Cengage Advantage Books: Business Law Today, The Essentials 10th Edition by Roger LeRoy Miller

تمرين 13

Spotlight on Liquidated Damages
FACTS B-Sharp Musical Productions, Inc., and James Haber entered into a contract under which B-Sharp was to provide a band on a specified date to perform at Haber's son's bar mitzvah. Haber was to pay approximately $30,000 for the band's services. The contract contained a liquidated damages clause stating, "If [the contract] is terminated in writing by [Haber] for any reason within ninety (90) days prior to the engagement, the remaining balance of the contract will be immediately due and payable. If [the contract] is terminated in writing by [Haber] for any reason before the ninety (90) days period, 50% of the balance will be immediately due and payable."
Within ninety days before the date of the bar mitzvah, Haber sent a letter to B-Sharp stating that he was canceling the contract. When Haber refused to pay the remaining amount due under the contract-approximately $25,000-B- Sharp sued Haber and his wife in a New York state court to recover the damages. The court granted B-Sharp's motion for summary judgment, enforcing the liquidated damages clause, and the defendants appealed.
ISSUE Was the liquidated damages clause, which specified the amount to be paid in the event that the performance was canceled, enforceable?
DECISION Yes. The appellate court upheld the trial court's judgment. The clause in question was "not an unenforceable penalty." It was a reasonable estimate of damages, given that B-Sharp would be unlikely to book another engagement that close to the performance date.
REASON The clause used an estimate of B-Sharp's probable loss in the event of a cancellation as the measure of loss. This estimate reflected an understanding that "although the expense and possibility of rebooking a cancelled [performance] could not be ascertained with certainty, as a practical matter, the expense would become greater, and the possibility would be less, the closer to the [performance] the cancellation was made, until a point was reached, [ninety] days before the [performance], that any effort to rebook could not be reasonably expected."
CRITICAL THINKING-Ethical Consideration Were there ethical reasons for the court to enforce the liquidated damages clause in this case? Explain.