Contract Law Question & Answer

Question : Discharge of Contract

We engaged a company to develop some software for us.

They did an initial development from 06-07 which was fine. We engaged them again to augment the system to include a new billing area.

On xx xx xx we agreed by email that the development could proceed at a cost of £5525. The email from them stated that the standard terms were an upfront payment of 30% before development begins, 60% on delivery of an "initial version" and 10% on completion.

They said the development would take approx. 20 days and maybe a little longer as their developer may need to work on the odd day doing some other things if needed urgently.

We paid £1947.56 and they agreed to begin work on xx xx xx. On xx xx xx they said they were behind with the work (they were now well overdue) and also said their main developer had now left their company. A day later they emailed to say they were committed to finishing. After some chasing on xx xx xx they said it was not possible to finish the project as "the overhead of our getting up to speed would put a disproportionate dent in our time as there are now only 2 of us developing software".

They offered to provide us with the completed code to date and to assist in a hand over to a new developer. They estimated 80% of project was complete and that we have paid 30% of the cost. I asked them for spec to show what was left and what had been done which was not forthcoming. Eventually on xx xx xx I asked for refund which was refused. Eventually on xx xx xxxx having threatened action I took them to court.

Am I going to win for what I presume is breach of contract?

Does their upfront charge hold an water?

Should I get an expert witness to assess the development -- as they've admitted only 80% complete this is breach of contract yes? I estimate more like 60-70% anyway.

Answer : Discharge of Contract

I am asked to advise Mr. X (the Petitioner) with regard to an action he has launched against a former business collaborator for alleged breach of contract.

The Petitioner's business (legal status unknown) engaged in negotiations with an unnamed software development company (the SDC) of previous good standing with the Petitioner, to develop software applications for the Petitioner's business (the PB).

On or about (date estimated due to error(s) in submitted enquiry) the xx xx xx a price of £5525.00 for the proposed work was agreed between the PB and the SDC. Utilising email the SDC sent a copy of their standard terms and conditions for completing the project to the PB. Inclusive of these terms and conditions was the stipulation that the PB pay 30% of the total value of the contract before the start of work, 60% on delivery of an "initial version" and 10% upon (satisfactory?) completion.

Completion date for the projected work was said to be 20 days with an agreed extra window of time should the project hit any unforeseen complications.

The PB duly paid £1947.56 and agreed with the SDC a start date of xxx xx xxxx.

It appears that from the beginning the SDC fell seriously behind schedule. On xxx xx xxxx (est.) the SDC recognised their failings in this endeavour but re affirmed their commitment to complete the project a day later.

On xx xxx xxxx the SDC announced they were no longer able to meet their contractual obligations citing any number of convoluted reasons. SDC did however offer to hand over the completed works to date (estimated by SDC to be 80% of the contracted works) to PB and assist in any "handover" to a new software development company for completion of the project.

It is assumed here that the SDC were offering to the PB 80% of the contracted works in lieu of the £1947.56 down payment and in full and final settlement of any claim the PB may decide to issue against the SDC for breach of contract.

PB requested that the SDC confirm that 80% of the contracted works had been completed by providing evidence. This was not forthcoming. On xx xx xxxx the PB demanded a full refund of the £1947.56 initial payment; this was refused (grounds unspecified). The PB then threatened legal action to recover monies culminating in a filed legal action (presumably) on the xxx xx xxxx.

The Petitioner seeks clarification as to whether he has a case for breach of contract against the SDC and direction as to whether it is prudent to utilise expert witness to bolster his claim.

Because of the nature of the Petitioner's enquiry i.e. no supplied T & C's of the discussed agreement with the SDC and no supplied information as to whether the agreement was between the SDC and a private individual or a limited company entity, it will be necessary to assume a valid simple contract exists between the Petitioner and the SDC for the purpose of this advice.

A contract may be defined as an agreement between two or more parties that is binding in law. This means that the agreement generates rights and obligations that may be enforced in the courts. The normal method of enforcement is an action for damages for breach of contract, though in some cases the court may compel performance by the party in default.

There are three basic elements to the formation of a simple valid contract.

First the parties must have reached agreement (offer and acceptance). Here this is validated by the agreement of SDC to provide you with software for the consideration of monies.

Secondly, both parties must intend to be legally bound. Here the negotiations and exchange of information between the Petitioner and the SDC will validate this issue.

Thirdly, both parties must provide valuable consideration. Here the initial funds paid to the SDC by the Petitioner will validate. It appears, on the basis of the information submitted by the Petitioner, that he has a valid, enforceable contract with the SDC.

It also appears, prima facie, that the SDC are in breach of that contract.

A claim for damages arises in circumstances where there has been a failure to perform, without lawful excuse, one or more of the obligations (whether conditions, warranties or innominate or intermediate terms) contained in a contract. The innocent party may have the right to rescind (terminate) the contract or choose to affirm.

A failure in this sense includes a refusal to perform, defective performance, delayed performance and action taken which prevents performance.

When a contract has been breached, damages are available as a matter of right. Even where loss cannot be proved, nominal damages can be claimed. The underlying principle of the damage award is to compensate the claimant for his losses, which can include lost opportunity.

There are three basic methods for calculating loss. Firstly, expectation basis, secondly reliance or wasted expenditure basis and finally restitution. It may be that you ask the court to impose an order on the SDC to complete the contracted works on budget and within a specific time frame rather than seek only damages.

In conclusion it appears that you have a strong case for breach of contract on the part of the SDC. You contracted with SDC for a complete software package, not part performance and it is the opinion held here that the court will likely seek to compensate you in a manner of your choosing.

With regard to expert witness testimony to bolster your claim it is a decision for the Petitioner to make based upon his superior knowledge of the case. What is clear is that the SDC have written to the Petitioner stating in no uncertain terms they are unwilling to complete the contract and the court will not require expert witness testimony to recognise this fundamental breach.

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