Software Contract – Order Form with multiple products – Buyer not paying for a product not used

Problem Situation

An order form for AI Software has more than one service. There is a possibility that the buyer raises payment issues when a service has not commenced within a reasonable time after the effective date of the contract or has not been used at all.

Issue: Whether or not the buyer is entitled to refuse payment for a product in a signed Order Form that: a) it has not been used; or b) for the period not used.

Applicable principles of law

1. Parties are bound to perform their respective obligations arising out the contract.
2. A buyer breaches a contract if it does not accept delivery.
3. If payment terms are not agreed, then the payment is due at time and place at which the buyer is to receive the goods.

Resolutions

Payment as agreed

1. Once the Order Form and the Service Contract are signed, the buyer is bound by their terms.
2. Signing the Order Form constitutes an enforceable contract.
3. Unless otherwise agreed, the Service Contract must provide for the purchase of all the service agreed between the parties and as listed in the Order Form. Thus, the buyer is bound by this term.
4. The Order Form and the Service Contract provide for the payment term. They must not leave any doubt about payment in the terms specified.
5. The Service Contract and the Order Form provide for monthly payment of the products. This means that payment terms cannot be as the buyer’s choices. Thus, for example:

a. If there is clause, for example effect of termination out of convenience, that sufficiently signifies that the payment is for the entire term of the agreement, then the Buyer has to comply with such payment term.

b. If the Service Contract and the Order Form do not provide that the buyer is entitled not to pay for products not used, then the buyer is not entitled.

c. Thus, the payment term cannot be at the time and place as changed by acts or omission attributed to the buyer.

d. One exception is if by the act or omission, the seller did not object to when the buyer did not pay, this indicates that the contract is modified and the seller has agreed to the buyer not paying.

Breach of contract for rejecting delivery

1. The question is: when is the delivery of a service?
2. A service may be delivered when the AI service is installed, deployed and tested. This may be found in provisions such as related to commencement date of the service.
3. When a buyer does not use a service as ordered and agreed, it signifies that it is not accepting delivery. This means that the installation, deployment and testing have not been conducted as per the agreed plan due to buyer’s fault when the seller is ready and willing to perform its obligations.
4. The buyer must understand that the seller has invested time and effort and resources to ensure buyer has access and use of the service during the entire term of the agreement, as per the Service Contract and Order Form.

Given the principles of law of contract and the surrounding circumstances, the buyer is not entitled to refuse payment for any services or products that are ready to be delivered and seller is ready and willing to deliver its performance according to the Service Contract and the Order Form.