determining whether the liquidated damages clause is valid or not
The first step in determining whether the liquidated damages clause is valid or not is the review of the clause that is found within the contract terms and conditions. This is to determine if the amount established was reasonable and if there was actual harm or any possible harm at the time of the breach of contract. The type of clause in the contract is meant to limit risks, but this clause is not always enforceable. The courts only enforce these clauses when they appear to have a reasonable relationship with the actual cost. But, the courts will not enforce the clause if the amount has been exaggerated and doesn’t meet the reasonable price linked with the project. In this case, the liquidated clause is valid primarily because it was in place before any breach happened. Further, the amount in the clause is reasonable since it would adequately cover the cost to make the video game. However, the clause cannot sufficiently determine possible profits that could have been made in case the clause was breached. There is a high possibility for Alabama Sports Marketing not to know if the video game would have had been successful and have good sales in the market. A liquidated damage clause shows a fixed sum of money that the breaching party needs to pay since they have failed to do their obligations under the agreed contractual terms conclusively. But, the courts have the authority to establish if the amount of money is punishment or penalty and would not make it enforceable.