Cengage Advantage Books: Fundamentals of Business Law Today 10th Edition by Roger LeRoy Miller

تمرين 14

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.
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."
For critical analysis-Ethical Consideration Were there ethical reasons for the court to enforce the liquidated damages clause in this case? Explain.