A complicated Letter of Intent (LOI) involving parties to a planned car sales venture lies at the heart of Dicosola v. Ryan, 2015 IL App(1st) 150007, a case that addresses the level of consideration required to support a written contract in Illinois.
The plaintiff alleged that under the LOI, the defendant was to invest $1M with the plaintiff who would, along with her business partner, use those funds to establish and run the dealership. In return for her investment, the defendant would get a 10% share of the business. The LOI also called for the defendant to establish a 401(k) account for the benefit of the parties.
Decried as a “drafting nightmare” by the court for its chaotic structure, the LOI was silent on the timing: it didn’t say when the dealership would open, how plaintiff would utilize defendant’s funds or even what the plaintiff’s and her partner’s roles were once the dealership went live.
When the defendant pulled out of the deal, the plaintiff sued for breach of contract and specific performance. The trial court dismissed the complaint with prejudice and the plaintiff appealed.
Held: Dismissal affirmed
Reasons/Rules:
An LOI, like any other contract, must show offer, acceptance, consideration as well as definite and certain terms.
Consideration means a bargained-for exchange of promises or performances and can consist of a promise, an act or a forbearance. Consideration requires one party getting and the other giving something of value. Otherwise, it’s an illusory promise. A promise is illusory where the promisor isn’t really promising to do anything or where his promised performance is optional.
Contractual performance will deemed optional (and illusory) where there is no fixed time or duration for the contemplated services or where one parties obligations are terminable at will.
Here, the plaintiff’s promise was illusory since the LOI didn’t specify when she would perform general manager services for the inchoate dealership. Since the LOI lacked a specific start and end date, the Court held the LOI was too indefinite to be enforced. The lack of clarity on the timing question led the court to conclude there was no consideration to support the plaintiff’s breach of contract claims. (¶¶ 18-20)
Afterwords:
1 – Parties should craft their business agreements with enough specifics for it to be enforced. By only providing aspirational language (“I will do this” or “I plan to do this”) with no specific timing requirements, a contracting party risks a contract being deemed illusory and unenforceable.
2 – Where one party to a contract’s obligations are to occur in the future, the contract language should provide an end date or duration for those services.
