Before we can talk about why we have non-refundable deposits, we have to understand a brief history of the litigation process. So let’s talk about a world without non-refundable deposits. Let’s imagine a world in which you sign a contract with the bride and you’re going to get paid after the wedding. You wouldn’t do this. So the bride calls you up the day before, cancels on you, tough luck. What would you do in that situation?
The law will have you file a breach of contract lawsuit. The bride has breached because she has canceled the wedding and is not going to pay you – breach of contract. The goal of a breach of contract lawsuit is to recover damages. Damages are another way of saying cash money.
What are the damages that you’re going to get in a breach of contract action? The law is going to attempt to put you in the position you would have been had the bride not canceled. We call that expectation damages.
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So let’s look at an example. So the contract value of this caterer example is $1,000. The bride signs a contract eight months in advance for the caterer, $1,000 for food – they’re hypothetical numbers, don’t worry about the numbers. Food, roughly 100 bucks, labor, roughly 100 bucks. So the contract value, $1,000 – the caterer is going to have to put in 200 of his own money, meaning that at the end of the day, the caterer will have earned a profit of $800. That is the caterer’s expectation of damages in a breach of contract action. Does that make sense to everybody? Excellent. And that’s not the ED you might be thinking. That’s the expectation damages. I gave this presentation a week ago and I didn’t realize until after the fact that everyone was laughing at me, and that’s because contract value minus cost equals erectile dysfunction.
Now that you’ve figured out what your expectation damages are, what you’d get if you have to sue, the wedding vendor that’s going to seek that lawsuit has to do what’s called mitigate your damages. The law requires that the non-breaching party do what they can to minimize the damages.
So in this example, what can the caterer do? The caterer is going to attempt to rebook that date. If it’s the day before, that’s really tough. You don’t have to rebook the date. You only have to make a reasonable effort to rebook the date, which as we all know in here, it’s more and more difficult the closer you get to the date of the wedding or the event.
The other thing the caterer can do in this situation is if you’re close to the event date, you sell off the food if you can, or that’s what you learn in law school, but I doubt anyone’s going to want to buy the meatballs that you’ve already prepared for somebody else.
In other words, whatever money you can make, scrap together and try to get value out of this contract, reduces the amount of your expectation damages. So if you go to the court and say, “Judge, I just sat on my hands and I didn’t try to book another date. I didn’t try to sell off the food or do whatever I can to mitigate my losses,” the judge will reduce what you would normally get in the judgment by that amount. So that’s what you have to do. You have to compute your expectation damages and then try to mitigate your damages in a world without deposits, which you have to litigate this issue.
So let’s then talk about the litigation process as a procedure. So normally how it works is you’ve got to file what’s called a complaint. Then depending on what states you’re in, they have 20-30 days to respond, and then you have to go through discovery, which is, “I’ll show you yours, you show me mine.” It usually requires depositions and lots of tedious back and forth of documents. Then once you get to trial, you have to do a bunch of different stuff. You’ve got to prove that you had a contract. You have to prove they materially breached that contract. You have to prove the damages. Then you have to prove you mitigated those damages. And then you hopefully will get a judgment.
The problem is that all a judgment is a piece of paper that says, “Bride owes you X amount of money.” Then you have to do what’s called enforce that judgment. It’s a huge misconception that as soon as that gavel rings down and you get that judgment, it’s like money’s raining down on you. It’s not at all. You have to employ a collections attorney to go after somebody. We all remember that OJ Simpson was acquitted of murdering Nicole Simpson and what’s his name, the Goldman guy, right? Well many of you might not know that the Goldman family sued OJ Simpson in civil court for wrongful death and got a judgment of $33 million thereabout and are still trying to collect on that. That was in 1997. So you have to do what you can to collect that judgment through putting liens on properties, garnishing wages and levying on bank accounts. It’s a mess.
So what have we learned from this? You don’t want to litigate these issues. You don’t want to ever be in a position where you have to chase the money. A non-refundable deposit is in your contract as an alternative to having to file a breach of contract lawsuit against the bride.