. Parties that enter into multiple contracts with
one another want protection against a trial that may convert
a contract that says nothing about novation or release into
a release of the obligors under a previous contract. Were it
not for what we’re calling the dynamite effect of a novation,
there would be no reason to treat a novation any differently
from any other contract modification.
  One way to give obligees protection would be to have a
rule that a novation or release must be explicit; that it can
Nos. 04-1015, 04-1107                                         7

never be implied. Indiana rejects that approach, Winkler v.
V.G. Reed & Sons, Inc., supra, 638 N.E.2d at 1233-34; Rose Acre
Farms, Inc. v. Cone, supra, 492 N.E.2d at 69; no jurisdiction,
to our knowledge, accepts it. See, e.g., Imperial Hotels Corp.
v. Dore, 257 F.3d 615, 620-21 (6th Cir. 2001); National Ameri-
can Ins. Co. v. Hogan, 173 F.3d 1097, 1107-08 (8th Cir. 1999);
Capital Nat’l Bank v. Hutchinson, 435 F.2d 46, 50 (5th Cir.
1970); Kroll v. Sugar Supply Corp., 452 N.E.2d 649, 653 (Ill.
App. 1983). So we can set it to one side. There are three
alternatives. One, proposed by the Williston treatise, is to
require that a novation be proved by clear and convincing
evidence. 30 Williston on Contracts, supra, § 76:42. The cases
do not support this alternative; Johnston v. Holiday Inns, Inc.,
565 F.2d 790, 797 (1st Cir. 1977), rejects it outright. What the
case law, including Indiana case law, does support is that
proof of a novation must be “clear and definite” or “clear
and satisfactory” or words to that effect. State v. Traylor, 173
N.E. 461, 464 (Ind. App. 1930); Joslyn Mfg. Co. v. Koppers Co.,
Inc., 40 F.3d 750, 759-60 (5th Cir. 1994); Meredith v. Rockwell
Int’l Corp., 826 F.2d 463, 466 (6th Cir. 1987); Hofer v. Mer-
chants State Bank, 823 F.2d 271, 272-73 (8th Cir. 1987) (per
curiam). We take this to be an appropriate reminder of the
fell consequences of a finding of novation.
  Another alternative, which would treat the determination
of novation like other issues of contractual interpretation, is
that a novation can be implied only if there is an ambiguity
as to whether the agreement claimed to be a novation really
is one, rather than merely a supplement to the earlier
agreement. This approach also has support in Indiana, as in
other states. Downing v. Dial, 426 N.E.2d 416, 419 (Ind. App.
1981); Boswell v. Lyon, 401 N.E.2d 735, 741 (Ind. App. 1980);
Calder v. Camp Grove State Bank, 892 F.2d 629, 631-33 (7th
Cir. 1990); see also In re Newport Plaza Associates, L.P., 985
F.2d 640, 644-45 (1st Cir. 1993).
8                                      Nos. 04-1015, 04-1107

  Still another alternative, supported by the Indiana case of
Rose Acre Farms, Inc. v. Cone, supra, 492 N.E.2d at 68-69, and
by some cases from other jurisdictions as well, Imperial
Hotels Corp. v. Dore, supra, 257 F.3d at 620-21; United States
v. Hastings Motor Truck Co., 460 F.2d 1159, 1161 (8th Cir.
1972), appears to allow extrinsic evidence to be introduced
in any novation case, perhaps on the theory (not articulated
in the cases, however) that the agreement claimed to be a
novation cannot be interpreted without consideration of the
meaning of the contract it is alleged to have replaced. This
cannot be quite right; if the second agreement states “this is
a novation” or “this is not a novation,” that surely is the end
of the case; extrinsic evidence will not be allowed.
   Probably what we have described as alternative rules
come to the same thing, in the following sense: the court can
always peek at the earlier contract, and if in light of what
that contract says it is uncertain whether the new contract is
a novation, then the court can treat the interpretive issue as
one of fact, that is, can take evidence on it, but always
bearing in mind the need for the proof of a novation to be
clear. The earlier contract is a bit of extrinsic evidence that
is always already in the case, and if it shows that the new
contract is ambiguous (as to whether it is a novation), the
door is opened to the presentation of additional extrinsic
evidence, which may make clear that the new contract really
was intended to take the place of the old.
  The distinction that we are exploring is the familiar one
between intrinsic and extrinsic (or patent and latent) am-
biguity, the former referring to an ambiguity that is apparent
just from reading the contract itself (the contract in issue,
and therefore the 1992 General Indemnity Agreement), and
the latter referring to an ambiguity that becomes apparent
only when evidence outside the contract, that is, extrinsic
evidence, is consulted. Adams v. Reinaker, 808 N.E.2d 192,
Nos. 04-1015, 04-1107                                         9

196-97 (Ind. App. 2004); East v. Estate of East, 785 N.E.2d 597,
601 n. 1 (Ind. App. 2003); United States v. Rand Motors, 305
F.3d 770, 774-75 (7th Cir. 2002); Rossetto v. Pabst Brewing Co.,
Inc., 217 F.3d 539, 542-43 (7th Cir. 2000); PMC, Inc. v.
Sherwin-Williams Co., 151 F.3d 610, 614 (7th Cir. 1998). Vigo
argues that there is an intrinsic ambiguity consisting of
Atlas’s having signed the second agreement, when it had
signed the first. If the second just added indemnitor(s) (for
remember that the terms of the two agreements are identi-
cal), what was Atlas doing there? One might be tempted to
answer that it couldn’t hurt to have the indemnitors sign
multiple agreements, just in case one of the agreements
turned out to have some defect, but if so why was Vigo left
off the second?
  This is a genuine puzzle, raising a serious question about
the meaning of the 1992 agreement, but it is not an intrinsic
ambiguity. No one reading just the 1992 agreement, the
agreement contended to be a novation, would attach any
significance to Atlas’s presence as a signatory. It is only
when one reads the other agreement, and notices that Atlas
signed that one too, that the meaning of the second is
thrown into doubt. That is a bit of evidence extrinsic to the
second agreement, but it does create an (extrinsic) ambigu-
ity. And it is not the only evidence that does so—there is
also Vigo’s sale of the mine to Atlas and Schulties, the un-
dertaking by the purchasers to obtain Vigo’s release from
the 1991 indemnity agreement, Schulties’ expertise and fi-
nancial strength, the insurance agent’s testimony, and the
unlikelihood that Utica would have refused to release Vigo
from the earlier agreement because, had it refused, the pur-
chasers of the coal mine would have turned elsewhere for
the necessary reclamation bonds.
  But the desirability of allowing such evidence to be pre-
sented in order to create a full and accurate picture of the
10                                      Nos. 04-1015, 04-1107

transaction in suit, and by doing so resolve the interpretive
question, must be balanced against the danger that the “four
corners” rule—the hallowed rule of contract law that the
court must not delve below a contract’s semantic surface in
interpreting it unless the contract is ambiguous, Thomas v.
Thomas, 577 N.E.2d 216, 219-20 (Ind. 1991); Poznic v. Porter
County Development Corp., 779 N.E.2d 1185, 1189-90 (Ind.
App. 2002); Tri-Central High School v. Mason, 738 N.E.2d 341,
344 (Ind. App. 2000); Neuma, Inc. v. AMP, Inc., 259 F.3d 864,
873-74 (7th Cir. 2001); Bourke v. Dun & Bradstreet Corp., 159
F.3d 1032, 1036 (7th Cir. 1998)—will unravel if extrinsic
evidence can be used to demonstrate ambiguity. For that is
the very evidence that the party presenting it would use to
prove that its interpretation of the contract was correct,
converting interpretation from a reading exercise by the
judge to a factual decision by a trier of fact and thus strip-
ping the parties of protection from the vagaries of a jury.
(Neither side requested a jury in this case, it is true; but
either could have.)
   There are two methods of resolving such a conflict. The
first, which is the older and the more conventional, is based
on the parol evidence rule—the rule that if a written con-
tract is “integrated,” parol (i.e., extrinsic) evidence, whether
oral or written, concerning the negotiations or other back-
ground to the contract, including preliminary agreements
and understandings, is inadmissible to contradict the ap-
parent meaning of the written contract. Franklin v. White, 493
N.E.2d 161, 165-66 (Ind. 1986); Truck City of Gary, Inc. v.
Schneider Nat’l Leasing, 814 N.E.2d 273, 278 (Ind. App. 2004);
Deckard v. General Motors Corp., 307 F.3d 556, 563 (7th Cir.
2002) (Indiana law); In re Yates Development, Inc., 256 F.3d
1285, 1289-90 (11th Cir. 2001). An “integrated” contract is
simply one that is intended to be the parties’ complete
agreement. So what the parol evidence rule amounts to is
Nos. 04-1015, 04-1107                                           11

that if the parties want their written contract to be treated as
the sole basis for interpreting their agreement the court will
honor their wish—their wish to have any contract dispute
resolved by application of the “four corners” rule.
   Normally parties demonstrate this wish by including an
integration clause in the contract, that is, a clause that states
that the contract reflects the parties’ complete understanding
of their deal. The omission of the clause (there was none
here) is not fatal; but when it is omitted a party can ask the
judge to look at extrinsic evidence, though initially just for
the limited purpose of deciding whether the contract really
is integrated. Franklin v. White, supra, 493 N.E.2d at 166-67;
I.C.C. Protective Coatings, Inc. v. A.E. Staley Mfg. Co., 695
N.E.2d 1030, 1035 (Ind. App. 1998); Betaco, Inc. v. Cessna
Aircraft Co., 103 F.3d 1281, 1285-86 (7th Cir. 1996); Cook v.
Little Caesar Enterprises, Inc., 210 F.3d 653, 656 (6th Cir. 2000);
Starter Corp. v. Converse, Inc., 170 F.3d 286, 295 (2d Cir. 1999).
This does not mean throwing open the contract to a trial.
The evidence is presented to the judge for a preliminary
determination of whether the contract is integrated. Only if
he decides that it is not integrated does the case go to the
jury (or the judge in his capacity as the trier of fact in a
bench trial, as in this case) for a determination, based on
extrinsic evidence as well as the written contract—based in
short on all relevant, admissible evidence—of what the con-
tract really means. Truck City of Gary, Inc. v. Schneider Nat’l
Leasing, supra, 814 N.E.2d at 278; Center State Farms v. Campbell
Soup Co., 58 F.3d 1030, 1032-33 (4th Cir. 1995); American
Bridge Co. v. Crawford, 31 F.2d 708, 710 (3d Cir. 1929); 11
Williston on Contracts, supra, § 33:19.
  The other method of resolving the tension between the
interest in admitting all evidence bearing on the meaning of
a contract and the parties’ desire to avoid a trial in which
that meaning might be determined by a commercially
12                                      Nos. 04-1015, 04-1107

unsophisticated jury or judge is to allow only objective
evidence to be used to determine the existence of an ambigu-
ity. Hemenway v. Peabody Coal Co., 159 F.3d 255, 259 (7th Cir.
1998) (Indiana law); Matthews v. Sears Pension Plan, 144 F.3d
461, 467 (7th Cir. 1998); Cole Taylor Bank v. Truck Ins. Ex-
change, 51 F.3d 736, 737-38 (7th Cir. 1995); AM Int’l, Inc. v.
Graphic Management Associates, Inc., 44 F.3d 572 (7th Cir.
1995); Kerin v. United States Postal Service, 116 F.3d 988, 992
n. 2 (2d Cir. 1997); Duquesne Light Co. v. Westinghouse Electric
Corp., 66 F.3d 604, 614 (3d Cir. 1995); Carey Canada, Inc. v.
Columbia Casualty Co., 940 F.2d 1548, 1557-58 (D.C. Cir.
1991); Cincinnati Ins. Co. v. River City Construction Co., 757
N.E.2d 676, 681 (Ill. App. 2001). The idea of a judicial
screening is retained, but there is an additional screen as
well: the evidence that the judge uses to decide whether the
meaning of the contract will have to be determined in a trial
must be objective in the sense of not depending on the
credibility of the parties to the contract; the evidence must
be independently verifiable. The fact that a party testifies
that although the contract says X he and the other party to
the contract meant Y flunks the test of objectivity and so is
inadmissible, whereas under the first approach, the one
based on the parol evidence rule, a judge would be allowed
by resolving a swearing contest to decide that the contract
was not integrated and therefore that its meaning presented
an issue for trial.
  Under either approach, extrinsic ambiguity was adequately
demonstrated here. There was no integration clause in the
1992 agreement (or in the prior one, for that matter, for
remember that the terms, as distinct from their signatories,
are identical). And so Judge Hamilton had to consider
extrinsic evidence in order to decide whether the agreement
was the complete agreement of the parties. It was not. From
the sale of the mine and the other circumstances we’ve
Nos. 04-1015, 04-1107                                         13

recounted it is apparent that the parties understood the 1992
agreement to replace rather than supplement the previous
one.
  Under the “objective evidence” approach, the conclusion
is the same. The evidence that the 1992 agreement was a
novation rather than a supplement was objective in the
sense that we have just explained. The sale of the mine,
Atlas’s signature on the agreement, the testimony of the
insurance agent—for he was Utica’s agent, not Vigo’s—and
the implausibility of supposing that Vigo would have agreed
to remain bound by the 1991 agreement as a condition of
being able to sell the mine, were none of them supported
only by self-serving, unverifiable testimony of a party.
   So the judge’s ruling that there was a novation stands. But
it is does not follow, as Vigo’s counterclaim charges, that by
trying to enforce the 1991 agreement against Vigo, Utica
violated the agreement and is therefore liable for damages for
breach that consist of the attorneys’ fees that Vigo expended
in this case. This argument would if accepted make attor-
neys’ fee shifting the rule in contract cases. Several states do
allow the award of attorneys’ fees as a matter of course in a
breach of contract suit. MindGames, Inc. v. Western Publishing
Co., Inc., 218 F.3d 652, 654 (7th Cir. 2000) (Arkansas law);
Flourine On Call, Ltd. v. Fluorogas Ltd., 380 F.3d 849, 866-67
(5th Cir. 2004) (Texas law). But most—including Indi-
ana—do not. Thor Electric, Inc. v. Oberle & Associates, Inc., 741
N.E.2d 373, 382-83 (Ind. App. 2000); Shumate v. Lycan, 675
N.E.2d 749, 754-55 (Ind. App. 1997); Osler Institute, Inc. v.
Forde, 386 F.3d 816, 818 (7th Cir. 2004) (ditto); Oscar Gruss &
Son, Inc. v. Hollander, 337 F.3d 186, 199-200 (2d Cir. 2003); cf.
J.R. Cousin Industries, Inc. v. Menard, Inc., 127 F.3d 580, 583
(7th Cir. 1997). Vigo’s argument confuses a mistaken
litigating position in a contract case with a breach of the
contract. A breach of contract is a failure to perform a
14                                      Nos. 04-1015, 04-1107

contracted-for undertaking. Utica did not fail to perform
any of the undertakings that it had agreed to in the 1991 or
1992 agreements. It merely mistook Vigo’s undertakings.
  There is one more issue. An Indiana statute, recently
repealed but conceded to be applicable to this case, pro-
vides, so far as bears on the case, that a “debtor” may not
“bring an action upon an agreement with a creditor . . . to
forbear from exercising rights under a prior credit agree-
ment” unless the agreement “sets forth all the material terms
and conditions of the agreement” and “is signed by the cre-
ditor and the debtor.” Ind. Code § 32-2-1.5-5. Many states
have such statutes, as we noted in Consolidation Services, Inc.
v. KeyBank Nat’l Ass’n, 185 F.3d 817, 819-20 (7th Cir. 1999).
They are a reaction against “lender liability” litigation,
Whitney Nat’l Bank v. Rockwell, 661 So.2d 1325, 1329-31 (La.
1995), in which borrowers assert “breach of oral agreements
to lend, to refinance or to forbear from enforcing contractual
remedies.” Id. at 1329. And indeed the Indiana law was not
really repealed, but merely shifted without substantive
changes to another chapter of the Indiana Code. See Ind.
Code §§ 26-2-9-1 et seq.
   Utica argues that the 1992 General Indemnity Agreement,
if viewed as a novation, is an agreement between a creditor
(Utica, the releasing party, in the novation aspect of the
agreement) and a debtor (Vigo, the released party), and
neither party signed the agreement and the agreement
doesn’t set forth all the material terms—it doesn’t even set
forth the key term: that it is a novation.
  Vigo was not suing on the 1992 agreement, but merely
interposing it as a defense to Utica’s suit on the previous
agreement. Transportation & Transit Associates, Inc. v. Morrison
Knudsen Corp., 255 F.3d 397, 400 (7th Cir. 2001); Able Int’l
Corp. v. B.P. Chemicals America, Inc., 145 F.3d 67, 68 (1st Cir.
Nos. 04-1015, 04-1107                                         15

1998); Phillips & Arnold, Inc. v. Frederick J. Borgsmiller, Inc.,
462 N.E.2d 924, 929 (Ill. App. 1984); 30 Williston on Contracts,
supra, § 76:40. That in itself is not critical, however, as
Wabash Grain, Inc. v. Bank One, Crawfordsville, NA, 713 N.E.2d
323, 326 (Ind. App. 1999) makes clear, though two other
courts disagree. Brown v. Founders Bank & Trust Co., 890 P.2d
855, 861-62 (Okla. 1994); Fleming Irrigation, Inc. v. Pioneer
Bank & Trust Co., 661 So. 2d 1035, 1039 (La. App. 1995).
If testimony to oral modifications of credit agreements is
thought unreliable evidence, it doesn’t matter whether the
evidence is introduced by the plaintiff or the defendant.
  Nevertheless the statute is not applicable to this case. A
suretyship contract is not a “credit agreement,” the key term
in the statute, which defines a creditor (so far as bears on
this case) as an insurance company that “extend[s] credit
under a credit agreement with a debtor” and a debtor as one
who “obtains credit under a credit agreement with a
creditor,” “seeks a credit agreement with a creditor,” or
“owes money to a creditor.” Ind. Code §§ 32-3-1.5-2, -3.
Utica did not lend money to the coal company, or to any
other entity or individual involved in this case. Nor did it
extend credit in the sense of committing itself under stated
conditions to lend money to anyone in the future. Its obli-
gations ran only to the Indiana state government, the entity
that had required the posting of reclamation bonds on
behalf of Blue Creek Coal. If Utica and Vigo come within the
statute’s reach at all, it is as “debtors” of the state.
  And if despite what we have said the Indiana statute did
render the 1992 agreement unenforceable (more precisely,
not “interposable” as a defense), equally it rendered the 1991
agreement unenforceable, because the “creditor,” Utica, did
not sign it. Yet Utica sued to enforce the 1991 agreement, and
prevailed against the signers of it. For that matter, it sued to
enforce the 1992 agreement as well, and though it gained
16                                      Nos. 04-1015, 04-1107

nothing because Schulties declared bankruptcy, it could
have filed a claim in bankruptcy against him based on the
agreement (we don’t know whether it did or not). The
doctrine of “mend the hold” forbids a contract party,
particularly when it is an insurance company, to change its
position on the meaning of the contract in the middle of
litigation over it. National Hame & Chain Co. v. Robertson, 161
N.E. 851, 853 (Ind. App. 1928); Houben v. Telular Corp., 309
F.3d 1028, 1036 (7th Cir. 2002); United States v. Newell, 239
F.3d 917, 922 (7th Cir. 2001); Harbor Ins. Co. v. Continental
Bank Corp., 922 F.2d 357, 362-64 (7th Cir. 1990). Which is
what Utica has done.
                                                   AFFIRMED.

A true Copy:
        Teste:

                           _____________________________
                            Clerk of the United States Court of
                              Appeals for the Seventh Circuit




                    USCA-02-C-0072—12-20-04
