Deposits and Covid Cancellations

Covid upended the business world and left both consumers and organizations scrambling. For the past two years, consumers have often paid large deposits for events like weddings and corporate events. Businesses in these industries secured those deposits in anticipation of fulfilling services and providing goods and services.

Covid hit, and, understandably, businesses and consumers alike had a vested interest in protecting what they valued most - their organizations' livelihood or meticulously planned events. The ensuing conversations weren't always amicable, and often, people left these situations upset and even turned to litigation.

Both consumers and businesses can help stave off potential litigation for future devastating events - another world health crisis or even a natural disaster - by considering these critical issues regarding refunding deposits.

What Does the Contract Say?

The well-worn advice is very helpful: both parties must review the contract in detail. Courts are extremely reluctant to interpret contracts beyond the actual language within the contract and are also very unwilling to have one party suffer a forfeiture. Therefore, if a person with whom you are contracting is claiming that deposits are non refundable, the contract must be unambiguous on that right.

Consumers should be very skeptical of any business claiming they have the right to enforce liquidated damages provisions. Conversely, suppose a company wants to be able to rely on its liquidated damages provision, with a consumer primarily. In that case, it should consult a business attorney to ensure its form template can hold up to litigation challenges.

Does A Statute Regulate This Matter or Dispute?

While it may be tempting to look solely at a contract for answers - it is also crucial to understand its context. While parties can agree to a wide variety of terms in a contract, there are often statutory parameters that can control what happens within a contract.

These provisions usually aim to protect consumers who may not have the resources or equal bargaining power to avoid being overpowered in contracts. California Civil Code 1671(c)-(d) is an excellent example of this dynamic.

The California legislature put in some statutory protections for consumers in contracts. Put simply, non refundable deposits - especially in the consumer context - are frowned upon. The provisions of 1671 hold that liquidated damages clauses for retail purchases or rental of personal property are void unless they are documented in the contract, and it would be either impracticable or challenging to fix the damage. Both consumers and business leaders need to understand what this means.

  1. A contract for the purchase or lease of personal property etc., is void - meaning completely unavailable - unless
  2. The parties agree to the amount, and by the nature of the case, the actual damages would be difficult or impossible to ascertain.

The second point here is important to understand. If, for example, a venue required a $10,000.00 deposit for a wedding venue and the party had to cancel the event, the parties could, theoretically, agree that a $10,000.00 deposit is forfeited. However, that deposit may not represent the damages the venue suffered. If the venue wanted to keep that entire deposit, the people who booked the venue could raise the question of if that deposit represented the harm the venue suffered.

More than likely, some of that could be offset by offering a discounted event to another client or savings on staff costs and utilities, for example. Because, in that instance, there's good reason to believe the damages could be calculated; it's likely the damages don't quite match what the liquidated damages provision says.

Does a Consumer Protection Statute Apply?

In addition to contractual damages, it's essential to realize that consumers could have relief under the Consumer Legal Remedies Act (Civil Code §§ 1750-1784). While the consumer legal remedies act deserves its thorough treatment, it's important to note that the California Legislature wanted to give consumers the ability to pursue actions that might otherwise be out of their reach.

Sometimes, the cost of litigation makes seeking recovery against a business not worth it. For example, if the possible award for damages is $5,000 and attorney fees are the same - the consumer has no incentive to pursue the case. The Consumer Legal Remedies Act provides a cause of action and the ability to collect attorney's fees, potentially making for a viable case.

These cases can become difficult on their own - especially during Covid. Working with an experienced legal team can help sort through those issues and bring a satisfactory conclusion.

Are Deposits Refundable?

The answer is likely, at least partially so. However, the circumstances of the contract, the conduct leading to the formation of the agreement, and the contract itself all have a place in determining that answer. Calling an experienced legal team to analyze your situation will likely provide value and give you peace of mind in tumultuous cases, as Covid gave us.

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