Providing Services Without a Formal Contract Can Be a Hiding to Nothing

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Those who provide their services in the hope of some future benefit, but without a formal contract to secure their position, do so on a wing and a prayer. Litigation expert David Watson recently reviewed the case of a company which provided design advice and other assistance in developing a successful line of soft toys.

Over a two-year period, the company provided its services to a toy designer in the expectation that a small Chinese factory in which the former had an interest would be engaged to manufacture the toys. In the event, however, the designer entered into a manufacturing and distribution agreement with another toy company which had since enjoyed considerable success in marketing the toys.

The company initially claimed in excess of $4 million in damages from the designer on the basis that the latter had breached an oral agreement that it would use the Chinese factory to produce the toys. In the absence of a formal contract, however, that claim was subsequently abandoned and the company instead pursued a much more modest restitution claim in respect of the value of the services it had provided.

In upholding that claim, the Court found that the very significant contribution that the company had made to the products’ success could not be overlooked and that it would be unconscionable for it to go entirely unrewarded for its efforts. Such an outcome would also result in the designer being unjustly enriched. The company was awarded £144,450, that sum representing the value of the services it had provided to the designer over a 20-month period.

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