Our company entered into a contract to develop software for the exclusive use of a client for a fixed fee of $ 300,000. The software is currently 80% completed, however our client has paid only $ 100,000 to date and is now filing for bankruptcy. Under the circumstances, we have offered to relinquish any further claims on our client in exchange for keeping a copy of the software for our use. Our Client has refused this offer and at this time is unwilling to negotiate alternative payment terms.

What is our legal position if we unilaterally decide to retain the software and sell it to a third party to recover our costs? Could our client (or its bankruptcy trustee) take some legal action against us at some future date for our use of “their” software, in spite of the fact they have only partially paid for it ?

We are sure there are legal remidies here, but we do not want to initiate any legal action unless absolutely necessary.

Thanks,

Norm

How clear - if mentioned - is ownership of the software in the contract?

I'm wondering if they even own it now- prior to its completion and delivery?

In any case, you do not need to initiate the action. If you finish the project and sell it elsewhere, your original client would be the one to initiate the action; with a claim that you are selling "their" software... so will they even be in business to do so then?

I would NOT give them what you have unless the bky court demands it.

I would first let the legal department of your firm take care of this.
This is an assumption since a company doing this large of business should at a min have a lawyer on retainer.

But assuming since you are aking this here, you don't, so go get one that deals with bankruptcy law.

From my small opinion, you will need to represent this program as secured property, (think of it as a house, or a car or a washer/dryer) who the persons owes for.

If the court accepts this representation of the property, then he will either have to re-affirm his debt to you ( make payment plans) or return the ownership of the property to you.

But this is only my opinin of the matter, without looking at the specific contact you have with this person ( which needed to spell out what happens if the program is not paid for and/or bankruptcy)

So my overall answer, hire a bankruptcy attorney that normally works for the creditor.

First off, you should consult with a lawyer.

You need to check the actual contract. Who owns the equipment?

Is there an escape clause? The wording of the contract on ownership is important here.

Do not take any action with regard to the software. You entered into a contract with this client. When the client declared bankruptcy, any action that you might have taken was "stayed" by the bankruptcy filing. Even if the client was in default at the time you could not do anything about it. The client's trustee now has to either accept or reject the contract. If the trustee accepts the contract then the terms must be fulfilled by both sides. You must complete the software and they must pay you in full. If the trustee rejects the contract then you will be free to sell the software to anyone and the client will no longer have any obligation to pay you. Your attorney will be able to file a motion to compel the trustee to accept or reject the contract within a period that is shorter than the time generally allowed (90 days, I believe) but other than that there is not much you can do until the trustee makes their decision.