Unsigned Statement of Work and a Lead Developer's Resignation
Harborline Fabrication, an Ohio metal-parts maker with 140 employees, negotiated with Cresta Software for a custom production-scheduling system. After four months of calls and emails, Cresta sent a one-page 'Statement of Work' quoting $238,000 with a go-live date of March 15; Harborline's operations director replied by email, 'Approved - start Monday,' and Cresta began work the following week. The SOW stated that it would become binding only when signed by both parties; neither party ever signed. Harborline paid $70,000 against two invoices marked 'progress payment.' In February, Cresta's lead developer resigned, and Cresta told Harborline that the March 15 date was impossible and that it needed six more months and $90,000 more. Harborline had already reorganized two production lines around the promised date and turned away a $400,000 contract that would have required the old scheduling process. The SOW contains a clause excusing delay caused by 'events beyond the parties' reasonable control' and a limitation of liability capping damages at fees paid.
1. Harborline wants to enforce the deal. Cresta argues that no contract exists because the SOW was never signed. Analyze whether a contract was formed and what fallback theories Harborline has.
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Governing law. The predominant-purpose test decides whether the common law or UCC Article 2 applies. A custom scheduling system with substantial configuration, integration, and implementation services is predominantly a services deal in most courts, so the common law governs formation; the UCC's writing rules do not supply an answer.
Statute of frauds. No writing is required because the contract could be performed within one year - the go-live date was March 15, roughly five months after work began. Even if a goods component pulled the deal into Article 2, the part-performance and judicial-admission exceptions would apply.
Intent to be bound. A 'binding only when signed' clause is strong evidence that the parties contemplated a later formal act, but it is not conclusive. Courts weigh the parties' words and conduct. Here Cresta started work immediately after the email approval, accepted $70,000 in progress payments, and never objected to the absence of signatures during four months of performance. That conduct objectively manifests assent; Cresta cannot invoke the unsigned form as an escape hatch after taking the benefit of the bargain.
Fallback: promissory estoppel. If a court found no contract, Harborline would argue a definite promise ($238,000, March 15 delivery), reasonable and foreseeable reliance (reconfiguring production lines, declining a $400,000 job), and injustice absent enforcement. The remedy would be reliance-based rather than full expectation - reimbursement of reconfiguration costs plus restitution of the $70,000 - which is why Harborline should lead with contract formation rather than estoppel.
2. Cresta invokes the force majeure clause and claims commercial impracticability. Evaluate both defenses.
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Force majeure. The clause excuses delay from 'events beyond the parties' reasonable control.' A key developer's resignation is an internal personnel matter within Cresta's control and a foreseeable feature of the software labor market; it is not an external event of the kind such clauses address. Courts also read such clauses narrowly, often limiting them to events similar to those enumerated. On these facts the clause is not triggered.
Impracticability. The common-law doctrine requires an event whose non-occurrence was a basic assumption of the contract and which makes performance impracticable - not merely more expensive. A $90,000 cost increase on a $238,000 project is significant, but courts consistently hold that a substantial cost increase, without more, does not excuse performance; the party bears the risk of its own staffing and pricing. The loss of one employee is squarely within that risk, and Cresta had a duty to mitigate by reassigning staff or subcontracting.
Foreseeability and timing. At signing, both parties knew the March 15 date drove Harborline's production planning. Cresta assumed the risk of meeting it and should have built slack into its staffing plan. If Cresta wanted relief, it needed prompt notice and evidence that no reasonable alternative existed - neither is present.
Result. The force majeure and impracticability defenses fail; Cresta's refusal to perform is a breach, and the only remaining questions concern damages and the enforceability of the liability cap.
3. Assuming Cresta is in breach, what damages can Harborline recover, and how does the limitation-of-liability clause affect them?
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Expectation damages. Harborline is entitled to be put in the position performance would have produced: the cost of covering with a substitute system (the difference between the contract price and the market cost of comparable software plus implementation), plus any delay losses that were foreseeable when the contract was made.
Consequential damages. The $400,000 contract Harborline turned away is recoverable only if (i) it was foreseeable to Cresta at contracting, (ii) it is proved with reasonable certainty, and (iii) it is not speculative. Harborline's strongest argument is that Cresta knew the delivery date was business-critical because Harborline explained its production-line schedule. If the contract was declined before the breach in reliance on Cresta's promise, the loss is a reliance expenditure and is recoverable on that theory even if the expectation measure is contested.
The cap. A cap at fees paid ($70,000) between commercial parties is generally enforceable absent unconscionability. Harborline should attack it on two fronts: first, a cap combined with a broad force majeure clause can leave Harborline without any meaningful remedy for a total failure of performance, which supports an argument that the exclusive remedy failed of its essential purpose; second, caps ordinarily do not shelter fraud or independent tortious conduct, so if Cresta misrepresented its capacity, the cap may not apply.
Practical framing. Harborline should plead contract damages of the cover cost plus the lost resale opportunity, restitution of the $70,000, and, in the alternative, reliance damages. The $70,000 already paid is recoverable regardless of the cap.