NOT DESIGNATED FOR PUBLICATION

ARKANSAS COURT OF APPEALS

OLLY NEAL, Judge

DIVISION III

CA00-873

April 4, 2001

CORRUGATED MACHINERY, INC AN APPEAL FROM CARROLL COUNTY

APPELLANT CIRCUIT COURT

NO. CIV-99-6

HONORABLE ALAN D. EPLEY

ED CAMPBELL, d/b/a HIGHLAND CIRCUIT JUDGE

HACKERS

APPELLEE AFFIRMED

This appeal from Carroll County Circuit Court challenges the court's finding that appellant materially altered an oral contract for computer programming, that appellee did not breach the contract, and it also challenges the court's decision in favor of appellee on his counterclaim. We affirm.

Appellant Corrugated Machinery Inc. ("CMI"), is an equipment-brokerage business that locates machinery that individuals or businesses wish to sell and identifies purchasers for the machinery. Appellee Ed Campbell is a computer programmer doing business as Highland Hackers. Appellee responded to CMI's newspaper advertisement on December 2, 1998, which sought an experienced programmer to rewrite the code of an existing computer program so that it would function in a modern computer language. On December 3, 1998, appellee visited CMI's offices to review its existing software and to discuss the project with Victor Rapisarda, vice-president of CMI. Appellee took a copy of CMI's existing program, analyzed it, and on December 7, 1998, returned to appellee's offices with a program layout and a description of the services he could provide. It is undisputed that the parties entered into an oral contract on December 7, 1998, after appellee negotiated with Mr. Rapisarda and with Steve Micheletto, CMI's president. It is also undisputed that the parties agreed to a cost of between $4,000 and $6,000 and a completion date of January 1, 1999. The dispute arose as to the interpretation of those terms. CMI argues that the estimated cost range for the project of between $4,000 and $6,000 and the project completion date of January 1, 1999, was for the entire project. Appellee contends that the $4,000 to $6,000 estimate and the January 1, 1999, deadline were only for the first phase of the project, which was to replace that portion of the CMI's existing program used in the ordinary course of business. He argues that the second phase involved enhancing the new software to provide added functionality.

On December 15, 1998, appellee submitted his first invoice to CMI in the amount of $2,712 for 90.4 hours and CMI paid this invoice in full. Appellee submitted a second invoice on January 6, 1999, in the amount of $3,927.74 ($3,798 in labor for 126.6 hours), which appellant did not pay. Appellee submitted a third invoice on January 14, 1999, in the amount of $1,191 for 39.7 hours, which CMI refused to pay. The parties met on January 15, 1999, regarding the status of the project and the outstanding invoices, and the parties'relationship was terminated at this meeting. CMI then hired David Steinke to complete the project for $2,000. On February 3, 1999, CMI sued appellee for breach of contract and for recovery of the funds it had already paid appellee. Appellee filed a counterclaim asking that CMI pay the balance of the unpaid invoices. A bench trial was held on March 13, 2000, and the court found that there was an oral contract wherein CMI agreed to pay appellee $30 per hour for his services, that CMI had materially changed the scope of the contract by requesting changes, that the price range given was merely an estimate, that the programming services were "goods" within the meaning of Ark. Code Ann. § 4-2-105 (Repl. 1991), and that CMI accepted appellee's work product. The court awarded appellee a judgment for $5,537 plus attorney's fees. CMI appeals this order and raises two issues: 1) whether the circuit court erred, as a matter of law, in not finding that the appellee materially breached the parties' contract, thereby excusing performance and entitling CMI to damages; and 2) to the extent the trial court correctly ruled that the appellee was entitled to recover on his counterclaim, whether the trial court erred, as a matter of law, by allowing appellee to recover those sums that exceeded the contractual cost estimate.

When we review a judgment entered by a circuit court after a bench trial, we do not reverse unless we determine that the circuit court erred as a matter of law or we decide that its findings were clearly against the preponderance of the evidence. Trucker's Exch., Inc. v. Border City Foods, Inc., 67 Ark. App. 231, 998 S.W.2d 434 (1999). We will not reverse a trial court's finding of fact unless they are clearly erroneous. Mid-Century Ins. Co. v. Miller, 55 Ark. App. 303, 935 S.W.2d 302 (1996). A finding is clearly erroneous when, although there is evidence to support it, the reviewing court is left with a definite and firmconviction that a mistake has been made. Gregg v. Arkansas Dep't of Human Servs., 58 Ark. App. 337, 952 S.W.2d 183 (1987).

We first consider whether the circuit court erred, as a matter of law, in not finding that appellee materially breached the parties' contract, thereby excusing performance and entitling appellant to damages.

The general rule is that a breach of contract occurs when a party fails, in a material way and without legal excuse, to perform in accordance with any promise that forms the whole or part of the contract. 17B C.J.S. Contracts § 561 (1999). The question of whether noncompliance with the provisions of a contract is material, so as to result in a breach of contract, depends on the nature and effect of the violation in light of how a particular contract was viewed, bargained for, entered into, and performed by the parties. Id.

CMI argues that appellee breached the oral contract by not completing the project by January 1, 1999; that the portion he did complete contained errors and was never functional during the period appellee worked on the project; and that he invoiced CMI for more than the agreed cost. Mr. Rapisarda testified that appellee gave him two figures for the cost of the project - $4,000 on the low side and $6,000 on the high side. He also said that appellee did not specify a number of hours but told him that he could begin work on the project within two or three days and complete it by January 1, 1999. Mr. Rapisarda stated that he authorized appellee to proceed with the project. Mr. Rapisarda further testified that, after he received appellee's third invoice and saw that the invoices totaled over $7,800, he discussed the total amounts over the phone with appellee and that he and Mr. Micheletto met with appellee the next day. Mr. Rapisarda said that when he asked appellee how much moretime he needed to finish the program and at what total cost, appellee replied that the cost could go upwards of $14,000 to $16,000 and that the sky was the limit. Mr. Rapisarda stated that appellee would not commit to any time frame although the third invoice was received two weeks past the initial term on which they had agreed. He also testified that the program never functioned properly despite appellee's representations to the contrary. He said that he never personally told appellee that he did not want him to continue working on the project, although appellee's manner when he left their final meeting suggested that he did not want to continue. Mr. Rapisarda said that, at some point after January 15, 1999, CMI entered into a written contract to pay David Steinke $2,000 to complete the project by April 15, 1999. He further stated that the appellee never told him the program was broken into two phases and that he did not pay any attention to the hours on the invoices because they had agreed on a lump-sum rate as opposed to an hourly rate. Mr. Rapisarda said that he believed that his partner, Steve Micheletto, informed appellee that he was terminated and was not to return. He testified that appellee never completed the project and that the project never worked until David Steinke "got in there and changed something."

Steve Micheletto testified that an hourly wage was never discussed with appellee and that the project was to be completed by January 1, 1999. During his rebuttal testimony, Mr. Micheletto testified that, during their first meeting, the $30 hourly rate was mentioned only as an example of what he had paid a previous computer programmer who had worked for a different corporation that he owns; he said that he told appellee he did not like that. He stated that they allowed appellee to work past his deadline because appellee led them to believe that he was close to finishing the project and that the snow storm had prevented himfrom going to work. Mr. Micheletto said that the appellee became frustrated at their January 14, 1999, meeting and got up and walked out. He stated that, as appellee was leaving, he told him to get out and not to come back. He said he never discussed future enhancements with appellee.

David Steinke testified that he took a copy of appellee's program home to analyze the source code. He stated that as he began working on the program he found bugs and typos, which is part of the programming process, but that appellee had the program all but functional at that point. Steinke also testified that portions of the program were missing and that there were some errors in the code. Mr. Steinke estimated that, in his opinion, appellee had finished about seventy percent of the program in terms of quantity and, in terms of time, appellee was probably one-half finished. He further said that the program was not functional at the time he became involved with it and that he had to make some modifications because of errors and because Rapisarda requested some changes. Steinke said that he finished the program around Christmas 1999. Steinke testified that he sent CMI an e-mail dated February 10, 2000, and informed them that appellee had written the majority of the code but that he had to add several small sections to each part of the program and that the project was probably a little bit over halfway complete. Mr. Steinke explained that some debugging of a computer program is required while the code is being written and a major debugging is performed once the code is finalized. He said that appellee would have had to do this had he completed the project. He said correcting typographical errors is one of the main components of the debugging process and a typical part of the programming process. Mr. Steinke further stated that appellee's charges for the work he performed were reasonable and that the work he had charged up to that point was reasonable. He also stated that the program was functional soon after he took over the job.

Appellee testified that he analyzed CMI's existing program and met with Mr. Rapisarda and Mr. Micheletto to determine what they wanted. He said that he presented them with a written program layout, a description of the services he would provide, and a list of items he wanted to go over with Mr. Micheletto to establish the terms of the contract. He said that he gave Mr. Micheletto a program development plan that contains a section called business relationship definition. He explained that the business relationship definition sets out four areas including communication, billing and payment, guidelines and post-installation support, and support for product resale. Appellee said that, as they were reviewing the plan, Mr. Micheletto told him they would pay $30 per hour and appellee said he agreed and told them that is what he normally charges anyway. Appellee stated that he wanted to turn the plan into a written contract but that Mr. Micheletto declined and said they would work it on an hourly basis and that he did not have time. Appellee said he did mention the $4,000 to $6,000 figure but not in the way appellant contends that it was meant. He said he explained to them that the only thing that he was capable of defining at that point was the replacement of those functions of its existing program that were actually in common use by Mr. Rapisarda. He said he explained that they had not discussed future issues or future enhancements so the best way to go about it was to replace the existing program and talk later about future enhancements. He stated that he explained that, if they are limiting their discussion only to that part of the program, then in his experience it would take $4,000 to $6,000. Appellee stated that he told Mr. Micheletto that he would try to complete thatportion of the program up through point nine on the plan by the end of the year. Appellee admitted that none of his invoices mentioned that the project was a two-phase project and that there was no mention in the Program Development Plan of phase one or phase two of the project. He also said that none of the invoices reflect that the services provided represent changes demanded by CMI outside the terms of the original agreement.

Appellee said that he returned to CMI's offices on December 15, 1998, and presented a working prototype of the way a Windows application would approach the same functionality as the old program and he demonstrated how it would work. Appellee said that it was not a complete program but that appellant could see the shell of it, liked it, and directed appellee to proceed. He said that appellant did not order any changes at that point. Appellee stated that he returned to CMI on December 30, 1998, with a completed program. He said it was not bugless but that appellant could go through all the functionality of everything. Appellee testified that, as he tried to demonstrate the program, Mr. Rapisarda was "absolutely lost" and Mr. Rapisarda then requested that he change the program so that it would work like a DOS-based program even though it was operating under a Windows-based program. Appellee said that he proceeded to make the changes over the weekend and that a storm kept him from the office on Monday so he requested an extension from Mr. Rapisarda and that Mr. Rapisarda requested at that time that he go ahead and begin working on future enhancements.

Appellee testified that he returned to CMI on January 7, 1999, and he delivered the January 6, 1999, invoice to Mr. Rapisarda. He said that he was told that he could not be paid at that time because it was Mr. Micheletto who signed the checks. Appellee stated that hereviewed the program with Mr. Rapisarda who said he liked it better because it was similar to the DOS program with which he was already familiar. Appellee testified that Mr. Rapisarda was able to work the program, although it did have bugs and "was not a well wrung out program from bug standpoint." He stated that he continued working on the program and that CMI never indicated that they were not going to pay him. Appellee said that he returned to CMI on January 14, 1999, and submitted a third invoice. He stated that he spoke with Mr. Rapisarda, who said his invoices exceeded the $6,000. Appellee then requested a meeting with Mr. Rapisarda and Mr. Micheletto, and they met the following day. He said they discussed the status of the program and the fact that Mr. Rapisarda was asking for future changes, which were not part of the original contract. He testified that he explained that, each time a change had been requested, he billed for it and that he was not willing to do it for a fixed price because "there was no telling what it would take to satisfy them." Appellee said that Mr. Micheletto became verbally abusive and appellee left. Appellee also testified that the project was not completed on January 1, 1999, because the program had to be rewritten because CMI was not satisfied with the design that was presented to it. Appellee also said that he did not tell appellant that it could cost $14,000 to $16,000 to complete the program. He also disagreed that David Steinke had to rewrite portions of the program. He said that, when he spoke with Mr. Steinke, he had changed two lines of code. Appellee stated that he believes that the thirty percent of the program written by Mr. Steinke related to future enhancements and had nothing to do with the original program.

The facts and testimony reflect that there was an oral contract. The three invoices show a total figure and total hours worked and, when divided by the number of hours, the dollar figure equals a rate of $30 per hour. Appellee testified that he offered his plan as a written contract but that CMI stated it did not have time for that. Additionally, CMI's own witness testified that the amount appellee charged for the work he performed was reasonable, that the work was reasonable, that the errors in the code are normal, and that debugging those errors is a normal part of computer programming. Based on these facts, we cannot say the trial court erred as a matter of law or that the findings were clearly against the preponderance of the evidence or were clearly erroneous.

CMI next asks that, if we find that the trial court correctly ruled that the appellee was entitled to recover on his counterclaim, then we consider whether the trial court erred, as a matter of law, by allowing the appellee to recover those sums which exceeded the contractual cost estimate.

Appellee offered unrebutted testimony that CMI requested changes to the program after he had written it, and because we affirm the trial court's finding that the contract was for a $30 hourly rate and the $4,000 to $6,000 was merely an estimate, we also affirm the amount of the judgment.

Affirmed.

Stroud, C.J., and Jennings, J., agree.