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Computer Contracts and Litigation

No matter how careful you are in providing goods and services, you are bound to have a dispute at some point.

It is generally in your best interest to attempt to solve the problem yourself prior to contacting an attorney. In attempting to solve the problem, ensure that all agreements that are made to resolve the problem are in writing. How many times do alleged solutions turn into large disputes themselves? While attempting to solve the problem, keep emotions and unimportant personal feelings out of the situation, they can only lead to a more difficult resolution. Remember you are running a business. If for some reason you cannot solve the dispute and possible legal action may be needed and the dollar amount is not great enough to hire an attorney, consider the small claims division of your local district court. This section of the judicial system is very friendly and easy to use. However, if legal action is brought against you or your company, quick action is necessary. Do not ignore any legal documents you receive from the court, i.e. notice to appear. Once the dispute reaches the courthouse, the entire dispute will be based on the contract between the parties. This contract may be oral or in writing. Obviously the better of the two is the written contract. Hopefully, the contract is drafted for the specific needs of the computer goods and service field. If the oral contract is valid, it becomes a question of past relationship, course of deals, and other unclear terms that are very open to interpretation. As I said in the liability section, your damages could be greater than the contract price. This makes the need for a strong written contract important, it only takes one bad sector of a hard drive, one missed programming routine, or one Internet security breach to cost your company more than you bargained for.

Unlike other areas of goods and services, the computer/internet consultant and hardware/software developer/provider can unknowingly be opening themselves and their companies to liability far beyond the cost of provided goods and services. It is well known in this industry that a great number of companies operate without written contracts. If there is a contract, the terms are usually not drafted around the special needs of the computer industry. (I.e. does it mention the liability for lost profits, hardware and software failure provided by third party vendors, liability limitation, liquidated damages, and customer related damages?)

Without such protection, your company could be libel for not only the cost of replacing or correcting any failure in your goods and service, but could also be liable for any “reasonable foreseeable damages.” This principle of damages was universally accepted in an 1854 by the case of Hadley v. Baxendale and is still the rule of law today. The law states that the aggrieved party may recover those damages “as may be fairly and reasonably considered arising naturally, i.e., according to the usual course of things, from such breach of the contract itself.” What is considered reasonable is commonly referred to as the “reasonable person test.” A typical example of a “reasonably foreseeable damage” would be the computer failure that causes a company to lose business/sales for a period of time. Such a computer problem could make you liable for not only the replacement of the computer but also the profits for the day in question. However, contracts can be written in such a way to prevent this type of unlimited liability for your company.