Quake Construction v. American Airlines

565 N.E.2d 990 (1990)

Quick Summary

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American Airlines contracted Jones Brothers Construction for a project. Quake Construction, a third-party (plaintiff), received a letter of intent but was later terminated from the project.

Quake filed a lawsuit, which was initially dismissed and then reversed on appeal. The Illinois Supreme Court affirmed the appellate court’s decision and ruled that the letter of intent was ambiguous and required further proceedings to determine the intent of the parties.

Facts of the Case

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American Airlines, Inc. (defendant) hired Jones Brothers Construction Corporation (defendant) to oversee construction contracts to expand its facilities at O’Hare International Airport. Jones invited Quake Construction, Inc. (plaintiff) to bid on a project involving employee facilities and the automotive maintenance shop.

Quake submitted its bid and was orally informed by Jones that it had been awarded the contract.

Shortly after, Jones sent Quake a letter of intent outlining the award’s terms. The letter of intent stated that Quake had been awarded the contract, authorized the work to begin in a specified timeframe, and included a lump sum price. It also required Quake to provide evidence of liability insurance and commitment certificates from certain minority-owned businesses.

The letter contained a cancellation clause stating that Jones had the right to cancel the letter if a fully executed subcontract agreement could not be reached.

At a pre-construction meeting, Jones publicly announced that Quake would be the general contractor for the project.

However, on the same day, American Airlines informed Quake that its involvement in the project was terminated. As a result, Quake filed a lawsuit seeking damages for breach of contract.

Procedural History

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  1. Quake filed a lawsuit against American Airlines and Jones Brothers Construction for Breach of Contract.
  2. The circuit court of Cook County dismissed the complaint, finding that the letter of intent was not an enforceable contract.
  3. Quake appealed.
  4. The appellate court reversed the dismissal in favor of Quake and remanded the case for further consideration.
  5. American Airlines and Jones Brothers Construction appealed to the Illinois Supreme Court.
  6. The Illinois Supreme Court granted their petition for leave to appeal.

I.R.A.C. Format

Issue

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Whether the letter of intent between the parties constituted an enforceable contract.

Rule of Law

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If a written contract is ambiguous, parol evidence can be admitted to determine the parties’ intent.

Reasoning and Analysis

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The Illinois Supreme Court stated that the letter of intent was ambiguous regarding the parties intent. The letter contained detailed terms of the agreement, such as a project description, price, and timeline. These terms indicated the parties intention to be bound by the letter.

The cancellation clause implied that the parties could be bound by the letter until a fully executed subcontract agreement was reached. Therefore, the court found that extrinsic evidence was necessary to determine the parties intent.

Conclusion

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The Illinois Supreme Court affirmed the appellate court’s decision, finding that the letter of intent was ambiguous and required further proceedings to determine the parties intent.

Key Takeaways

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  1. A written contract may be considered ambiguous if it contains conflicting language.
  2. Detailed terms in a letter of intent can indicate an intention to be bound.
  3. A cancellation clause can imply an intention to be bound until a formal agreement is reached.

Relevant FAQs of this case

What determines whether a letter of intent is legally binding in contracts?

The legal binding of a letter of intent in contracts depends on the document’s level of detail and the parties intent. It may be enforceable if it includes specific terms and indicates an intention to be bound.

How does unclear contract language affect contract interpretation?

Unclear contract language can lead to disputes as it creates ambiguity about the parties’ intentions. 

  • For example: if a contract uses conflicting or vague terms, it may require extrinsic evidence to clarify its meaning.

What's the key difference between a letter of intent and a formal contract in contract law?

A letter of intent outlines preliminary terms and may express an intent to be bound, but it needs full detail and formal execution of a final contract. In contrast, a formal contract is a fully detailed and legally binding agreement.

References

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