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Case Analysis
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 Thanksgiving—a 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. Your response must be at least two pages in length and utilize key legal terms in contract law.
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?
How would the court determine whether the liquidated damages clause is valid? Is this clause valid? Explain your answers. Evaluate the equitable and legal remedies available for breach of contract.
In this scenario, Alabama Sports Marketing is likely able to seek specific performance of the contract. Specific performance is a remedy that can be used when monetary damages are insufficient to address a breach of contract. In this case, the parties had agreed that it was essential for the game to be completed on time in order for both sides to maximize profits; therefore, if Gump refuses to perform any work until the problem is solved, then monetary damages would be inadequate and not fully representative of what has been lost by Alabama Sports Marketing due to Gump’s breach. Therefore, specific performance may be an appropriate remedy in this instance as it forces Gump to comply with his contractual obligations and follow through with his original agreement.
The court will determine whether or not the liquidated damages clause is valid based on two factors: 1) whether or not actual damages could have been ascertained at the time of contracting; and 2) whether or not there was good faith between both parties and reasonable expectations regarding losses incurred from a potential breach of contract. First, it must be determined if actual damages could have been ascertained at contracting by examining how foreseeable were future losses due to non-performance – in other words did both parties consider possible scenarios that may lead up an unforeseeable situation causing one party harm? If so, then it must also be determined if there was good faith between both parties present during negotiations – which usually looks at how much information each side had about relevant facts like similar contracts made previously with similar language clauses included or measures taken beforehand that would lessen the impact from any potential breaches (i.e., insurance). If these two criteria are fulfilled then typically courts do find liquidated damages clauses such as this one valid because they provide fair compensation for anticipated future losses lower than what might otherwise have been obtained after adjudication/litigation process began in earnest (prematurely).
If a breach occurs then equitable remedies like rescission (cancellation), specific performance (forcing compliance with contract), restitution (restoring party back into same position prior); and legal remedies like compensatory damages (monetary award meant offsetting costs associated w/breach), punitive damage awards representing additional compensation over & above compensatory award; nominal damage awards; expectation interests awarded instead of compensatory meaning difference between expectancy & “benefit-of-the-bargain” determine outcome most cases involving contractual disputes respectively all become available depending upon severity level inflicted upon innocent party(s).