Hi,
If a business takes a deposit or retainer and the customer later cancels, when is the business allowed to keep the money? Does it matter whether the deposit was called “non-refundable,” how much work was already done, or whether the business turned away other customers? When is the customer entitled to a refund?
These situations generally depend first on what the parties agreed to, and where the agreement is unclear, on the accepted local business practice and applicable law.
If the parties clearly agreed that the deposit is non-refundable, whether in writing or verbally, then ordinarily it is non-refundable. That is part of the bargain the customer agreed to. Frequently the business is reserving time, committing resources, or giving up the opportunity to take another customer in exchange for that commitment.
If it was simply called a “deposit” and nobody specified whether it was refundable, then you look to the normal practice in that particular business and location, and to any applicable law. In monetary matters, accepted commercial practice, מנהג המדינה, is very significant.
If there is no clear agreement and no established practice to rely upon, then you look at what actually happened. If the customer hired the business to perform work and the business already performed part of that work before the customer cancelled, the business is certainly entitled to reasonable compensation for the work that was performed.
For example, if the agreed price was $1,000 and approximately half of the agreed work was completed, the business would ordinarily be entitled to compensation for that portion. If the deposit covers that amount, it can retain that amount and return the balance. If very little work was done, it would ordinarily not be proper simply to keep a large deposit unless there was some other basis for doing so, such as a non-refundable agreement or an actual loss caused by reserving the time.
The same is true if the business turned away other work because it relied upon this customer’s reservation. That can be relevant in determining the business’s actual loss.
So there is no single rule that every deposit must either be returned or forfeited. The order is generally: first look at the parties’ agreement; if that is unclear, look at the law and accepted business practice; and if those do not answer the question, determine what work was performed and what actual loss or obligation resulted from the cancellation.
Thank you Rabbi, that makes it clearer.