Hi Rodinhooders,
Can someone help with one of the most important contract clauses in an agreement i.e. the termination provision.
I am working on a planner website, where technology is an important aspect for the business’s good functioning. The website has different features with each feature being rolled out in phases. I have worked on an MoU with a potential technology partner. It’s completely revenue sharing model, each one bearing their own expenses.
The partner feels that if due to any reason the contract is terminated within 60 days as per the MoU, then I have to be willing to share and own the code with mutual agreement until and unless the amount is fully paid.
Please help with your suggestions and experiences in dealing with such a case.
Thank you all…
Darshan Bhambiru
1> MoU is not a Contract or an Agreement, it is just an Understanding to how things would be working between the partners for the time period as agreed and understood. So Do you have any of those along with it ? (What is Primary MoU or the Contract ? )
2> You mention there is a Contract which, if would get Terminated within 60 days (as per the MoU) then you would be willing to Share and own the code with the other partner, Though you explain it is being done in Phases already so What part of the Code would be Shared and owned, the original one or the updated ones ?
You can Time it, so it is not completed in 60 days in that case eh ?
3> You have the Technology Partner at what Conditions ? If You are Coding, what is their part ?
4> Termination should include Both Parties agreeing on a Common Ground.
Rest is your own Understanding how you want to take things further, BTW why do you feel the whole thing is going to collapse in 60 days to lose or share and co own the code so prepared ? Could you have done without the Technological partner in the first place to start with ?
We have Legal Specialists on the Forums as well, who can throw a clear Beam of Light in that regards better, am Just getting to the Initial Logical bit from my end and some Logic.
Just check here this is also fresh apart from the other valuable posts made for the topic in question as well.
In case of Doubt – Eject!!!!
Ramanuj Mukherjee
Here is an excerpt from an article I wrote about these kind of contracts:
Termination:
This is a crucial clause. A party to a contract may terminate a contract under two circumstances. One is when there is a breach by the other party – which should enable immediate termination or termination by a short notice even when there is no fault or breach by the other party. There should be another clause that enables your client to terminate the contract at his/their convenience with a longer notice. This is also known as a no-fault termination.
Recently one of my friends wanted to terminate a contract because he found a service provider who would provide services at a cheaper rate. His contract allowed him to terminate the contract on a three months notice. This meant that he could not terminate the contract before three months after giving notice and pay a higher rate for that period. This is a reality that needs to be taken into consideration while opting for longer notice periods for no-fault termination.
We generally insert a specific termination clause for failure to make timely payments under a contract.
Consequences of termination
You know when you can terminate the contract, but what exactly happens after termination of contract? Do any obligations of either party survive? What about the obligation to maintain confidentiality or to not solicit employees of the other party?
What happens to payment for unfinished works or possession of products which have already been imported for delivery? What happens to any third-party contracts that one party has entered into in reliance of the contract which is now being terminated?
The contract should address these issues in details in order to ensure a smooth termination. Let’s look at a clause that states that the client does not have ownership if he does not pay the Retainer.
Illustration: “The Client can claim work products in the Retainer’s control only if all dues to the Retainer or any third party service provider engaged through Retainer is paid.”
Now, a clause which requires the client to pay a retainer for unfinished work:
Illustration: “Upon termination, Client shall be under an obligation to compensate the Retainer reasonably for all costs incurred by the Retainer towards unfinished work or products.”
I recommend that you read the rest also over here: https://www.nextbigwhat.com/negotiation-essentials-for-entrepreneurs-297/
Now coming to specifics – what he is asking for is not standard, but anything goes in a negotiation. If it is not OK with you, then say so.
You need to describe the following more articulately for us to understand what exactly he wants. Try answering these questions:
“until and unless the amount is fully paid” – which amount? His development cost?
It may not be unreasonable to say so – it may be fine for you to agree to it also provided your contract takes care of certain things. There are a few possible situations here:
Situation 1. This guy is really bad and you are terminating for non-performance before 60 days.
In this case, you need a fault based termination clause for non-performance. Then you may want his codes but may not want to pay him for it – in fact, despite taking the half baked code you may run losses due to his failure. In that case, take code and don’t pay him anything – that’s justified.
Situation 2: He is good, but your business doesnt take off.
He is sharing the business risk anyway – but if his codes are good and it doesnt work out because you cant take care of rest of the things, or because your business model doesnt work, then he wants to at least have the code. This is his commercial intent – and it may not be a bad situation for you. He is also saying you will jointly own the code – thats great for you!
Situation 3: Hi code is good, your business is doing good, but he wants to get out and terminate for some reason.
In this scenario he should not get rights over the code, and you should be able to retain it.
That’s all.
PS: getting these different scenario down in ink and paper is an art, and thats what businessmen pay lawyers for. You can learn to do it yourself also. I suggest you write the contract providing for the scenarios I mentioned, and then show it to a lawyer.
Sunaina Shenoy
Hi Darshan,
Thanks for the advice.
Well, there is just one MoU in place and no other contract.
The technology partner is taking care of developing the code.Code to be shared in case of termination will be the work that the partner has done till date.
Sunaina Shenoy
HI Ramanuj,
Appreciate your invaluable suggestions. It’s really been a great help.