Its not so grey as one would think.
Unless he was an employee (i.e. work for hire), which I doubt as he states contract; and unless the contract has some extremely strong language as to who owns the copyright then the originating developer has the copyright, the client has a license (This is the default of copyright law.) I have been in the situation of developing code as a contractor, there was lots of legal paperwork involved up front, but nothing stipulated the transfer of copyright to the corporation. This was a fortune 500 company and the code was for the only profitable division of the company for three years. When I wanted the code for another project that had nothing to do with them I stated this clearly when my contract ended. All their best attorneys got involved and I just maintained my right to the code, I did not get any attorneys involved. The end was a very nicely worded contract stating they, the client, would receive unlimited license to the code and a gentleman's agreement I would not compete with them. Fortunately it was a good relationship and I did not need an attorney. In the end their attorneys conceded that there was no way for them to obtain a true copyright unless the original contract started this was the intent, or that I signed it over at the end (which I was unwilling.)
To sum it up, employees are screwed; contractors have the option not to be screwed.
Hope this helps...