The case of Giumenta v. Desktop Solutions is a clear articulation by the Suffolk County Court of the basic elements required to make a legally sufficient claim for breach of contract. The case itself centered around a contract between plaintiff Giumenta and defendant Desktop Solutions for the creation of a website, and certain disputes that arose out of the contract.
Background of the Case
On December 7, 2005 Giumenta, vice-president of a company that makes decorative grills, entered into a contract with the defendant, Desktop Solutions. The contract was for the creation of a functioning website that would allow customers to provide job specifications on line so that the company could respond with appropriate pricing information.
There was a great deal of back-and-forth between the parties, but the gist of the matter was that, according to Giumenta, the website never functioned as intended, and in July 2007 Giumenta contacted another company, which proceeded to have a functional website up and running in a matter of weeks. According to Desktop Solutions, the website would have functioned as intended had Giumenta provided them with product specs, high resolutions photographs, and final approval to go live.
Giumenta sued Desktop Solutions for not delivering the functional website as promised, and Desktop Solutions countersued saying in effect that Giumenta copied Desktop Solutions’ website and the original ideas contained within when it went to the second website development company.
Elements of a Breach of Contract Action
There was a great deal of testimony, including an expert on web design on behalf of the plaintiff. Interestingly, the court viewed all of this testimony as credible – in that every witness seemed to be telling the truth with no lies or misrepresentations.
The court first stated the New York standard for a valid claim for breach of contract.
(1) formation of a contract between the parties,
(2) performance by the plaintiff,
(3) defendant’s failure to perform, and
(4) resulting damage
Formation implies there was a valid and enforceable agreement satisfying all the usual criteria such as offer and assent, no revocation, definiteness, and presence of a bargained-for exchange of items of value. Performance is a legal term of art. In contracts both parties have things they must do under the contract, e.g. pay money or construct a house, in other words the parties have mutual obligations they must perform for one another. A breach occurs when one side lives up to the deal, but the other side does not. Damages are significant because contract law is purely economic. If a contract was breached with no harm at all to the other side, a court will throw out a lawsuit for breach of contract.
The court focused upon the plaintiff’s argument that the defendant had failed to perform. What made the analysis particularly difficult was that the defendant had invested a great deal of time and effort into developing code for the website over a 20-month period. However, at trial the court had an opportunity to attempt to use the website created by Desktop Solutions, which the defendant claimed was substantially complete. As it turned out, the website was still full of placeholders, erroneous product descriptions, and a menu system that did not work properly.
The court made the harsh-seeming but correct decision that the plaintiff had bargained for and expected a fully functional website. Payment was to be made for fully functioning ‘modules’ within the site as they were completed. Thus the defendant had NOT provided the essential portion of its contractual obligations, and was guilty of breach.
Defendant made a quantum meruit argument for recovering money from the plaintiff. This argument is based on the idea that defendant’s partial performance rendered some form of economic benefit to the plaintiff – according to the defendant, the furnishing of ideas and code that were then used to create the website by the second web developer.
In a typical successful quantum meruit case the contract is e.g. for defendant to deliver 1000 pounds of coal for $1000. If defendant only delivers 900 pounds, it is in breach of its contract but because the plaintiff received the economic benefit of 900 pounds, it must then pay for it – so defendant may recover $900. However, say it cost plaintiff $200 to buy another 100 pounds of coal on the open market – because of defendant’s breach, plaintiff is entitled to offset the difference between open market price and contract price from defendant’s recovery – so defendant would only recover $800, in effect bearing responsibility for the additional $100 the plaintiff had to pay to obtain the full 1000 pounds of coal (900 to defendant plus 200 on the open market = $1100 total).
Here, the court decided that all of the time spent by defendant and all of the code was essentially worthless to the plaintiff. The plaintiff did not actually use any of it, and so the harsh operation of the law allows the defendant to recover nothing.
Breach of contract cases may yield surprising and harsh results. It is thus imperative to have experienced counsel who has extensive knowledge of the elements of a case and the typical claims and counterclaims. Please do not hesitate to contact our office for a consultation.