Contracts I, Pages 249–258

Quake Construction v. American Airlines

Supreme Court of Illinois, 1990

Facts:

Defendant 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. Jones invited plaintiff to bid on the employee facilities and automotive maintenance shop project, and plaintiff submitted its to Jones. Jones orally notified plaintiff that it had been awarded the contract for the project, and asked for the license numbers of the subcontractors plaintiff intended to use. Plaintiff said that the subcontractors would not allow plaintiff to use their license numbers until they received a signed subcontract agreement. Jones told plaintiff that they would shortly receive a contract for the project and sent them a letter of intent with a clause that said Jones could cancel the latter if the parties couldn't agree on a fully executed subcontract agreement.

Procedural History:

Circuit court of Cook County dismissed complaint with prejudice, relying principally on the cancellation clause. Appellate Court reversed the dismissal and remanded the cause to the circuit court.

Issue:

Was the letter of intent intended to be binding?

Defendant's Argument:

The letter did not contain all of the essential terms of a contract and the cancellation clause negated any inference that the parties intended to be bound by the letter.

Rule:

Page 253, Paragraph 1In determining whether the parties intended to reduce their agreement to writing, the following factors may be considered:

  • 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
  • Whether the negotiations indicated that a formal written document was contemplated at the completion of the negotiations
Others that might be considered are:
  • Where in the negotiating process that process is abandoned
  • The reasons it is abandoned
  • The extent of the assurance previously given by the party which now disclaims any contract
  • The other party's reliance upon the anticipated completed transaction

Reasoning:

Defendant said that the letter awarded plaintiff the work and authorized them to begin, requiring such within 4–11 days. Yet it also referred to a formal agreement, and the cancellation clause could be interpreted as the circuit court did. The quick requirement of the work and short time frame of 60 days shows their intent for the letter of intent to be binding until a formal contract was completed.

Holding:

Their intent with the letter of intent was ambiguous. It is up to the trier of fact to determine their intent, like the circuit court did. Under Illinois law, such letters of intent are binding. Affirmed.

Concurring Opinion:

The letter refers expressly to canceling the letter, not the contract. Hence, it was a contract to engage in negotiations.