What Is an “Illusory Contract” in Florida?

A contract requires an exchange of obligations. When a purported agreement only imposes obligations on one party but not the other, a Florida court may decline to enforce what is essentially an “illusory” contract. That does not mean that a contract must impose equal obligations on all parties. But every party must have some obligation.

Appeals Court Reverses Judgment in Favor of Thwarted Aircraft Buyer

For example, a contract may limit one party’s potential remedies in the event of a breach. The Florida Fourth District Court of Appeals recently addressed such a case. In Sky Aviation Holdings LLC v. Aviation Unlimited, a seller agreed to sell an aircraft to the buyer for $1.05 million. Under the terms of the written contract, the buyer made an initial deposit of $25,000. The buyer then had the right to conduct an inspection of the aircraft at their expense, after which the buyer could accept or reject the aircraft.

If the buyer accepted the aircraft, they had to make an additional $25,000 deposit and pay the remaining $1 million balance at closing. If the buyer defaulted, the seller could keep the aircraft and the deposit. If the seller defaulted, i.e., they failed to deliver the aircraft, the buyer was only entitled to a reimbursement of their inspection costs.

The buyer spent $12,000 on the inspection, which identified a number of problems that the seller agreed to correct prior to closing. The costs of the repairs, however, meant the seller would lose money on the deal. So the seller refused to close and instead refunded the buyer’s inspection costs as well as their deposit.

Not satisfied, the buyer sued the seller for breach of contract. A Florida court agreed with the buyer that the exclusive remedy provided in the contract–the refund of inspection costs–was “illusory” and should not limit the buyer’s ability to seek the full amount of their alleged damages. The judge granted the buyer summary judgment on the issue of breach of contract and proceeded to hold a jury trial on damages. (Specifically, the buyer claimed lost profits because it had planned to resell the aircraft to a third party.)

The seller appealed the final verdict. The Fourth District sided with the seller, holding that the contractual limit on the buyer’s remedies did not render the contract “illusory.” Indeed, the Fourth District cited one of its own prior decisions upholding a very similar type of contractual limitation. The buyer here was able to recover their deposit and inspection costs. That was a sufficient obligation on the seller to make the contract enforceable. Accordingly, the Fourth District reversed the trial court’s summary judgment for the buyer and entered summary judgment for the seller instead.

Contact a Bradenton Business Litigation Lawyer

Contracts are meant to define the business relationship between parties. When one side believes the other has failed to live up to their obligations, litigation may be necessary. Our Bradenton business litigation attorneys can advise and represent you in such matters. Contact Suncoast Civil Law today at 941-366-1800 to schedule a confidential case evaluation.

Source:

scholar.google.com/scholar_case?case=4758278470918454732