565 N.E.2d 990 (1990) 141 Ill.2d 281 152 Ill.Dec. 308

QUAKE CONSTRUCTION, INC.
v.
AMERICAN AIRLINES, INC.

No. 68585.

Supreme Court of Illinois.

December 3, 1990.

*992 David M. Meister, Peter Petrakis and Barbara J. Stuentzer, of Katten, Muchin & Zavis, Chicago, for appellants.

Richard D. Heytow, of Crystal and Heytow, P.C., Chicago, for appellee.

Justice CALVO delivered the opinion of the court:

Plaintiff, Quake Construction, Inc. (Quake), filed a four-count, third-amended complaint against defendants, American Airlines, Inc. (American), and Jones Brothers Construction Corporation (Jones). In count I, plaintiff sought damages for breach of contract. Plaintiff based counts II, III and IV on detrimental reliance, waiver of condition precedent, and impossibility of contract, respectively. Upon defendants' motion, the circuit court of Cook County dismissed the complaint with prejudice, pursuant to section 2-615 of the Illinois Code of Civil Procedure (Ill.Rev.Stat. 1987, ch. 110, par. 2-615). On appeal, the Appellate Court, First District, with one justice dissenting, reversed the dismissal of counts I, II and III, affirmed the dismissal of count IV, and remanded the cause to the circuit court. (181 Ill.App.3d 908, 130 Ill. Dec. 534, 537 N.E.2d 863.) We granted defendants' petition for leave to appeal (107 Ill.2d R. 315).

Quake alleged in its complaint the following facts. In February 1985, American 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. Quake received an invitation to bid on the employee facilities and automotive maintenance shop project (hereinafter referred to as the project), and in April 1985 submitted its bid to Jones. Jones orally notified Quake that Quake had been awarded the contract for the project. Jones then asked Quake to provide the license numbers of the subcontractors Quake intended to use on the project. Quake notified Jones that the subcontractors would not allow Quake to use their license numbers until Quake submitted a signed subcontract agreement to them. Jones informed Quake that Quake would shortly receive a written contract for the project prepared by Jones. To induce Quake to enter into agreements with its subcontractors and to induce the subcontractors to provide Quake and Jones with their license numbers, Jones sent Quake the following letter of intent dated April 18, 1985:

"We have elected to award the contract for the subject project to your firm as we discussed on April 15, 1985. A contract agreement outlining the detailed terms and conditions is being prepared and will be available for your signature shortly.

Your scope of work as the general contractor includes the complete installation of expanded lunchroom, restroom and locker facilities for American Airlines *993 employees as well as an expansion of American Airlines existing Automotive Maintenance Shop. The project is located on the lower level of `K' Concourse. A sixty (60) calendar day period shall be allowed for the construction of the locker room, lunchroom and restroom area beginning the week of April 22, 1985. The entire project shall be complete by August 15, 1985.

Subject to negotiated modifications for exterior hollow metal doors and interior ceramic floor tile material as discussed, this notice of award authorizes the work set forth in the following documents at a lump sum price of $1,060,568.00.

a) Jones Brothers Invitation to Bid dated March 19, 1985.

b) Specifications as listed in the Invitation to Bid.

c) Drawings as listed in the Invitation to Bid.

d) Bid Addendum #1 dated March 29, 1985.

Quake Construction Inc. shall provide evidence of liability insurance in the amount of $5,000,000 umbrella coverage and 100% performance and payment bond to Jones Brothers Construction Corporation before commencement of the work. The contract shall include MBE, WBE and EEO goals as established by your bid proposal. Accomplishment of the City of Chicago's residency goals as cited in the Invitation to Bid is also required. As agreed, certificates of commitment from those MBE firms designated on your proposal modification submitted April 13, 1985, shall be provided to Jones Brothers Construction Corporation.

Jones Brothers Construction Corporation reserves the right to cancel this letter of intent if the parties cannot agree on a fully executed subcontract agreement."

Jones and Quake thereafter discussed and orally agreed to certain changes in the written form contract. Handwritten delineations were made to the form contract by Jones and Quake to reflect these changes. Jones advised Quake it would prepare and send the written contract to Quake for Quake's signature. No such formal written contract, however, was entered into by the parties.

At a preconstruction meeting on April 25, 1985, Jones told Quake, Quake's subcontractors, and governmental officials present that Quake was the general contractor for the project. On that same date, immediately after the meeting, American informed Quake that Quake's involvement with the project was terminated. Jones confirmed Quake's termination by a letter dated April 25, 1985. The damages Quake allegedly suffered included the money it spent in procuring the contract and preparing to perform under the contract, and its loss of anticipated profit from the contract.

The main issue is whether the letter of intent from Jones to Quake is an enforceable contract such that a cause of action may be brought by Quake. This court has previously set forth the principles of law concerning the enforceability of letters of intent:

"The fact that parties contemplate that a formal agreement will eventually be executed does not necessarily render prior agreements mere negotiations, where it is clear that the ultimate contract will be substantially based upon the same terms as the previous document. [Citation.] If the parties * * * intended that the * * * document be contractually binding, that intention would not be defeated by the mere recitation in the writing that a more formal agreement was yet to be drawn. However, parties may specifically provide that negotiations are not binding until a formal agreement is in fact executed. [Citation.] If the parties construe the execution of a formal agreement as a condition precedent, then no contract arises unless and until that formal agreement is executed." Chicago Investment Corp. v. Dolins (1985), 107 Ill.2d 120, 126-27, 89 Ill.Dec. 869, 481 N.E.2d 712.

See Ceres Illinois, Inc. v. Illinois Scrap Processing, Inc. (1986), 114 Ill.2d 133, 143-44, 102 Ill.Dec. 379, 500 N.E.2d 1.

*994 The Chicago court merely reiterated the rule established over 85 years ago:

"`Where the parties make the reduction of the agreement to writing, and its signature by them, a condition precedent to its completion, it will not be a contract until that is done. And this is true although all the terms of the contract have been agreed upon. But where the parties have assented to all the terms of the contract, the mere reference to a future contract in writing will not negative the existence of a present contract.'" (Baltimore & Ohio Southwestern R.R. Co. v. People ex rel. Allen (1902), 195 Ill. 423, 428, 63 N.E. 262, quoting 7 Am. & Eng. Enc.L. 140 (2d ed. 1898).)

(See Chicago Title & Trust Co. v. Ceco Corp. (1980), 92 Ill.App.3d 58, 69-70, 47 Ill.Dec. 663, 415 N.E.2d 668; Interway, Inc. v. Alagna (1980), 85 Ill.App.3d 1094, 1097-98, 41 Ill.Dec. 117, 407 N.E.2d 615.) Thus, although letters of intent may be enforceable, such letters are not necessarily enforceable unless the parties intend them to be contractually binding. Interway, 85 Ill.App.3d at 1098, 41 Ill.Dec. 117, 407 N.E.2d 615.

A circuit court must initially determine, as a question of law, whether the language of a purported contract is ambiguous as to the parties' intent. (Interway, 85 Ill.App.3d at 1098, 41 Ill.Dec. 117, 407 N.E.2d 615.) If no ambiguity exists in the writing, the parties' intent must be derived by the circuit court, as a matter of law, solely from the writing itself. (Interway, 85 Ill.App.3d at 1098, 41 Ill.Dec. 117, 407 N.E.2d 615; see Schek v. Chicago Transit Authority (1969), 42 Ill.2d 362, 364, 247 N.E.2d 886.) If the terms of an alleged contract are ambiguous or capable of more than one interpretation, however, parol evidence is admissible to ascertain the parties' intent. (Borg-Warner Corp. v. Anchor Coupling Co. (1958), 16 Ill.2d 234, 242, 156 N.E.2d 513; Interway, 85 Ill.App.3d at 1098, 41 Ill.Dec. 117, 407 N.E.2d 615.) If the language of an alleged contract is ambiguous regarding the parties' intent, the interpretation of the language is a question of fact which a circuit court cannot properly determine on a motion to dismiss. Interway, 85 Ill.App.3d at 1098, 41 Ill.Dec. 117, 407 N.E.2d 615.

In determining whether the parties intended to reduce their agreement to writing, the following factors may be considered: whether the type of agreement involved is one usually put into writing, 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, and whether the negotiations indicated that a formal written document was contemplated at the completion of the negotiations. (Ceres, 114 Ill.2d at 144, 102 Ill.Dec. 379, 500 N.E.2d 1; Chicago, 107 Ill.2d at 124, 89 Ill.Dec. 869, 481 N.E.2d 712.) Other factors which may be considered are: "where in the negotiating process that process is abandoned, the reasons it is abandoned, the extent of the assurances previously given by the party which now disclaims any contract, and the other party's reliance upon the anticipated completed transaction." A/S Apothekernes Laboratorium for Specialpraeparater v. I.M.C. Chemical Group, Inc. (N.D.Ill. 1988), 678 F.Supp. 193, 196, aff'd (7th Cir. 1989), 873 F.2d 155.

A motion to dismiss a complaint admits all well-pleaded facts, but does not admit conclusions of law or conclusions of fact not supported by allegations of specific facts. (Pierce v. Carpentier (1960), 20 Ill.2d 526, 531, 169 N.E.2d 747.) Any reasonable inferences which may be drawn from such well-pleaded facts, however, must be taken as true for purposes of the motion. (Interway, 85 Ill.App.3d at 1097, 41 Ill.Dec. 117, 407 N.E.2d 615.) "A cause of action should not be dismissed on the pleadings unless it clearly appears that no set of facts can be proved which will entitle the plaintiff to recover." (Walker v. Rumer (1978), 72 Ill.2d 495, 502, 21 Ill.Dec. 362, 381 N.E.2d 689; Interway, 85 Ill.App.3d at 1097, 41 Ill.Dec. 117, 407 N.E.2d 615.) On appeal from the dismissal of a complaint, "a reviewing court should interpret the *995 facts alleged in the complaint in the light most favorable to the plaintiff." Interway, 85 Ill.App.3d at 1097, 41 Ill.Dec. 117, 407 N.E.2d 615.

The circuit court in the case at bar dismissed Quake's complaint, relying principally on the following sentence in the letter: "Jones Brothers Construction Corporation reserves the right to cancel this letter of intent if the parties cannot agree on a fully executed subcontract agreement" (hereinafter referred to as the cancellation clause). The parties agreed during oral arguments that the subcontract agreement referred to in the cancellation clause concerned an agreement between Jones and Quake. Jones was the general contractor for the entire expansion project. Jones hired Quake as a subcontractor to handle only the work on the employee facilities and automotive shop. Quake, in turn, hired subcontractors to perform this work. The circuit court determined, based on the cancellation clause, that the parties agreed not to be bound until they entered into a formal written contract. Consequently, the circuit court held that the letter was not an enforceable contract and accordingly dismissed the complaint.

The appellate court, however, found the letter ambiguous. The appellate court explained:

"In the `Letter of Intent,' Jones Brothers stated that it had `elected to award the contract for the subject project to [plaintiff's] firm.' Jones Brothers then described the scope of work required of plaintiff as the general contractor for the Project. Jones Brothers gave the location of the Project and the time schedule for the Project. Jones Brothers also stated that `this notice of award authorizes the work set forth in the following documents at a lump sum price of $1,060,568.00.' (The list of documents is omitted.) Jones Brothers also stated that plaintiff `shall provide evidence of liability insurance' and certificates of commitment from MBE firms designated in plaintiff's proposal modification of April 13, 1985. These statements evince the intent of the parties to be bound by the `Letter of Intent.' (See Chicago Investment Corp. v. Dolins (1981), 93 Ill. App.3d 971, at 975, 49 Ill.Dec. 415, 418 N.E.2d 59 (court held that letter of intent did not `unambiguously demonstrate that the parties to it did not intend to be bound thereby.' The letter contained a description of the properties, the total price, the earnest money amount and certain other terms.)) The schedule for completion of the Project supports this construction of the `Letter of Intent.' The `Letter of Intent' is dated April 18, 1985. However, Jones Brothers stated in the `Letter of Intent' that work was to begin `the week of April 22, 1985, and must be completed by August 15, 1985.' A reasonable inference from these facts is that the parties intended that work on the Project would begin prior to execution of a formal contract and would be governed by the terms of the `Letter of Intent.'

On the other hand, Jones Brothers stated in the `Letter of Intent' that a `contract agreement outlining the detailed terms and conditions is being prepared and will be available for [plaintiff's] signature shortly.' Jones Brothers also stated that the contract `shall include MBE, WBE and EEO goals as established by [plaintiff's] bid proposal.' These statements support the construction that the parties did not intend to be bound by the `Letter of Intent.'

The `Letter of Intent' then concludes with the statement that `Jones Brothers Construction Corporation reserves the right to cancel this letter of intent if the parties cannot agree on a fully executed subcontract agreement.' This statement is itself ambiguous and supports both constructions of the `Letter of Intent.' The statement may be construed as a condition precedent which would prevent formation of a contract if the parties could not agree on the terms of the contract. However, 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. Further, the statement implies that the parties could be bound by the `Letter of Intent' in the *996 absence of a fully executed subcontract agreement." (181 Ill.App.3d at 913-14, 130 Ill.Dec. 534, 537 N.E.2d 863.)

Thus, the appellate court disagreed with the circuit court and held that a question of fact existed with regard to the parties' intent. (181 Ill.App.3d at 914, 130 Ill.Dec. 534, 537 N.E.2d 863.) The appellate court held further that "a determination of the parties' intent could not have been made solely on the basis of the `Letter of Intent.'" (181 Ill.App.3d at 914, 130 Ill.Dec. 534, 537 N.E.2d 863.) The appellate court stated the circuit court "should have considered parol evidence in making its determination." (181 Ill.App.3d at 914, 130 Ill. Dec. 534, 537 N.E.2d 863.) Therefore, the appellate court reversed the circuit court's dismissal of the complaint and remanded the cause to the circuit court. 181 Ill. App.3d at 916, 130 Ill.Dec. 534, 537 N.E.2d 863.

Justice McNamara, in his dissent from the opinion of the appellate court majority, stated "the letter of intent unambiguously demonstrates the parties' intent to make the execution of a formal agreement a condition precedent to a binding contract." (181 Ill.App.3d at 916, 130 Ill.Dec. 534, 537 N.E.2d 863 (McNamara, J., dissenting).) Therefore, Justice McNamara stated he would have affirmed the circuit court's dismissal of the complaint. Justice McNamara asserted the cancellation clause clearly and unambiguously demonstrated the parties' intent not to be bound by the letter, and he noted several courts have found such language unambiguous. According to Justice McNamara, the detailed terms of the agreement set forth in the letter "reveal nothing more than the tentative, inconclusive nature of the agreement." (181 Ill.App.3d at 918, 130 Ill.Dec. 534, 537 N.E.2d 863 (McNamara, J., dissenting).) He asserted that such terms are usually included in any initial request for bids, and he pointed to several cases where courts found letters of intent unambiguous even though the letters included considerably detailed information regarding the terms of the agreements. 181 Ill.App.3d at 918, 130 Ill.Dec. 534, 537 N.E.2d 863 (McNamara, J., dissenting).

The dissent also disputed the majority's conclusion that the parties intended the work to begin prior to the execution of the formal contract and would be governed by the terms of the letter. Justice McNamara stated that even though the letter was dated April 18 and work was to begin the week of April 22, the letter indicated the contract would be available for Quake's signature "`shortly.'" (181 Ill.App.3d at 919, 130 Ill.Dec. 534, 537 N.E.2d 863 (McNamara, J., dissenting).) The dissent noted that a "letter of intent may authorize subcontractors to proceed without waiving the express conditions precedent to a binding contract." 181 Ill.App.3d at 919, 130 Ill.Dec. 534, 537 N.E.2d 863 (McNamara, J., dissenting).

Justice McNamara, in addition, disagreed with the majority's statement that the parties would not have needed to provide for the cancellation of the letter of intent unless they had intended to be bound by the letter. According to Justice McNamara, one function of a letter of intent is to allow parties to agree to the course of, and discontinuance of, their negotiations. (181 Ill. App.3d at 919, 130 Ill.Dec. 534, 537 N.E.2d 863 (McNamara, J., dissenting).) Justice McNamara went on to distinguish Inland Real Estate Corp. v. Christoph (1981), 107 Ill.App.3d 183, 63 Ill.Dec. 9, 437 N.E.2d 658, a case on which the majority relied. The letter was not a contract, Justice McNamara concluded, but rather "some lesser undertaking by the parties and a precursor to a valid and enforceable agreement." 181 Ill.App.3d at 920, 130 Ill.Dec. 534, 537 N.E.2d 863 (McNamara, J., dissenting).

We agree with the appellate court majority's analysis and its conclusion that the letter was ambiguous. Consequently, we affirm the decision of the appellate court. The letter of intent included detailed terms of the parties' agreement. The letter stated that Jones awarded the contract for the project to Quake. The letter stated further "this notice of award authorizes the work." Moreover, the letter indicated the work was to commence approximately 4 to 11 days after the letter was written. This *997 short period of time reveals the parties' intent to be bound by the letter so the work could begin on schedule. We also agree with the appellate court that the cancellation clause exhibited the parties' intent to be bound by the letter because no need would exist to provide for the cancellation of the letter unless the letter had some binding effect. The cancellation clause also implied the parties' intention to be bound by the letter at least until they entered into the formal contract. We agree with the appellate court that all of these factors evinced the parties' intent to be bound by the letter.

On the other hand, the letter referred several times to the execution of a formal contract by the parties, thus indicating the parties' intent not to be bound by the letter. The cancellation clause could be interpreted to mean that the parties did not intend to be bound until they entered into a formal agreement. Therefore, the appellate court correctly concluded that the letter was ambiguous regarding the parties' intent to be bound by it.

Defendants contend the letter of intent did not contain all of the terms necessary for the formation of a construction contract. Defendants assert construction contracts typically include terms regarding payment, damages and termination. Defendants argue the detail in the contract is usually extensive if the value and complexity of the construction project are great. Defendants also note the letter stated the contract would include the detailed terms and conditions of the parties' agreement. The letter indicated the contract would include the MBE, WBE and EEO (Minority Business Enterprise, Women's Business Enterprise, and Equal Employment Opportunity, respectively) goals established by Quake's bid proposal. Defendants point out the letter stated certain terms of the agreement still had to be negotiated. Without the formal contract, defendants assert, the parties could not have continued toward the completion of the project because the letter excluded many terms of the agreement which would have been included in the contract. Defendants thus argue the absence in the letter of all the terms of the agreement reveals the parties' intent not to be bound by the letter.

The appellate court stated the number and extent of the terms in the letter can indicate the parties' intent to be bound by the letter. The final contract only need be substantially based on the terms in the letter as long as the parties intended the letter to be binding. (Chicago, 107 Ill.2d at 126-27, 89 Ill.Dec. 869, 481 N.E.2d 712.) Many of the details regarding the project were included in the letter. The letter adopted by reference the contents of certain documents which included even further details concerning the project. We agree Jones accepted the MBE, WBE and EEO goals established by Quake. The letter merely indicated that those goals would be reiterated in the contract. We acknowledge that the absence of certain terms in the letter indicates the parties' intent not to be bound by the letter. This only confirms our holding that the letter is ambiguous as to the parties' intent.

Defendants and the appellate court dissent cited several cases they contend found language requiring a formal contract unambiguous. They also contend the letter of intent contained very detailed terms of the agreement in those cases. (See 181 Ill.App.3d at 918, 130 Ill.Dec. 534, 537 N.E.2d 863 (McNamara, J., dissenting).) We have reviewed these cases and find them distinguishable on their facts.

Defendants express concern upholding of the appellate court's decision will cause businesses to put few details in letters of intent so as not to risk a court's interpreting such letters as contracts. Defendants contend terms, such as the scope of work, location and time schedule, are typically included in nonbinding documents for construction projects (e.g., requests for bids). Defendants assert that preliminary discussions regarding construction projects would be meaningless without reference to some basic information. Thus, defendants argue the purpose of letters of intent is defeated if few details can be included in the letters.

*998 We understand defendants' concern. Nevertheless, under the law, the parties' intent determines whether a letter of intent is an enforceable contract. The extent of the terms of the agreement in the letter is one factor to consider in discerning that intent. The particular facts in each case are significant. The only way to allay defendants' fears is to change the law; we are unwilling to do this.

Defendants contend even if the letter contained all of the essential terms of a contract, the cancellation clause negated any inference that the parties intended to be bound by the letter. The clause, according to defendants, clearly established the parties' intent not to be so bound. Defendants argue the letter only sets forth the provisions which would be included in the contract if one is ever executed. Defendants point out both the circuit court and the appellate court dissent found the cancellation clause unambiguously declared the parties' intent not to be bound until the parties entered into a formal contract.

We do not find defendants' argument persuasive. The appellate court stated that, in addition to the detailed terms of the parties' agreement, the letter also contained a sentence in which Jones said it awarded the contract for the project to Quake. Moreover, the letter stated "this notice of award authorizes the work." (Emphasis added.) Furthermore, the appellate court pointed out, the letter was dated April 18, while at the same time the letter indicated that Quake was to begin work the week of April 22 and complete the work by August 15. We agree with the appellate court's conclusion that a "reasonable inference from these facts is that the parties intended that work on the Project would begin prior to execution of a formal contract and would be governed by the terms of the `Letter of Intent.'" (181 Ill.App.3d at 914, 130 Ill.Dec. 534, 537 N.E.2d 863.) All of these factors indicate the negotiations were more than merely preliminary and the parties intended the letter to be binding. The factors muddle whatever otherwise "clear" intent may be derived from the cancellation clause.

Defendants acknowledge the letter was dated April 18 and it stated the work would commence the week of April 22. Defendants point out that the letter also indicated Jones would submit a formal contract to Quake "shortly." Defendants argue a contract could conceivably have been written and signed within that period of time. Defendants conclude the appellate court's assumption regarding the date of the letter and the commencement of the work was invalid. While defendants' interpretation of these facts is plausible, we believe it only lends credence to our conclusion the letter is ambiguous concerning the parties' intent. Thus, the trier of fact should decide which interpretation is valid.

Both the dissent in the appellate court and the defendants contend, citing S.N. Nielsen Co. v. National Heat & Power Co. (1975),