n September, Marcy's Department Store placed an order with Fuego Toys Inc for the upcoming holiday season. While it is difficult to predict which toys will be popular with children, both parties expected that the Squiggles line of giggling squirrels would be amongst the market leaders.

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PART 3

Marcy's therefore agreed to buy 50000 Squiggles at $20 each. From that stock, the department store expected to earn a gross profit of $1 000 000 by charging $40 per item. Marcy's was concerned, however, because it knew that Fuego's overseas manufacturing operations were experienc- ing labour difficulties. Marcy's therefore persuaded Fuego to insert the following clause into the contract.

Fuego Toys Inc promises to deliver 50000 Squig- gles to Marcy's Department Store by December 15. If Fuego is unable to meet that obligation, it will pay liquidated damages of $40 for each Squiggle that it is unable to deliver on schedule.

As the holiday season drew closer, the Squiggles fad grew much more dramatically than the parties had antici- pated. By mid-December, their market value reached $100 per item. Unfortunately, Fuego's overseas labour problems also grew unexpectedly. As a result, it was unable to deliver any Squiggles to Marcy's. Furthermore, it was impossible for Marcy's to obtain an alternative source of Squiggles so close to the holidays. Assuming that Marcy's paid the purchase price at the time of signing the contract, how much can it recover in damages?

IRAC ANSWER