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BERCO INVS. v. EARLE M. JORGENSEN CO.

August 23, 1994

BERCO INVESTMENTS, INC., et al., Plaintiffs,
v.
EARLE M. JORGENSEN CO., et al., Defendants.



The opinion of the court was delivered by: MILTON I. SHADUR

 Berco Investments, Inc. ("Berco") and its President and Chief Executive Officer Morando Berrettini ("Berrettini") have filed a seven-count Complaint against Earle M. Jorgensen Co. ("Jorgensen") and real estate broker John Earnhart, invoking federal jurisdiction on diversity-of-citizenship grounds. At the initial status hearing on August 10, 1994 this Court requested counsel for the litigants to submit letters identifying the authorities on which they respectively relied as to the viability or nonviability of Complaint Count I (asserting a breach of contract) and Count II (asserting a breach of an express covenant of good faith). Both letters have been submitted, with each of them containing a thoughtful exposition of the clients' legal position. Accordingly the issues are ripe for decision.

 Count I

 Complaint Ex. A is a detailed (12-plus single-spaced pages) December 10, 1992 letter of intent (the "Letter") under which the parties negotiated for the possible purchase by Berco and sale by Jorgensen of real estate owned by the latter in Schaumburg, Illinois. This opinion's reference to a "letter of intent" immediately raises a red flag, for the Illinois cases *fn1" have given very mixed signals as to the enforceability of such pre-formal-contract documents.

 To sustain its Count I breach of contract claim, Berco *fn2" seeks to rely on such cases among that group as Weil, Freiburg & Thomas, P.C. v. Sara Lee Corp., 218 Ill. App. 3d 383, 392, 577 N.E.2d 1344, 1351, 160 Ill. Dec. 773 (1st Dist. 1991) ("Letters embodying preliminary negotiations are enforceable in contract if it is clear that the ultimate contract will be substantially based on the terms of the letters and the parties intended to be bound") and Empro Mfg. Co. v. Ball-Co Mfg. Inc., 870 F.2d 423, 425 (7th Cir. 1989) ("if the full agreement showed that the formal contract was to be nothing but a memorial of an agreement already reached, the letter of intent would be enforceable"). *fn3" To much the same effect as Weil but perhaps a bit less demanding, Chapman v. Brokaw, 225 Ill. App. 3d 662, 665, 588 N.E.2d 462, 465, 167 Ill. Dec. 821 (3d Dist. 1992) has put the matter in these terms:

 
The fact that the parties may contemplate a more formal agreement will be executed in the future does not necessarily render prior agreements mere negotiations where it is clear that the ultimate contract will be based on terms substantially similar to those in the previous agreement.

 It is really unnecessary to cite or quote from the cases on which Jorgensen relies (among them, other portions of the Empro opinion and cases cited there), because even under the cases on which Berco relies its argument is torpedoed by a whole series of terms in the Letter itself--terms that collectively negate the status of the Letter as a legally enforceable agreement. Instead of attempting to list those provisions in any descending order of significance, this opinion will refer to them sequentially as they occur in the document:

 
1. Quite apart from any possible inference from the Letter's opening clause in which Jorgensen says that it "summarizes the basic business terms upon which [Jorgensen] proposes to sell to [Berco]" (rather than "agrees to sell"), *fn4" the description of the property poses possible problems: It refers to "an approximately 25 acre parcel (the 'Improved Property') and an approximately 27 acre parcel of unimproved land (the 'Unimproved Property')." That, however, might be a surmountable hurdle. Unlike cases relied on by Jorgensen in that respect ( Alguire v. Walker, 154 Ill. App. 3d 438, 506 N.E.2d 1334, 107 Ill. Dec. 279 (1st Dist. 1987) and Calvary Temple Assembly of God v. Lossman, 200 Ill. App. 3d 102, 557 N.E.2d 1309, 146 Ill. Dec. 122 (2d Dist. 1990)), if the approximately 52 acres represented Jorgensen's total acreage at the Schaumburg location and if the improved and unimproved parcels were readily identifiable from their appearance, the claimed uncertainty as to what real estate is the subject matter of the Letter would vanish.
 
2. That possible elimination of an element of uncertainty as to the parties' obligations under the Letter does not apply to Letter P 1(a), which specifically provides for Berco's deposit of the earnest money on the Improved Property only "upon the execution of a definitive Purchase and Sale Agreement (the 'Improved Agreement')," and to the identical provision of Letter P 2(a), which similarly requires the execution of a definitive "Unimproved Agreement" as a precondition to the deposit of earnest money. Both of those provisions literally tie Berco's contractual obligation to the execution of the formal contracts, with no such obligation existing before that event occurs.
 
3. In the same way, Letter P 3 expressly conditions Berco's purchase obligations on a number of specified matters. Although each of them might perhaps be viewed as inconsistent with the notion of a currently binding contract, the most significant of those matters are (a) the provision that conditions Berco's obligation to close on its ability to obtain financing (Letter P 3(c)) and (b) this provision of Letter P 3(d):
 
Buyer and Seller agreeing on the configuration of the 12 acre parcel (described in Section 5(a)(ii) below) and the Option Tract (described in Section 5(c) below) during the Contingency Period. *fn5" Buyer and Seller shall work diligently during the Contingency Period to determine a mutually acceptable configuration of the 12 acre parcel and the Option Tract.
 
In light of that provision, the notion that the parties were contractually bound not only before signing the Agreements but also before resolving that condition is even harder to justify.
 
4. To the same effect, Letter P 4 expressly conditions Jorgensen's obligation to close the sale on a number of matters as well. Among others, those conditions include a provision (Letter P 4(e)) that is identical to the above-quoted Letter P 3(d).
 
5. Finally, it is difficult to imagine a more unequivocal and less ambiguous provision than this final ...

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