Question

Subject: Legal, ethical and social environment

Question: Sheila Seller and Bobby Buyer enter into a contract where Bobby agrees to buy widgets for $0.10/unit at 500 units per shipment. The contract states that there shall be a minimum of 6 shipments between the parties. Bobby’s payments are late on the first 3 shipments, and Bobby does not make the payment on the 4th shipment. In the parties’ contract is a liquidation clause, which states that if either side is unable to perform his or her duties under the contract, then the other party shall receive damages in the amount of $100,000. Should the court enforce this liquidated damages clause?

Answer 1

Yes, Court should enforce this liquidate damages clause because there was valid contract between Shiela seller and Bobby buyer. Liquidated damages are put as clause in the contract where both parties agrees to pay if either of them breach the terms and conditions of the contract. This type of damage is ascertain in nature to prevent one party from loss by the act of another party in the contract.

It is legal as well as ethical to recieve damages in the amount of $100,000 by Sheila seller as aggrieved party. Shiela seller was performing her contractual obligations by sending shipment to Bobby buyer but Bobby buyer was late on first 3 shipments and did not make the payment on the 4th shipment so it is unfair to Shiela to send shipment and suffer loss even performing her legal contractual obligation.

Court should take decision to enforce this liquidated damages clause and order to award damages in the amount of $100,000 to shiela seller.

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