Vendor breached contract - how do I calculate damages?

We had a software development vendor who was supposed to deliver a custom CRM system by June 30. We paid them $85,000 upfront (60% of the total $140,000 contract). They completely ghosted us on July 15 with only 30% of the work done.

Now we had to hire a different vendor who quoted us $95,000 to finish the work plus fix what the first vendor did wrong. We also lost a major client who needed the CRM in place by August 1 - that's about $45,000 in revenue for the rest of the year.

What can I actually sue for? Just the $85,000 we paid, or can we recover the additional costs and lost revenue?

You can potentially recover several types of damages here:

• Restitution: The $85,000 you paid for work they didn't complete
• Cover damages: The additional cost to hire the replacement vendor
• Consequential damages: Lost profits, but only if they were foreseeable at the time of contracting

The key question is what your contract says. Does it have a limitation of liability clause? Does it exclude consequential damages? Those are very common in software dev contracts.

Just checked the contract. There's a clause that says "Developer's total liability shall not exceed the total contract price paid by Client." Does that mean I can only get back the $85,000 max?

That's a liability cap, and yes, it would typically limit your recovery to the total contract price ($140,000 in your case). However, these caps can sometimes be challenged if:

1. The breach was intentional or grossly negligent (ghosting might qualify)
2. The cap is unconscionable
3. The vendor committed fraud

But realistically, that clause will probably stick. You'd be looking at max $140,000, not the full damages you're facing.

I'd argue the ghosting constitutes material breach that could void the liability cap. Courts in NY have held that limitation of liability clauses don't apply when the breach is willful or grossly negligent.

The fact they abandoned the project entirely and stopped communicating is not just a normal breach - it's potentially fraudulent inducement if they never intended to complete the work.

Did you try to reach them? Do you have documentation of your attempts?

Yeah, I have email chains, text messages, phone call logs. Over 20 attempts to reach them between July 15-25. Complete silence. Their office phone goes to voicemail, their website is still up but no response to the contact form.

Before you sue, check if they're even still solvent. If they ghosted you, they might have ghosted other clients too. Could be heading for bankruptcy. Look them up on your state's Secretary of State site to see if they're still in good standing.

Getting a judgment against a defunct company won't help you.

Good point. Just checked - they're still listed as "Active" with the NY DOS. But you're right, that doesn't mean they have any money.

Should I send a demand letter first or just file suit?

Always send a demand letter first. Give them 10 business days to respond. Outline:

• The breach (failed to deliver by June 30, abandoned project July 15)
• Your damages (be specific with amounts)
• What you're demanding (full refund of $85,000 plus cover damages)
• Deadline to respond

Send it certified mail and email. If they don't respond, that strengthens your case that the breach was willful.

Also check what your contract says about dispute resolution. Is there an arbitration clause? A lot of software dev contracts require arbitration before you can sue.

And regarding the lost client revenue - you'll need to prove that was foreseeable. Did you tell the vendor during negotiations that you had a specific client waiting for this system? If it's not in the contract or contemporaneous emails, it's going to be hard to recover those damages.

Update: Sent the demand letter via certified mail on Aug 4. They actually signed for it this morning (Aug 7). Now we wait. No arbitration clause in the contract, thankfully.

And yes, I have emails from May where I specifically told them we needed this done by June 30 because we were onboarding a major client in July. So that should help with the foreseeability argument.

Thanks everyone for the advice. I'll update when/if they respond.