Bus205 Business Law : Alabama Assessment Answers

Determine whether certain contract remedies exist in the following scenario:

Forrest Gump is a famous table tennis player. He enters into a contract with Alabama Sports Marketing to advertise the latest ping pong game and to serve as the computer-generated imagery (CGI) model for the development of the video game. Gump is perfect for this job as there are not many world famous ping pong players who have a following similar to his. The game is set to start development on March 1 and will be completed on July 31, so the game can be released at Thanksgivinga major video game release period. Both parties have agreed and stipulated to the fact that the game must be completed on time to maximize the profits.
Gump will make 20% of the net proceeds from the sales of the game. In addition, the contract has a liquidated damages clause that indicates that if Gump does not participate in the marketing, does not serve as the CGI model, or breaches the contract in any way, he will owe Alabama Sports Marketing $2 million.

Based on this fact pattern and the information presented in this unit, answer the following questions in a minimum of 250 words each.

1. One day, Gump gets into an argument with the developer. Gump refuses to perform any work until the problem is solved. In this situation, can Alabama Sports Marketing seek specific performance of the contract? If yes, why? If no, why not? 

2. How would the court determine whether the liquidated damages clause is valid? Is this clause valid? Explain your answers.

1.With regard to the contract that Gump and Alabama Sports Marketing entered into, Alabama Sports Marketing has the right to seek specific performance of the contract. The reason is because Gump failed to carry out his specific duty as they agreed in the contract. The agreement condition was that he will be liable for liquidated damages in case he fails to perform any of his responsibilities as per the contract. Liquidated damages are the stipulated compensation. The parties may stipulate the damage for recovery in case of defective performance, non-performance, or even when there is a delay in performing an obligation (Kubasek, Browne, Herron, Dhooge, and Barkacs, 2016). Under methods of discharging a contractor remedies, a tender is referred as an offer to perform certain obligation by one party in an agreement, together with being willing, prepared, and to be able to execute a specified obligation in the contract (Kubasek, et.al. 2016). Therefore, in the case of any breach of specific performance, the court will observe a considerable performance and discharge the liabilities of a party under the contract.

Moreover, the court would require that any party who has under performed to pay damages to the other party in case of any liquidation loss resulting from inability to meet all the conditions stated in the accord (Nettleton & Hill, 2007). Further, the affected party may demand either the stipulated performance or damages of the standard obligation. On the other hand, Alabama Sports Marketing can also use the law under Assent to make Gump liable for the damages. The law allows avoidance of certain contracts that lacks genuine assent.

2.The liquidated damages are the amount prearranged, stipulated compensation that will be recovered in case of any occurrence of a particular event (Coldwell, Burchett-Williams, & Celeste, 2010). Most of the liquidated damages are associated with delays in a project. Therefore, for the court to determine whether the liquidated clause is valid or not, it will ask for the following questions: (1)when the contract got formed was it clear that damages would not be easy to estimate in the event of a breach. (2) Ifthe amount predetermined as damages was a sensible estimate of the likely damages and not excessive (Jensen & Craig, 1998). In case the answer to both the questions is yes, the provision will get enforced. However, if the answer is no, the provision will not get enforced. 

Moreover, the specific performance is not a valid clause. The reason for this is because if such clause is in the contract, and there is a delay in contract, it might be treated as unenforceable (Jensen & Craig, 1998). This is because the pre-set liquidation might not be reasonable; thus, making it be considered as a penalty. On the other hand, the party seeking to enforce the clause must provide a reasonable explanation to why the parties included the clause and how the liquidated amount got calculated (Jensen & Craig, 1998). Lastly, whether the damages are reasonable is not affected by the genuine costs incurred, it is because the analysis is based on the conditions that existed when the parties entered into the contract.

References

Coldwell, D. S., Burchett-Williams, A. Q., & Celeste, M. L. (2010).Liquidated Damages.Franchise Law Journal, 29(4), 211-230.

Jensen Jr., D. A., & Craig Jr., J. W. (1998). Testing the validity of liquidated damages clauses: measuring the application preference and consistency of the intent test as applied by the United States court system. Construction Management & Economics, 16(3), 269-281.

Kubasek, N., Browne, M. N., Herron, D. J., Dhooge, L. J., &Barkacs, L. (2016).Dynamic business law: The essentials (3rd ed.). New York, NY: McGraw-Hill Education.

Nettleton, E., & Hill, A. (2007).Specific performance of outsourcing contracts.Journal Of Database Marketing & Customer Strategy Management, 14(2), 146-149.