Are Non-Refundable Contracts Legal in California?

[Small Business]

We are a small business located in the Caribbean, 3 years ago, we decided to enter into the business of pre-paid airtime sales.

This business would have entailed us:

1) Purchasing pre-paid airtime, in the for of electronic voucher codes for the cellular network operators here.

2) Placing POS terminal at different store locations throughout the island, where store owners could download these electronic vouchers, print them and sell them the mobile phone users wishing to add minutes to their account.

There are two cellular network operators here on the island, after securing a wholesale contract with one of them and starting negotiations with the other, we sourced a solutions provider in Foothills Ranch, California to provide a system that would serve our needs for airtime distribution.

This company specialises in these airtime solutions and have deployments in many other countries. They assured us that their solution would serve our needs "Out of the Box" and all that would be required would be a virtual connector to the network operators, for whom we wished to distribute airtime.

We obtained the technical specifications of the local cellular network, with whom we already had a contract, and our solutions provider, indicated that they were familiar with this platform, having already worked on the same type of platform for another of their customer and as such would be little or no effort for them to get things connected.

We were advised that in order to move forward, they could offer us a "Hosted" solution, which would not entail us purchasing any software license and they would provide us with the POS hardware as well.

We were asked to sign a contract for their services, which required a non-refundable fee of $30,000. USD and 2% of our monthly sales volumes of vouchers once the system goes live.

The fee was to be paid in two parts:

1) Inital of $20,000USD to get connectors to BOTH operators here.

2) $10,000 USD when the system goes live.

We paid the first $20,000USD of the contract and work was begun on the first connector. This connector was completed quickly and we we asked to purchase some POS hardware for testing. This we did and it was shipped to us.

Unfortunately, our negotiations with the second cellular operator did not materialise and knowing that we would be uncompetitive against other local airtime distributors because of this. We took the difficult decision to not move forward with the project.

We indicated this to the VP of Sales of our solutions provider, who at that time verbally offered a 50% refund of the initial $20,000. USD we paid and a refund on the POS hardware minus shipping, once sent back to them.

We thought this fair and agreed, at that time, after having been introduced to other services this solutions provider could offer we sought and pursued locally, other opportunites for deployment of their services, we did not claim our refund at that point.

Having a good relationship with the solutions provider and thinking that there could be some business locally for their services, we held off on the refund temporarily, in case we would want another of their services, the funds could be used for payment.

Again, nothing materialised and therefore we decided to move forward with claiming our refund.

At that time, their current VP of Sales refused to honor the offer of his predecessor and his predecessor who initially made the offer and no longer works at the company is now denying he ever made the offer.

We are asking for some advice to some questions on this matter.

1) Under California law, was it legal for them to ask us to sign a non-refundable contract?

2) Their services we never full completed and the system was never live, does this mean that they never completed their contract?

3) Is it reasonable for us the be asking for a 50% refund back on this project, given the circumstances?

4) We are not a US based company, and we think they are hiding behind this fact, if we are entitled to anything, what can we do?

Your comments and advice would be greatly appreciated.

[AFFA]

I wish to inform you that the terms of your contract will govern your contract. In this regard, if the other company has not fulfilled their part of contract then they are liable for breach of contract. In this, you may claim compensation for loss suffered by you because of breach of contract. Further, if the contract provides that amount is non refundable then that clause was valid if the agreement was to be performed but however as the agreement has been breached by other party and this has resulted in loss to you and unjust enrichment of other party therefore you may claim amount of your loss from other company. You may give a written notice to the US company along with all the evidence wherein their then VP of Sales had agreed to a refund. If the US company does not resolve the matter, you may complain to the Federal Trade Commission

AFF

[Small Business]

Hi,
I wish to first thank you for your advice on this matter.

Can you advise me of how to find a US laywer that can write to this company, as I am not based in the US.

You advice would be greatly appreciated.