Hi Robert,
>If I refused to provide the source, They surely would release me...
And if you give it to them you seem to be pretty sure they'll release you as well. I'm not sure exactly why you have a problem deciding if you know the outcome either way.
I have also heard that if there's no agreement of any kind the source code belongs to you.
Why don't you just put all the cards on the table and tell your client that if you give them the source code they'll release you and if you don't they'll release you as well. Well, don't mention this to them just yet... keep reading.
They might be simply trying to cover their eof()'s not to be left in the dark if you decide to join a cult and not touch a computer ever again. One of my clients asked me for this and I told him that if he paid, I'd be more than happy to leave all source code in escrow with my attorney. He never raised the point again.
I think you should approach the situation from this angle. It covers the paranoia issue and you don't come out looking as if you're holding them hostage, which might be how they see the situation.
Alex
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