Court Opinion

ID: 9715197
Source: CourtListenerOpinion
Date Created: 2023-08-26 05:57:23.797451+00
Date Added: 2024-06-11T18:23:32.289626
License: Public Domain

JUSTICE STAMOS, specially concurring: Because dismissal is unwarranted unless clearly no set of facts can be proved under the pleadings that will entitle a plaintiff to recover, I agree with the majority that the circuit court should not have dismissed counts I through III of Quake’s complaint. I also agree with the majority that Quake has waived the issue of dismissing count IV. Thus, I concur in the judgment. However, even though the Jones letter of intent is just ambiguous enough for Quake’s complaint to survive a motion to dismiss, I consider that any interpretation of the letter’s language as potentially establishing an underlying construction contract is far less plausible than the majority implies. It would be unfortunate if the court’s affirmance and remand were construed as encouraging, on the basis of the letter’s barely ambiguous text, any ultimate factual finding of intent to be bound to an underlying contract. Moreover, the misuse of letters of intent by parties seemingly wishing to have their contractual cake and eat it too, or wishing merely to fudge the contract issue, ought to evoke judicial disapproval. Therefore, I write separately. Contrary to the majority’s conclusion that “[t]he letter stated that Jones awarded the contract *** to Quake” (141 Ill. 2d at 293), the letter stated simply that Jones had “elected to award” the underlying construction contract to Quake “as we discussed on April 15” (141 Ill. 2d at 286). Though Quake separately alleged (141 Ill. 2d at 285) an earlier oral statement by Jones that the contract had indeed been “awarded” to Quake, that allegation is not necessarily confirmed by the language of the letter. Use of the word “elected,” when combined both with the limiting reference to an earlier discussion of unspecified nature and with the other conditions set forth in the letter, may well be interpreted to mean simply that Jones had “decided” or “chosen” to award the construction contract to Quake — in much the same way as a homeseeker might decide to purchase a certain house he had toured, or a merchant to order products like those exhibited at a trade fair, or a homeowner to buy one brand of paint rather than others she had seen. In no such case is the mere act of decision, or election, equivalent to an actual offer or acceptance; neither of the latter occurs until the decision is translated into binding words or deeds. Before that occurs, the decision may need fortifying through further negotiation or investigation, and the prospective purchaser may ultimately decide against the transaction. See, e.g., J. Calamari & J. Perillo, The Law of Contracts §2 — 6, at 35 (3d ed. 1987) (hereinafter Calamari & Perillo) (offers distinguished from statements of intention); 1 S. Williston, A Treatise on the Law of Contracts §§26 through 28 (Jaeger 3d ed. 1957) (hereinafter Williston) (offers distinguished from expressions of intention, preliminary negotiations, and agreements preliminary to written contracts). The question here, then, is whether the written recital that Jones had “elected” to award the construction contract could itself be considered as actually binding Jones to such a contract. The matter is not as clear as the majority appears to believe. Some terms of the letter may tend to support existence of a construction contract; other terms cast doubt on it; but the “election” term is so ambiguous as to do neither. . Moreover, the recital that work was to begin some 4 to 11 days after the date of the letter does not “reveal” an intent to be bound to a construction contract (141 Ill. 2d at 293-94), particularly since the letter’s opening paragraph spoke of “shortly” preparing and tendering a “contract agreement.” As defendants persuasively argue, it is quite possible to finish drafting and to present a formal contract in less time than four days. (Cf. Farnsworth, Precontractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations, 87 Colum. L. Rev. 217, 252 & n.138 (1987) (hereinafter Precontractual Liability) (citing “stop-gap agreements” permitting contractors to begin work while parties negotiate construction contracts).) At most, this work-schedule language and the election language hint at an intent to be bound to a construction contract, but as evidence of such an intent I believe they are far less weighty than is the contrary evidence furnished by the letter’s explicit and cautionary references to a forthcoming formal contract. Thus, I disagree with the majority’s apparently evenhanded assessment of the evidence on this point, even though the trier of fact is correctly acknowledged to have the last word in the event that ambiguity in the letter’s text prevents the court from ruling as a matter of law. 141 Ill. 2d at 297. I am especially troubled by the majority’s apparent view that, in regard to a construction contract, the letter’s cancellation clause equally bespeaks an intent to be bound and an intent not to be bound. The parties are said to have had “no need to provide for its cancellation” if they did not intend to be bound by the letter, and the clause itself is said to imply that the parties could be bound by the letter if no “fully executed subcontract agreement” resulted. (141 Ill. 2d at 301.) This view of the cancellation clause seems to turn it on its head and to pervert any legitimate office of letters of intent. Instead of weighing as heavily for as against a construction contract, in my judgment the cancellation clause powerfully militates against any finding of such contract. The very language of the clause treats such a contract (“a fully executed subcontract agreement”) as future possibility rather than present reality. Yet the majority would allow transmuting this prospective bargain into current obligation, by confusing a hoped-for construction contract with a cancellable preliminary expression of intent. Much as word is a shadow of deed, or wish may be father to thought (Democritus frag. 145; W. Shakespeare, Henry IV, Pt. II, act IV, sc. v, 1. 91), a letter of intent may lead to a contract, but it is not necessarily the contract itself. The cancellation clause refers expressly to cancelling the letter, not to cancelling the construction contract that the letter anticipates. A construction contract certainly would bind the parties to that contract’s terms, but upon acceptance by Quake the letter here would much more plausibly be viewed as, at most, only binding the parties to efforts at achieving a construction contract on the terms outlined. See, e.g., Evans, Inc. v. Tiffany & Co. (N.D. Ill. 1976), 416 F. Supp. 224 (obligation to negotiate derived from unclear letter of intent); see also Precontractual Liability, 87 Colum. L. Rev. at 250-69 (discussing letters of intent classified as “agreements with open terms” and “agreements to negotiate”); Knapp, Enforcing the Contract to Bargain, 44 N.Y.U. L. Rev. 673 (1969) (discussing need for recognizing good-faith bargaining duty as intermediate stage between ultimate contract and none); cf. Shell, Substituting Ethical Standards for Common Law Rules in Commercial Cases: An Emerging Statutory Trend, 82 Nw. U.L. Rev. 1198, 1199 & n.7 (1988) (noting case law on duty of good-faith negotiation pursuant to letters of intent). In formalistic contract parlance, there was mutual consideration for the letter. Consideration moving to Quake included (1) Jones’ implied promise of efforts to negotiate and enter into an already partly defined construction contract with Quake and (2) Jones’ conferral upon Quake of the ability to use the letter to obtain subcontractors’ license numbers. Consideration moving to Jones included (1) Quake’s own promise of efforts to contract with Jones and (2) Quake’s additional promise of efforts to contract with subcontractors. Hence, the letter itself, as distinguished, from the anticipated construction contract, may be regarded as a contract in its own right: a contract to engage in negotiations. If so, it was this contract, not the anticipated construction contract, that might be cancelled by Jones pursuant to the cancellation clause. Indeed, the notion of cancelling a construction contract not yet entered into lacks meaning. Conceivably, the letter’s arguable status as a contract to negotiate might be attacked on grounds that, because only Jones was given the right to cancel, the cancellation clause defeated mutuality of obligation. However, if such an attack succeeded, it would prove too much. It would mean not only that the letter had lost its character as a negotiation contract but also that any view of the letter as embodying the anticipated construction contract had become even more misguided. A telling point is that the majority’s sympathy for reading the letter as establishing a construction contract fails to take account of this nonmutuality question. It also may be possible to explain the letter of intent on an alternative theory of contract, but that tenuous theory does not support Quake’s claim even if it can properly be applied in this setting. According to the theory, the letter of intent would actually embody a construction contract, but one in which Quake gave its promise to perform on the condition that Jones should unconditionally promise to pay, and Jones gave its written and (for the time being) conditional promise to pay — Jones’ condition or conditions to include (1) mutual agreement on a “fully executed” and superseding written contract instrument containing “detailed terms” and (2) perhaps some or all of the following: negotiation of door and tile modifications, liability insurance, performance and payment bond, achievement of goals for minorities’ and women’s employment and for city residency, and MBE certificates of commitment. (Cf. 1 A. Corbin, Corbin on Contracts §22, at 64-66 (1963) (hereinafter Corbin) (discussing written contract in which condition of third party’s action was unwritten); Precontractual Liability, 87 Colum. L. Rev. at 245-49 (discussing enforceability of agreements containing promises arguably conditional on promisors’ discretion to perform). But see 1 Corbin §30, at 107 (distinguishing between “condition” that further assent be manifested, hence “presumably” no contract, and condition of extraneous event or third party’s act, hence plausibly irrevocable but conditional contract).) Then, upon failure of the condition for agreement on and execution of a detailed written contract, Jones would be discharged, just as Quake would be discharged on its conditional return promise, and any construction contract embodied in the letter of intent would itself fail. Cf 1 Corbin §22, at 67 (discussing conditional contract and its failure upon breach of condition by one party). Under this alternative theory, it would, of course, be relevant to consider whether the parties’ conduct after issuance of the letter of intent — e.g., their oral agreement to “certain changes in the written form contract” and their resulting interlineations (141 Ill. 2d at 287) — evidenced both their modification or waiver of Jones’ executed-contract condition and their agreement on definite terms of a superseding contract. Such a superseding contract might then have become effective immediately without signature despite the parties’ intention to memorialize it in an integrated writing and sign it. (See Restatement of Contracts (Second) §27 (1981); 1 Corbin §30, at 109; §31, at 116-17; see generally 1 Corbin §§29, 30 (1963 & Supp. 1990).) If so, Quake might now recover for breach. However, such consideration of post-letter conduct would involve questions separate from interpretation of the letter of intent itself. Their resolution would not alter the letter of intent’s status, under this alternative theory, as a conditional construction contract; nor would their resolution alter the fact that Quake would have no contractual claim should the parties fail to meet Jones’ executed-contract condition (though a restitution or quantum meruit claim might be yet another question). In any event, my conclusion today need not rely on this alternative and doubtful theory of conditional contract. The better view appears to be simply that the letter of intent can be considered an agreement to negotiate. On this view, because the cancellation clause referred to the letter and not to the anticipated construction contract, the majority errs in apparently considering the clause to be equally probative for and against the construction contract. Yet, one might ask in reply: If the letter required only an effort to achieve a construction contract, and if failure of the effort would necessarily prevent any such contract from arising to bind the parties, how could the issue of cancelling a mere letter ever take on enough significance to explain inclusion of the cancellation clause? For an answer, the nature, and misuse, of letters of intent should be considered. “A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.” (Restatement (Second) of Contracts §26 (1981).) In this connection, it is well recognized that “the use of promissory expressions or words of assent” in nonoffer manifestations of willingness may constitute merely “something to be shown to a third person to influence his action.” (Restatement (Second) of Contracts §26, comment e (1981); see Comment, Devil’s Advocate: Salvaging the Letter of Intent, 37 Emory L.J. 139, 142 (1988).) This seems an apt description of the letter of intent in the present case, designed as it was in part to induce Quake’s proposed subcontractors to furnish Quake and Jones with their license numbers. If Quake had simply submitted a bid to Jones and if, after Jones had named Quake as subcontractor in Jones’ own bid as general contractor, Quake had proceeded with the work pursuant to Jones’ instructions, Quake might be able to establish a contract based on Jones’ assent to Quake’s bid as manifested by Jones’ conduct, even if Jones contended that no contract with Quake existed. See United States v. O. Frank Heinz Construction Co. (S.D. Ill. 1969), 300 F. Supp. 396, cited in Restatement (Second) of Contracts §22, illus. 1 (1981); 1 Corbin §30, at 100-03 (1963 & Supp. 1990) (if terms are definite and complete enough, prime contractor’s use of subcontractor’s bid to secure prime contract may consummate subcontract even though not reduced to contemplated formal instrument) (citing, inter alia, Frank Horton & Co. v. Cook Electric Co. (7th Cir. 1966), 356 F.2d 485 (finding contract where prime contractor used subcontractor’s bid to obtain prime contract, advised that subcontractor’s bid would be accepted, issued two letters of intent regarding anticipated formal subcontract, asked subcontractor to start moving material to jobsites, but then rejected subcontractor’s bid)). But see generally 1 Corbin §24B (Supp. 1990). However, this is not such a simple case. In this case, the letter'of intent contained language arguably giving Quake reason to know that Jones did not intend to be bound until other terms were assented to. (See Restatement (Second) of Contracts §27, comment b (1981); cf. Borg-Warner Corp. v. Anchor Coupling Co. (1958), 16 Ill. 2d 234, 238-39 (issuer of “letter of intent” assured recipient that it was offer and that open terms were minor details).) It also does not seem that Jones used Quake’s bid in a bid by Jones to become general contractor; rather, Jones seems merely to have been American’s prehired agent to review bids and award contracts to such parties as Quake. Moreover, though Quake alleges efforts to procure the contract and preparations to perform under it, Quake apparently proceeded with none of the actual work under its asserted construction contract. It has been authoritatively said that, where a document contains limiting words signifying that a subsequent expression of assent is required, the limiting words “will in nearly all cases be held to show that an operative assent has not yet been given.” (1 Corbin §22, at 64.) Parties may express an intent to be bound without a formal document, but they can also “maintain complete immunity from all obligation, even though they have expressed agreement orally or informally upon every detail of a complex transaction.” (1 Corbin §30, at 98.) The matter is ordinarily a question of fact. Calamar! & Perillo §2 — 8; 1 Corbin §30, at 97; see also Holmes, The Freedom Not to Contract, 60 Tul. L. Rev. 751 (1986) (arguing that freedom is limited by doctrines of reliance, fair dealing, and good faith but recognizing that issue of intent remains jurisprudentially paramount). Businesspersons’ letters of intent are “usually understood to be non-committal statements preliminary to a contract,” but in some circumstances a commitment may have been made; in these fact-intensive cases the decisions have varied widely. (Calamari & Perillo §§2 — 6(c), (i); see Precontractual Liability, 87 Colum. L. Rev. at 258-62.) Because of their susceptibility to unexpected interpretations, it is easy to understand why letters of intent have been characterized by at least one practitioner as “an invention of the devil.” See Comment, Devil’s Advocate: Salvaging the Letter of Intent, 37 Emory L.J. 139, 139 n.l (1988) (citing characterization). Vexed questions frequently arise in determining whether parties’ use of language amounts to contract or only to preliminary negotiation. (See, e.g., 1 Corbin §30; 1 Williston §§27 through 28A.) “It would be difficult to find a less predictable area of contract law.” (Precontractual Liability, 87 Colum. L. Rev. at 259-60.) Accordingly, practitioners should take care not to allow the value of predictability in obligation to be outweighed by zeal for influencing third, or even second, parties through letters of intent. In light of the foregoing, several hypotheses suggest themselves for explaining the present letter of intent’s cancellation clause: Because the letter can be regarded as creating an obligation on Jones to attempt to achieve a construction contract, existence of the clause might be explained as a device by which Jones could put an end to its obligation to negotiate. The fact that this letter, like many others, was intended to induce action by third parties furnishes another possible explanation for including the cancellation clause: It would give Jones a way to put an end to any further inducement based on Jones’ once-expressed intention. A third possible explanation lies in the possibility that, as a result of the parties’ subsequent conduct (such as commencement of construction work by Quake), an uncancelled letter of intent might become a link in a chain leading to a finding of contract. Still another possible explanation lies in the fact that, commercially if not legally, letters of intent have a certain weight as trustworthy indicators of business decisions; accordingly, an issuer might wish to cancel a letter once a decision had changed, in order not to mislead those who might otherwise rely on it. Any or all of these possibilities would adequately explain the clause, without any need whatever to conclude that the clause betokens an intent to be bound to a construction contract thought to be embodied in the letter. See also Precontractual Liability, 87 Colum. L. Rev. at 257-58 (discussing other possible rationales for clause). If letters of intent are to be used, their drafters would be well advised to avoid ambiguity on the point of whether the issuers are bound. As ever, obscurantist language can produce desired practical effects in the short term, but can well lead eventually to litigation and undesired contractual obligations. Extreme examples exist. (See, e.g., Note, The $10.53 Billion Question — When Are the Parties Bound?: Pennzoil and the Use of Agreements in Principle in Mergers and Acquisitions, 40 Vand. L. Rev. 1367 (1987).) Some counsel and clients may opt for ambiguity on grounds of expediency and may account for the probability of resultant litigation costs in the clients’ overall business decision-making, but many others could benefit from more precision. In turn, counsel for recipients of such letters should remain alert to the likelihood that the instruments lack contractual force. It is, of course, quite possible for litigation to ensue despite the utmost care in drafting. On occasion, pursuing even a slight opportunity for a favorable judicial construction will seem preferable to acquiescing in the opposing party’s well-founded view of a letter’s effect. However, more clarity than was displayed in this case should certainly reduce the number of such lawsuits.