Facts
- American Airlines hired Jones Brothers as construction manager for an expansion project at O’Hare International Airport.
- Quake Construction submitted a bid and was orally told it had been awarded the job; Jones requested subcontractors’ license numbers, and Quake said it needed signed subcontracts to obtain them.
- Jones sent Quake an April 18, 1985 letter of intent stating the contract had been awarded, listing a lump-sum price, authorizing Quake to begin work within days, and requiring insurance and minority-participation documentation.
- The letter stated that a formal subcontract was being prepared, and included a cancellation clause allowing Jones to cancel if the parties could not agree on a fully executed subcontract.
- While negotiations continued, Jones announced at a preconstruction meeting that Quake would be the general contractor; shortly thereafter, American told Quake its involvement was terminated.
- Quake sued for breach of contract, detrimental reliance, waiver of a condition precedent, and impossibility; the trial court dismissed all counts with prejudice under Illinois § 2-615.
- The appellate court reinstated the contract, reliance, and waiver counts, but affirmed dismissal of impossibility; defendants appealed.
Issues
- Whether the letter of intent was unambiguously nonbinding due to its reference to a future formal subcontract and its cancellation clause, permitting dismissal of the breach-of-contract claim on the pleadings.
- Whether the pleaded facts were sufficient to avoid dismissal of claims for detrimental reliance and waiver of a condition precedent.
- Whether Quake stated a claim for impossibility.
Decision
- The Illinois Supreme Court held the letter of intent was ambiguous as to whether the parties intended to be bound before executing a formal subcontract.
- Because of the ambiguity, parol evidence of the parties’ intent could be considered, making dismissal of the contract claim at the pleading stage improper.
- The Court affirmed reinstatement of the breach-of-contract, detrimental-reliance, and waiver counts and remanded for further proceedings.
- The Court affirmed dismissal of the impossibility count.
Legal Principles
- A letter of intent may be an enforceable contract if the parties intend to be bound, even when they anticipate a later, more detailed writing.
- When a writing is ambiguous on a material point—including intent to be bound—parol evidence is admissible to determine the parties’ intent.
- Intent to be bound may be inferred from the document’s language and specificity (e.g., price, scope, start date), the timing of required performance, customary practice for formal writings, and the parties’ conduct after execution.
- A reference to a future formal agreement and a cancellation clause do not necessarily negate present contractual intent; they can instead create ambiguity requiring fact development.
Conclusion
The court concluded that the letter of intent and surrounding allegations plausibly supported either a binding interim agreement or a nonbinding agreement to agree; because that ambiguity requires evidence of intent, the contract, reliance, and waiver claims could not be dismissed on the pleadings, while the impossibility claim was properly dismissed.