Contracts Case Brief # 10

Title and Citation: Quake Construction Inc. v. American Airlines, Inc.,

565 N.E.2d 990 (1990)
Identities of Parties: P (Quake Construction Inc.) filed a four count
third amended complaint against D (American Airlines and Jones
Brothers).
Procedural History: P filed suit in circuit court and D filed a motion to
dismiss. Trial court granted the motion to dismiss, stating that D
lawfully ended the contract under the cancellation clause. P appealed
decision, and the appellate court found that the letter of intent was
ambiguous and reversed trial court decision. D appealed to the Illinois
Supreme Court.
Facts: D (American) hired D (Jones) to handle the construction
contracts for the expansion of American facilities. At OHara
International Airport. D (Jones) sent P an invitation to bid on the
project. P submitted its bid. D (Jones) orally informed P that it would be
awarded the contract. Jones wanted Quake to provide license numbers
of its subcontractors, but P informed Jones that it could not until it had
entered into a formal arrangement. In order to induce the
subcontractors to provide their license numbers, Jones provided P with
a letter of intent. This letter included language indicated that P had
been awarded the contract, that American was authorizing the work,
and that work would begin in approximately four to 11 days after the
date of the letter. The letter also provided a cancellation clause, which
provided that Jones could cancel the letter of intent if the parties could
not agree on a fully executed agreement. Jones and P entered into
negotiations for a written form contract. At a preconstruction meeting,
Jones announced that Quake would be the general contractor for the
project. American informed Quake that same day, however, that its
involvement with the project was terminated.
Issue(s): A) Whether the letter of intent enforceable contract? B)
Whether the language in the letter of intent between P and D is too
ambiguous to warrant a motion to dismiss?
Holding and Rule: A) Yes, a letter of intent to enter into a contract
may be enforced. B) Yes, the language in the letter of intent is too
ambiguous as to whether or not the parties thought the letter was
binding (cancellation clause) and does not show clear intent.
Courts Reasoning: A letter of intent to enter into a contract may,
itself, be enforceable if it is clear that the ultimate contract will

substantially be based upon the same terms as the letter of intent.

Simply stating in a letter of intent that a more formal contract will be
drafted does not defeat the enforceability of a letter of intent.
However, stating in a letter of intent that the parties do not intend to
be bound by the letter will render the letter unenforceable as a
contract. If the letter is not ambiguous as to the parties intent, then a
trial court must not consider parol evidence. However, if the letter is
ambiguous as to the parties intent, a trial court may consider parol
evidence to ascertain the parties intent to be bound by the letter. In
the current matter, the letter of intent is ambiguous as to whether the
parties intended to be bound by it. It is true that the letter includes
details regarding the terms of the parties agreement. These details
include that the contract was being awarded, that the letter was
authorizing the work, and that work would begin in approximately four
to 11 days after the date of the letter. The letter also includes the
cancellation clause, which could indicate that the parties intended to
be bound by the letter. It seems that if there was no intent to be bound
by the letter, then there would be no reason to include a cancellation
clause. On the other hand, the letters several references to the
eventual execution of a formal contract indicate that the parties may
not have intended to be bound by the letter. The cancellation clause
could also indicate that the parties did not intend to be bound until the
formal contract was executed. Additionally, the letter fails to include
many terms that are required in typical construction contracts, such as
terms regarding payment, damages, and termination. Based upon
these facts, the letter of intent was ambiguous as to the parties intent
to be bound by it
Judgment and Order: Case remanded to trial court so parties more
evident to show intent, court of appeals decision affirmed