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Context: Canadian law; contract work; software IP

If a contractor signs a work for hire agreement at the outset of a project and agrees that all work done for a company is the company's IP, can the contractor withhold the property if the company is unable to pay for it (insufficient funds)?

Or is it that because the IP was initially signed away the company can demand the property without making a single payment for it?

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No, a breach by one party does not relieve the other party of their obligations

If the contractor is contractually obliged to hand over the IP then they have to do so or breach the contract. The fact that the other party may (or may not) be in breach doesn't change that. The remedy for a breach of contract is damages, not a relief of obligations.

Termination

A sufficiently egregious breach may allow the aggrieved party to legally terminate the contract which ends all future obligations. However, termination is highly technical and easy to get wrong - if you purport to terminate a contract when you do not legally have the right to do so then you have just breached the contract and exposed yourself to damages.

Failure to pay on time is generally not a breach that allows termination. Your legally correct course of action is to sue for the money and continue to fulfill your legal obligations under the contract. Its worth noting that the legally correct actions may be commercial suicide and the correct commercial decision may be to breach the contract.

  • That's an interesting perspective. Particularly your last sentence. If the client does not have the funds to pay, and a considerable amount of time has passed (> 6 months) then I'd understand this to be a material breach. As such, one has legal right to terminate the contract. What termination technicalities are there when the client does not have the funds to pay for the work? – JVillella Jul 12 at 1:18
  • @JVillella please ask a question about when failure to pay becomes a breach justifying termination – Dale M Jul 12 at 1:23
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If the company does not pay the agreed sums, they have materially breached the contract. The contractor is probably allowed to rescind the contract and withhold things due under it, including both further work (if any remains) and the software. The contractor would have to notify the company of an intention to rescind. The contractor would need to give notice, and provide the company with a chance to make good, I think.

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