What to do if a customer placed a custom order and paid 50% deposit but is now demanding the deposit back because their customer is cancelling the order?
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What to do if a customer placed a custom order and paid 50% deposit but is now demanding the deposit back because their customer is cancelling the order?
Should we return the deposit? Deposit amount is $90K.
Asked on August 22, 2014 under Business Law, California
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 10 years ago | Contributor
Deposits are paid to secure performance and are normally not refundable. As a general rule, they only have to be refunded if:
1) The company providing the goods or service for which the deposit was placed, not the customer or anyone else, is the reason the goods or service cannot be provided--that is, if you were the ones who couldn't go through with or fulfill the deal, you'd have to give the money back.
2) There is an agreement, such as in terms of sale or service, that the deposit will be refunded under certain circumstances, and those circumstances apply; that is, if you're contractually obligated to provided a refund, you'd need to do that.
Of course, sometimes it's a good idea to do something for the customer from a business or PR point of view--e.g. maybe a partial refund; maybe give them credit towards the future, etc.--but that's a business decision to make.
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