Is a non-refundable deposit actually non-refundable?

Is a non-refundable deposit actually non-refundable?

Maybe not. Especially if you as the photographer breach (or terminate) the contract. A “non-refundable” fee may end up being quite “refundable.”

See also the great debate on deposit/retainer here.

A non-refundable deposit is likely to be refundable when the photographer breaches or terminates the contract.

 

A case from Wisconsin presents a situation that isn’t particularly unusual and helps with understanding if a non-refundable deposit is non-refundable.

In Serchen v. Diana Ornes Photography, LLC.case, a wedding photographer and a couple entered into an agreement to shoot a wedding for $1,600 including a $500 non-refundable retainer (and $370 for some additional work). After a dispute arose regarding the photographer’s work, the couple emailed the photographer stating: “We are requesting all of the money that you have received from us minus the $500 retainer fee as stated in your previous email,” totaling $1,470.”

The photographer responded,

“My understanding was that you no longer want me to provide your wedding services[,] [a]s that is exactly what it sounded like in the last email. You were demanding your money back and you wanted to back out of the contract … am I correct?? I just need in writing that you are for sure backing out, that way I can put it in your file.” Id.

 

    The Couple responded,

“So, depending on how you feel about all of this we can either honor the contract or we would agree to break our contract with you under the condition that you will sign a document stating you will pay back all of the money that we have given to you to date minus your 500 dollar retainer fee within 4 business days […] which would make our current contract void.”

 

After that e-mail, the photographer stated that the couple was in breach, citing a provision in their agreement “that breach by the couple would entitle [the photographer]to keep the retainer and all other money paid to her by the couple, [the photographer] stated that she would refund only the $370 paid for the invitation work.” Id.

 

At trial, the court awarded the couple all $1,600.00 of their fee, plus costs, holding that the contract was breached by the photographer, not the couple, and that all money must be refunded.

 

On appeal, the Court affirmed the decision of the trial court, holding that the Photographer did not develop any arguments that contradicted the finding that she, not the couple had breached the contract. The Court indicated that the e-mail exchange between the parties did not constitute a breach by the couple, but rather showed an intent to continue the dialogue and that the contract was not breached until the photographer terminated the contract.

 

What is important for photographers to note is that the breach (by the Photographer) entitled the couple to a full refund, including the “non-refundable” retainer. It is also instructive that claiming a client is “in breach” of their contract may backfire if a court holds that you as the photographer have instead breached or terminated the contract. The rationale behind the decision to refund the non-refundable retainer is that the photographer, not the client, caused the breach of contract. The court rationalized that it would be an injustice to award the photographer with the non-refundable deposit because it would constitute a “windfall” for the breaching party, which is contrary to the interests of justice.

 

In a contract case such as this, the court’s remedy is to simply put the non-breaching party into the same position that they would have been in, had the breach not occurred. In the above example, this meant providing the couple the entirety of their payment, plus court costs. The photographer had to pay out more money than he received in payment from the couple.

 

In looking at the above scenario, some of you may still be confused as to how the court decided that the photographer breached the contract. The emails traded between the two parties are what the court based its determination on. 

 

Yes, the couple indicated their desire to get out of the contract. They asked for all their money back, minus the non-refundable retainer. The court may have considered this to be an express revocation of the contract if the photographer had treated it as such. However, the photographer emailed the couple back, asking for a clear statement of whether the couple intended to cancel their contract.

 

This led to the couple responding to the photographer, in such a manner as to indicate their willingness to continue with the contract. The couple gave the photographer a choice, to either continue with the contract or for the photographer to sign a document stating that he was willing to cancel the contract and refund them all payments, except for the non-refundable deposit. The couple never said, “O.K., we want out of this contract.”

 

The photographer “jumped the gun”. The photographer’s belief that the couple had breached the contract was inaccurate. The email from the couple contained an offer to continue with the contract. In suddenly declaring that the couple breached the contract and then keeping all the money, the photographer made a couple of critical errors.

 

The photographer should have either offered to 1) continue with the contract, 2) offered to cancel the contract under the cancellation clause contained in his contract, or 3) emailed the couple delineating his belief that how they were attempting to cancel the contract entitled him to keep all of the money paid for his services. Communication is the key to any good business relationship and the photographer in this case dropped the ball.

An email communicating these options to the client would have placed the ball in their court. The easiest action would have been to cancel the contract and keep the retainer. The couple had already agreed that the photographer should keep the retainer; they specifically reference this contractual provision in their email to the photographer.

 

Alternatively, if the photographer had a substitution clause, then he could have given the couple the option to work with a more compatible photographer.

 

Additionally, the photographer placed himself in the position of the breaching party by not performing according to his contractual obligations. The photographer had received money above his required retainer; which the court probably would consider a substantial performance of a contractual duty by the married couple. The photographer then did nothing; he just kept the money and did not perform his contractual duty.

 

1. The Photographer has a duty to try and rebook the date. If you can book another client for the same time, have you really suffered any damage? Many states require a reasonable attempt to mitigate damages, even when they are the purported loss of a non-refundable deposit for a particular date and time (sometimes referred to as a date reservation clause). The rationale for this is that contract breach damages are awarded based on compensation, not penalty). The court would likely examine how far out the cancellation was from the date and time of the booking. If the date is rebooked, the Photographer would likely be required to offset the canceling client with at least a partial refund – in this case, it would be important to keep records on the costs associated with the canceled booking even in light of a successful rebooking of that particular day and time. If a Photographer does not attempt to book the date with another client a court may hold that there was no attempt to mitigate damages and thus reduce or eliminate the amount of the deposit the Photographer can retain. But be aware that different states may interpret a non-refundable deposit (sometimes legally referred to as a liquidated damages clause) in different ways. For instance, New York considers a non-refundable/damages clause (for cancellation) for the entire value of the contract a penalty, and where there is any doubt about whether the deposit/damages amount exceeds actual damages incurred, considers it a penalty.  California has two different standards for personal contracts and consumer contracts. So, the jurisdiction in which a contract is executed may play a crucial role in whether the non-refundable deposit/cancellation penalty is enforced.

 

1. You are unlikely to be able to keep both the full amount of a non-refundable deposit and the full amount from an alternative client if you can rebook (or cover) the date. This is because of the rule against double dipping (also known as windfalls – you can only recover damages that would put you in the same situation as if the contract had not occurred). The only exception to this is if you can show that you are collecting the difference between the profit you would have received from the breach of the first contract and the result of the second (ie: the canceled contract was worth $15000, while the second is worth $10000. Arguably, you could only keep $5000 of the first contract amount, and need to return the rest.)                                                                                                                                                                                                                      

 

The Bottom Line

Clear communication and intimate knowledge of all the provisions within your contract are of the utmost importance to running a successful photography business. Whatever you do, DO NOT let emotions rule your decisions. If you have a difficult client, take deep breaths and do not get angry. Don’t let an emotional reaction to a problem preclude future communication with the client. Don’t let a lack of fluency in your contractual document influence you to make rash decisions.

In your contract’s cancellation provision, insert text that requires the client to provide you with notice of their intent to cancel the contract in writing. Stick by this and don’t act as if the contract is cancelled until you receive this notice. 

Remember, clarity is the key when employing any contractual provision, but even more so when referencing non-refundable “payments”. A clear, express contractual provision will help ease any hard feelings that might grow between you and your client in the event the client cancels and you keep the “payment”. Further, if the client sues to get the retainer back, the judge will first ask, “Where is the provision in the contract that states the “payment” is non-refundable?”

 

When constructing the contractual language within your terms and conditions, spell out that the retainer or deposit made by your client is to secure your services on a particular date, at a particular time. State that the monies being accepted for this is in consideration of your photography studio forgoing the further booking of any other clients for that date and time. Lastly, state that cancellation on the part of the client will thereby result in an economic loss to your studio. This should clearly put the client on notice that the “payment” is non-refundable while giving the client the reason behind its non-refundability.

 

 

Final Recommendation

 

Your typical consumer will have a very basic understanding of what a retainer is. The client should understand that a retainer is used to retain services and is, more often than not, non-refundable. The client’s retainer is purchasing your future availability to take their pictures, within a specified time. The retainer functions to prevent the photographer from booking so many clients, that the client load would preclude you from taking the client’s pictures within the designated timeframe.

 

Example: Ross likes the photography work of Owen and Ross needs professional headshots done for his resume. However, over the next few months, Ross is extremely busy and cannot easily schedule a photo shoot on a specific day and time. Owen, being a popular photographer, has photoshoots booked months in advance. To ensure that Owen will be able to take his photographs in the next few months, Ross retains Owen’s services.

 

Ross pays Owen $500.00 to guarantee that between March 2016 and June 2016, Owen will perform Ross’ photoshoot. If Ross fails to schedule a photo shoot by the end of June, then the retainer is Owen’s free and clear. If Ross schedules a photoshoot, then, depending on the terms and conditions of the contract, Ross’ retainer may or may not be credited towards the photoshoot.

 

Remember how in movies, the main character can always get a table at a restaurant by slipping the hostess some money? Well, that is a very simplistic form of a retainer. Simply put, the retainer signifies the photographer’s agreement to put Client X in front of his other clients, because Client X paid him $500.00 to be bumped to the front of the line.

 

Deposits are more of a grey issue, refund of a deposit is controlled by the photographer’s choice of contractual language. You are taking a partial payment for the job, typically a percentage of the final fee.

 

Whatever you choose to use in your photography practice, a deposit or a retainer, be clear and concise when writing the terms and conditions, and make sure you are upfront with your client about how refunds of retainers or deposits are effectuated.

 

However, don’t just blindly use a deposit or retainer and hope that you are covered. It is important to look at the contractual language that entitles one to keep the monies (i.e. provisions, language such as non-refundable, etc.). Generally, a non-refundable retainer with spelled-out liquidated damages will help to reinforce your intended business policy.

 

Always double-check with your local jurisdiction for appropriate laws. This is also why it is so important not to self-draft your contract (unless you’re an attorney) or use a contract for which you don’t know the credentials of the drafter.

  

Implementing a Deposit or Retainer Provision

The first decision to make is, “Do you want the “payment” to be refundable?”. Having the client penalized for non-compliance with the contract will help bind the client to you, and will compensate you for your lost time.

 

Ensure that your contract provision outlines the following:

• The “payment.” Determine whether you are calling it a retainer or a deposit.
• The amount.
• How said amount is either refundable or non-refundable.
• Rescheduling policies.
• If the amount is non-refundable, construct the provision in a way TO ATTRACT THE ATTENTION OF THE READER.

 

Need a lawyer/photographer drafted contract?

TheLawTog provides them here!

 

You can offer to waive the non-refundability of a retainer for customer service reasons. Just because you may have a legal right to keep the retainer, doesn’t always make it right (consider situations of a wedding where the bride/groom dies, or other extenuating circumstances we never want our clients to face).

 

Be Consistent

Ensure that each client makes this investment, every time they enter into a contract with your photography studio. Establish a fee table and stick to it. Make sure you apply this fee scale equally to all your clients. In determining your fee scale, evaluate your cost of doing business and weigh it against the barrier it may create in discouraging future clients.

 

For instance, if a client books you and then decides to reschedule, is the non-refundable fee enough to cover your business costs if you cannot fill that time slot with another client? This is especially important when dealing with weddings, as they are an all-day or weekend affair.

 

Never consider a client booked without a signed valid contract and a non-refundable deposit or retainer.

Bottom line: Here is what we suggest.