What factors would a court consider to determine whether the $1-million-dollar liquidated damages clause constituted valid or is a penalty?
Chapter 9: Contract Performance, Breach and Remedies – Chapter 9 – Journal Entry
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CONTRACT PERFORMANCE, BREACH AND REMEDIES (page 279)
Kyle Bruno enters into a contract with X Entertainment to be a stunt man in a movie that is being produced. Bruno is widely known as the best motorcycle stunt man in the business, and the movie to be produced, Xtreme Riders, has numerous scenes involving high-speed freestyle street-bike stunts. Filming is set to begin August 1 and end by December 1 so that the film can be released the following summer. Both parties to the contract have stipulated that the filming must end on time in order to capture the profits from the summer movie market. The contract states that Bruno will be paid 10 percent of the net proceeds from the movie for his stunts. The contract also includes a liquidated damages provision, which specifies that if Bruno breaches the contract, he will owe X Entertainment $1 million dollars. In addition, the contract includes a limitation-of-liability clause stating that if Bruno is injured during filming, X Entertainment’s liability is limited to nominal damages.
Answer the following questions:
1. One day, while Bruno is preparing for a difficult maneuver, he gets into an argument with the director and refuses to perform any stunts at all. Can X Entertainment seek specific performance of the contract? Why or why not?
2. Suppose that while performing a high-speed wheelie on a motorcycle, Bruno is injured by the intentionally reckless act of an X Entertainment employee. Will a court be likely to enforce the limitation-of-liability clause? Why or why not?
3. What factors would a court consider to determine whether the $1-million-dollar liquidated damages clause constituted valid or is a penalty?
4. Suppose that there was no liquidated damages clause (or the court refused to enforce it) and X Entertainment breached the contract. The breach caused the release of the film to be delayed until the fall. Could Bruno seek consequential (special) damages for lost profits from the summer movie market in that situation? Explain.
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