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Law School Case Brief

Pan-Am Tobacco Corp. v. Dep't of Corr. - 471 So. 2d 4 (Fla. 1984)

Rule:

A contract which is not mutually enforceable is an illusory contract. Where one party retains to itself the option of fulfilling or declining to fulfill its obligations under the contract, there is no valid contract and neither side may be bound.

Facts:

Petitioner Pan-Am Tobacco Corporation ("Pan-Am") entered into a written contract with respondent Department of Corrections ("Department"). Pan-Am was to provide vending machines in six correctional facilities. The contract provided that Department could cancel the contract for unsatisfactory performance by Pan-Am if it gave Pan-Am 60 days' written notice and 30 days within which to correct any deficiencies. Additionally, the contract provided for liquidated damages. The Department canceled the contract on 30 days' written notice, specifying no deficiencies in Pan-Am's performance and giving no time within which to correct any deficiencies. Pan-Am brought suit on the contract in Florida state court and sought partial summary judgment on the issue of liability. Pan-Am's motion for partial summary judgment was denied. The Department filed a counter-motion for summary judgment asserting sovereign immunity as an affirmative defense, and that motion was granted. Pan-Am appealed, and the First District Court of Appeal affirmed but certified the question to the Supreme Court of Florida: "Can a state invoke sovereign immunity as a bar to an action for breach of contract when the state improperly rescinded an express executory contract with a party who suffered a loss of profit as a consequence?"

Issue:

Can a state invoke sovereign immunity as a bar to an action for breach of contract when the state improperly rescinded an express executory contract with a party who suffered a loss of profit as a consequence?

Answer:

No.

Conclusion:

The state supreme court quashed the decision of the lower court and held that where the Department entered into a contract fairly authorized by the powers granted by general law, the defense of sovereign immunity would not protect it from action that arose from the state's breach of that contract. Where the legislature authorized respondent to enter into contract or to undertake those activities which, as a matter of practicality, required entering into contract, the legislature intended that such contracts would be valid and binding on both parties. The State was obligated to Pan Am, otherwise the legislative authorization for such action would be void and meaningless.

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