dissenting:
I respectfully dissent from the majority holding reversing the trial court’s dismissal of this action and finding the letter of intent to be ambiguous. I would affirm the dismissal on the basis that the letter of intent unambiguously demonstrates the parties’ intent to make the execution of a formal agreement a condition precedent to a binding contract.
It has long been established in Illinois that parties may expressly provide that negotiations are not binding until a formal agreement is reduced to writing and executed. (Chicago Investment Corp. v. Dolins (1985), 107 Ill. 2d 120, 481 N.E.2d 712; Baltimore & Ohio Southwestern R.R. Co. v. People ex rel. Allen (1902), 195 Ill. 423, 63 N.E. 262.) The determination of whether such a provision is ambiguous is initially a question of law. (Terracom Development Group, Inc. v. Coleman Cable & Wire Co. (1977), 50 Ill. App. 3d 739, 365 N.E.2d 1028.) An ambiguous contract is one capable of being understood in more senses than one. (Terracom Development Group, Inc. v. Coleman Cable & Wire Co., 50 Ill. App. 3d 739, 365 N.E.2d 1028.) The parties are entitled to shape a letter of intent as they wish. Feldman v. Allegheny International, Inc. (7th Cir. 1988), 850 F.2d 1217, 1221, citing Schek v. Chicago Transit Authority (1969), 42 Ill. 2d 362, 247 N.E.2d 886.
The key language in the letter of intent in the present case is as follows:
“A contract agreement outlining the detailed terms and conditions is being prepared and will be available for your signature shortly. *** [Defendant] reserves the right to cancel this letter of intent if the parties cannot agree on a fully executed subcontract agreement.”
I find that the foregoing language is incapable of being understood in more senses than one. We have repeatedly held such language to be unambiguous, permitting the court to discern the parties’ intent from the writing itself as a matter of law (see Interway, Inc. v. Alagna (1980), 85 Ill. App. 3d 1094, 407 N.E.2d 615; Nitrin, Inc. v. Bethlehem Steel Corp. (1976), 35 Ill. App. 3d 577, 342 N.E.2d 65), and absent ambiguity, the parties’ intent cannot be discerned from parol evidence beyond the four comers of the writing. See, e.g., Feldman v. Allegheny International, Inc., 850 F.2d at 1221 (no contract exists where unambiguous statement requires execution: “ ‘shall be set forth in the definitive agreement executed by the parties’ ”); Interway, Inc. v. Alagna, 85 Ill. App. 3d at 1101 (no contract exists where unambiguous letter of intent states “our purchase is subject to a definitive Purchase and Sale Contract to be executed by the parties”); Terracom Development Group, Inc. v. Coleman Cable & Wire Co., 50 Ill. App. 3d at 744-45 (no contract exists where unambiguous letter of intent states counsel would “prepare a draft of the definitive agreement”; a “standard form contract [was being] drawn up”; they intended “to enter into a definitive written agreement”; the letter was “expressly conditioned upon our entering into a mutually satisfactory definitive written agreement”; and “no contractual relationship shall exist between the parties unless and until the definitive agreement shall have been executed in writing”); S.N. Nielsen Co. v. National Heat & Power Co. (1975), 32 Ill. App. 3d 941, 943, 337 N.E.2d 387 (no contract exists where letter of intent states a “formal contract will be issued in the very near future”); Brunette v. Vulcan Materials Co. (1970), 119 Ill. App. 2d 390, 393-94, 256 N.E.2d 44 (no contract exists where writings repeatedly referred to preparation of a formal contract as a condition precedent; required “acceptance by your Board of execution of Articles of Agreement”; and was “[s]ubject to the drafting of an acceptable contract”). See also Chicago Title & Trust Co. v. Ceco Corp. (1980), 92 Ill. App. 3d 58, 415 N.E.2d 668; Ceres Illinois, Inc. v. Illinois Scrap Processing, Inc. (1984), 130 Ill. App. 3d 798, 474 N.E.2d 1245, aff'd (1986), 114 Ill. 2d 133, 500 N.E.2d 1.
I believe that to hold the language here to be ambiguous would ignore these cases and would deprive negotiating parties of all precedence and guidance in how best to draft a letter of intent so as to avoid a contractually binding effect.
The majority reasons that an ambiguity arises when the quoted statements are considered with the letter’s inclusion of a description of the scope of work, project location and time schedule. These items, however, would typically be included in any initial request for bids. The majority also points to the letter’s reference to a lump sum price. The letter, however, never goes beyond the bid price. (See A/S Apothekernes Laboratorium for Specialpraeparater v. I.M.C. Chemical Group, Inc. (N.D. Ill. 1988), 678 F. Supp. 193, 196, citing S.N. Nielsen Co. v. National Heat & Power Co., 32 Ill. App. 3d 941, 337 N.E.2d 387 (letter of intent never negotiated beyond bid price and retained power to reject).) Even the most preliminary discussion of a major project such as this, to expand an airline’s employee and auto shop facilities, would be meaningless without reference to such basic information.
Moreover, in many cases we have held language requiring a written, executed contract to be unambiguous where the letters of intent included more detailed information as to the terms. See e.g., Interway, Inc. v. Alagna, 85 Ill. App. 3d 1094, 407 N.E.2d 615 (where letter of intent referred to bonuses, brokerage fees, warranties, insurance, noncompetition restrictions and discharge of a note, court found the terms lacked specificity and would require clarification before they would acquire contractual finality); Terracom Development Group, Inc. v. Coleman Cable & Wire Co., 50 Ill. App. 3d 739, 365 N.E.2d 1028 (letter of intent details price terms, net lease, mortgage provisions, broker’s commission and closing costs; court finds no intent to be bound by writings); Brunette v. Vulcan Materials Co., 119 Ill. App. 2d at 396 (writings include terms regarding description of land, survey results, exact acreage, method of payment, interest rates for installments, other price terms, payment of taxes; court finds writings are an “agreement only as to possible terms” in a “typical negotiation process”).
I would conclude that the terms touched on in the letter of intent reveal nothing more than the tentative, inconclusive nature of the agreement. They are far from reflecting contractual finality. The letter on its face gives rise to no ambiguity. The parties evidenced an intention to reduce an agreement to writing and to execute that agreement as conditions precedent to a binding contract. Thus, there can be no contract until then, even if any actual terms might have been agreed upon by the parties. See Baltimore & Ohio Southwestern R.R. Co. v. People ex rel. Allen, 195 Ill. 423, 63 N.E. 262; Brunette v. Vulcan Materials Co., 119 Ill. App. 2d 390, 256 N.E.2d 44.
Furthermore, I disagree with the majority’s finding of a “reasonable inference” that the parties “intended that work *** began prior to the execution of a formal contract and would be governed by the terms of the ‘Letter of Intent.’ ” (181 Ill. App. 3d at 914.) The majority relies on the letter’s date of April 18 and the indication that work was initially to begin in the week of April 22 (later pushed forward by defendant). The letter also states, however, that the formal contract was “being prepared and will be available for your signature shortly.” Moreover, a letter of intent may authorize subcontractors to proceed without waiving the express conditions precedent to a binding contract. S.N. Nielsen Co. v. National Heat & Power Co., 32 Ill. App. 3d 941, 337 N.E.2d 387.
The majority also points to the language that defendant “reserves the right to cancel this letter of intent if the parties cannot agree on a fully executed subcontract agreement.” The majority reasons that “there would be little need to provide for cancellation of the ‘Letter of Intent’ if the parties did not intend to be bound by it.” (181 Ill. App. 3d at 914.) This reasoning ignores the many functions of a letter of intent, including the underlying axiom that parties may agree to the course of, and discontinuance of, their own negotiations. (See Feldman v. Allegheny International, Inc., 850 F.2d 1217.) Moreover, the majority’s reasoning that this language “implies that the parties could be bound by the ‘Letter of Intent’ in the absence of a fully executed subcontract agreement,” (181 Ill. App. 3d at 914), weakly asserts, with circular reasoning, that the letter is a binding document because one party can require the other to be bound by it.
A careful examination of Inland Real Estate Corp. v. Christoph (1981), 107 Ill. App. 3d 183, 437 N.E.2d 658, shows that it differs from the present case in a significant respect. The letter of intent in Inland expressly declared an intent to be presently bound, prior to any execution of a formal contract. That binding effect was to become null and void, but not until the time at which the final contracts themselves became binding: “The contracts alone shall be the binding documents. (At which time this letter shall be null and void.)’’ (Emphasis added.) Inland, 107 Ill. App. 3d at 185-86.
In contrast, the present case involves language which never indicates an intent to be presently bound. Instead, it merely recites that at some point, “if the parties cannot agree” on a contract, the letter of intent will cease to function as a precursor to the final executed contract. See Feldman v. Allegheny International, Inc., 850 F.2d 1217.
I would conclude that the letter of intent here is not a contract, but instead is some lesser undertaking by the parties and a precursor to a valid and enforceable agreement.
I would affirm the trial court’s dismissal of this action.