Quake Const., Inc. v. American Airlines, Inc.

Citation141 Ill.2d 281,152 Ill.Dec. 308,565 N.E.2d 990
Decision Date03 December 1990
Docket NumberNo. 68585,68585
CourtSupreme Court of Illinois
Parties, 152 Ill.Dec. 308 QUAKE CONSTRUCTION, INC. v. AMERICAN AIRLINES, INC.

David M. Meister, Peter Petrakis and Barbara J. Stuentzer, of Katten, Muchin & Zavis, Chicago, for appellants.

Richard D. Heytow, of Crystal and Heytow, P.C., Chicago, for appellee.

Justice CALVO delivered the opinion of the court:

Plaintiff, Quake Construction, Inc. (Quake), filed a four-count, third-amended complaint against defendants, American Airlines, Inc. (American), and Jones Brothers Construction Corporation (Jones). In count I, plaintiff sought damages for breach of contract. Plaintiff based counts II, III and IV on detrimental reliance, waiver of condition precedent, and impossibility of contract, respectively. Upon defendants' motion, the circuit court of Cook County dismissed the complaint with prejudice, pursuant to section 2-615 of the Illinois Code of Civil Procedure (Ill.Rev.Stat.1987, ch. 110, par. 2-615). On appeal, the Appellate Court, First District, with one justice dissenting, reversed the dismissal of counts I, II and III, affirmed the dismissal of count IV, and remanded the cause to the circuit court. (181 Ill.App.3d 908, 130 Ill.Dec. 534, 537 N.E.2d 863.) We granted defendants' petition for leave to appeal (107 Ill.2d R. 315).

Quake alleged in its complaint the following facts. In February 1985, American hired Jones to prepare bid specifications, accept bids, and award contracts for construction of the expansion of American's facilities at O'Hare International Airport. Quake received an invitation to bid on the employee facilities and automotive maintenance shop project (hereinafter referred to as the project), and in April 1985 submitted its bid to Jones. Jones orally notified Quake that Quake had been awarded the contract for the project. Jones then asked Quake to provide the license numbers of the subcontractors Quake intended to use on the project. Quake notified Jones that the subcontractors would not allow Quake to use their license numbers until Quake submitted a signed subcontract agreement to them. Jones informed Quake that Quake would shortly receive a written contract for the project prepared by Jones. To induce Quake to enter into agreements with its subcontractors and to induce the subcontractors to provide Quake and Jones with their license numbers, Jones sent Quake the following letter of intent dated April 18, 1985:

"We have elected to award the contract for the subject project to your firm as we discussed on April 15, 1985. A contract agreement outlining the detailed terms and conditions is being prepared and will be available for your signature shortly.

Your scope of work as the general contractor includes the complete installation of expanded lunchroom, restroom and locker facilities for American Airlines employees as well as an expansion of AmericanAirlines existing Automotive Maintenance Shop. The project is located on the lower level of 'K' Concourse. A sixty (60) calendar day period shall be allowed for the construction of the locker room, lunchroom and restroom area beginning the week of April 22, 1985. The entire project shall be complete by August 15, 1985.

Subject to negotiated modifications for exterior hollow metal doors and interior ceramic floor tile material as discussed, this notice of award authorizes the work set forth in the following documents at a lump sum price of $1,060,568.00.

a) Jones Brothers Invitation to Bid dated March 19, 1985.

b) Specifications as listed in the Invitation to Bid.

c) Drawings as listed in the Invitation to Bid.

d) Bid Addendum # 1 dated March 29, 1985.

Quake Construction Inc. shall provide evidence of liability insurance in the amount of $5,000,000 umbrella coverage and 100% performance and payment bond to Jones Brothers Construction Corporation before commencement of the work. The contract shall include MBE, WBE and EEO goals as established by your bid proposal. Accomplishment of the City of Chicago's residency goals as cited in the Invitation to Bid is also required. As agreed, certificates of commitment from those MBE firms designated on your proposal modification submitted April 13, 1985, shall be provided to Jones Brothers Construction Corporation.

Jones Brothers Construction Corporation reserves the right to cancel this letter of intent if the parties cannot agree on a fully executed subcontract agreement."

Jones and Quake thereafter discussed and orally agreed to certain changes in the written form contract. Handwritten delineations were made to the form contract by Jones and Quake to reflect these changes. Jones advised Quake it would prepare and send the written contract to Quake for Quake's signature. No such formal written contract, however, was entered into by the parties.

At a preconstruction meeting on April 25, 1985, Jones told Quake, Quake's subcontractors, and governmental officials present that Quake was the general contractor for the project. On that same date, immediately after the meeting, American informed Quake that Quake's involvement with the project was terminated. Jones confirmed Quake's termination by a letter dated April 25, 1985. The damages Quake allegedly suffered included the money it spent in procuring the contract and preparing to perform under the contract, and its loss of anticipated profit from the contract.

The main issue is whether the letter of intent from Jones to Quake is an enforceable contract such that a cause of action may be brought by Quake. This court has previously set forth the principles of law concerning the enforceability of letters of intent:

"The fact that parties contemplate that a formal agreement will eventually be executed does not necessarily render prior agreements mere negotiations, where it is clear that the ultimate contract will be substantially based upon the same terms as the previous document. [Citation.] If the parties * * * intended that the * * * document be contractually binding, that intention would not be defeated by the mere recitation in the writing that a more formal agreement was yet to be drawn. However, parties may specifically provide that negotiations are not binding until a formal agreement is in fact executed. [Citation.] If the parties construe the execution of a formal agreement as a condition precedent, then no contract arises unless and until that formal agreement is executed." Chicago Investment Corp. v. Dolins (1985), 107 Ill.2d 120, 126-27, 89 Ill.Dec. 869, 481 N.E.2d 712.

See Ceres Illinois, Inc. v. Illinois Scrap Processing, Inc. (1986), 114 Ill.2d 133, 143-44, 102 Ill.Dec. 379, 500 N.E.2d 1. The Chicago court merely reiterated the rule established over 85 years ago:

" 'Where the parties make the reduction of the agreement to writing, and its signature by them, a condition precedent to its completion, it will not be a contract until that is done. And this is true although all the terms of the contract have been agreed upon. But where the parties have assented to all the terms of the contract, the mere reference to a future contract in writing will not negative the existence of a present contract.' " (Baltimore & Ohio Southwestern R.R. Co. v. People ex rel. Allen (1902), 195 Ill. 423, 428, 63 N.E. 262, quoting 7 Am. & Eng.Enc.L. 140 (2d ed. 1898).)

(See Chicago Title & Trust Co. v. Ceco Corp. (1980), 92 Ill.App.3d 58, 69-70, 47 Ill.Dec. 663, 415 N.E.2d 668; Interway, Inc. v. Alagna (1980), 85 Ill.App.3d 1094, 1097-98, 41 Ill.Dec. 117, 407 N.E.2d 615.) Thus, although letters of intent may be enforceable, such letters are not necessarily enforceable unless the parties intend them to be contractually binding. Interway, 85 Ill.App.3d at 1098, 41 Ill.Dec. 117, 407 N.E.2d 615.

A circuit court must initially determine, as a question of law, whether the language of a purported contract is ambiguous as to the parties' intent. (Interway, 85 Ill.App.3d at 1098, 41 Ill.Dec. 117, 407 N.E.2d 615.) If no ambiguity exists in the writing, the parties' intent must be derived by the circuit court, as a matter of law, solely from the writing itself. (Interway, 85 Ill.App.3d at 1098, 41 Ill.Dec. 117, 407 N.E.2d 615; see Schek v. Chicago Transit Authority (1969), 42 Ill.2d 362, 364, 247 N.E.2d 886.) If the terms of an alleged contract are ambiguous or capable of more than one interpretation, however, parol evidence is admissible to ascertain the parties' intent. (Borg-Warner Corp. v. Anchor Coupling Co. (1958), 16 Ill.2d 234, 242, 156 N.E.2d 513; Interway, 85 Ill.App.3d at 1098, 41 Ill.Dec. 117, 407 N.E.2d 615.) If the language of an alleged contract is ambiguous regarding the parties' intent, the interpretation of the language is a question of fact which a circuit court cannot properly determine on a motion to dismiss. Interway, 85 Ill.App.3d at 1098, 41 Ill.Dec. 117, 407 N.E.2d 615.

In determining whether the parties intended to reduce their agreement to writing, the following factors may be considered: whether the type of agreement involved is one usually put into writing, whether the agreement contains many or few details, whether the agreement involves a large or small amount of money, whether the agreement requires a formal writing for the full expression of the covenants, and whether the negotiations indicated that a formal written document was contemplated at the completion of the negotiations. (Ceres, 114 Ill.2d at 144, 102 Ill.Dec. 379, 500 N.E.2d 1; Chicago, 107 Ill.2d at 124, 89 Ill.Dec. 869, 481 N.E.2d 712.) Other factors which may be considered are: "where in the negotiating process that process is abandoned, the reasons it is abandoned, the extent of the assurances previously given by the party which now disclaims any contract, and the other party's reliance upon the anticipated completed transaction." A/S Apothekernes Laboratorium for Specialpraeparater v. I.M.C. Chemical Group, Inc. (N.D.Ill.1988), 678 F.Supp. 193, 196, aff'd (7th Cir.198...

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