Is it legal for a children's entertainment company (that provides services like face painting and balloon animals) to take full payment up front to reserve a client's date? It would be in order for the company to keep the balance if the client cancels at the last minute for a non-emergency like rainy weather. The client would have signed a contract stating the balance is non-refundable should they cancel within a week of the event, due to the fact that all other requests for their date will be turned away once their event is booked.
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Located in NY if that makes a difference– K VCommented Sep 13, 2023 at 2:18
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7Pre-payment is very common in a lot of services and transactions. Under normal circumstances, you pay for the service, the service gets provided, and the transaction completes, so I don't really see any issue.– NelsonCommented Sep 13, 2023 at 6:06
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14Conversely, if there was no prepayment and the client breaks the contract, then the vendor is actually owed the money, but then they may have to sue for it unless the client offers to clear the tab after breaking the contract. There's really no issue of legality or not at all since it's just a vendor providing terms of contract and the client choosing to accept it.– NelsonCommented Sep 13, 2023 at 6:07
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2@Nelson, that reads like an answer...– Michael HallCommented Sep 13, 2023 at 16:41
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I mean, you're suggesting that a rival company should be able to maliciously book all of this company's summer slots and cancel with no penalty?– MonkeyZeusCommented Sep 15, 2023 at 17:58
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2 Answers
That's normal contracting
Alice is offering to appear in her role as (American Mc Gee's) Alice to people. She wants to get paid, so she has a standard 3-clause contract:
- Client pays fee upfront, Alice will appear at scheduled time.
- If client cancels less than 7 full days from the event, Alice keeps the money
- If Alice cancels due to emergency, client gets back 80% of the fee
That outlines a pretty standard service contract, and there is no illegal clause in this. Even if clause 3 is missing, the contract itself is valid.
It would be in order for the company to keep the balance if the client cancels at the last minute for a non-emergency like rainy weather.
Not necessarily. However, the language of the contract for Alice is clear: if the client cancels close to the event, that creates an economic loss for Alice as she can't just fill in the gap from the canceled event. The amount of damage is well known too: the fee for one event not being servable by Alice, so the expected damages caused by the client canceling is exactly the fee that the client had to pay upfront. It's not a punitive clause, as there is no more "fine" higher than the expected damages to Alice - it is just making Alice whole.
If the client would have wanted a "rainy weather-cancel" clause, then he should have negotiated the service contract with Alice to include something like "In case of rainy weather, Alice appears via Facetime at 12, but refunds 30% of the fee" or whatever both parties can agree to.
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1Comments have been moved to chat; please do not continue the discussion here. Before posting a comment below this one, please review the purposes of comments. Comments that do not request clarification or suggest improvements usually belong as an answer, on Law Meta, or in Law Chat. Comments continuing discussion may be removed.– feetwet ♦Commented Sep 13, 2023 at 19:07
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2@PaŭloEbermann It's also assumed that the vendor cannot easily replace the client. There's a reason why restaurants don't care if you ghost them on a reservation. Try that with a banquet and see what happens. It is very much fair to keep 20% for "no service" because normally the vendor would have an opportunity to obtain 100% of the fee. The vendor actually lost 80% of their normal expected revenue.– NelsonCommented Sep 14, 2023 at 0:38
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15@Nelson but Alice is the service provider that cancels. I get it that if the client cancels due to an emergency (like got in a car accident) that they still have to pay 20%. But the way this is written, the service provider can cancel everytime and still collect 20%. That's straight up BS and I would never sign such a contract. Commented Sep 14, 2023 at 6:31
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Oh, I mixed up Alice as the "client". Yes, it's strange that a vendor would charge anything for cancelling. I've never seen that before, but that's also not a scenario that OP has raised.– NelsonCommented Sep 14, 2023 at 6:43
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2@MichaelHarvey: Certainly some restaurants require deposits on bookings, and it’s increasingly common especially at high-end places — but I think the great majority of ordinary restaurants still don’t have any such charge. Commented Sep 14, 2023 at 14:24
In germany, the basic situation is as described in Trish's answer - if the contract says that no refund is offered, that is generally legal.
However, the client is entitled to a (partial) refund if they can prove lower actual damages.
Under German law, a contract for providing specific goods or services is called a Werkvertrag.
About cancelling a Werkvertrag, BGB § 648 says:
The customer may terminate the contract at any time up to completion of the work. If the customer terminates the contract, then the trader is entitled to demand the agreed remuneration;
So far, customer has to pay. However, the next part says:
however, the trader must allow to be credited against them what they save due to the contract being cancelled or what they acquire or wilfully fail to acquire from other use of their labour. [...]
So, if the provider either saves expenses (e.g. by not having to buy food or face paint), or if they can get different work to fill their time (e.g. paint faces at a different party), they must refund that money.
For this reason, the terms and conditions (Allgemeine Geschäftsbedinungen, AGB) of German businesses often contain clauses allowing the customer to prove the specific damages. For example, a car dealer used this clause:
Verlangt der Verkäufer Schadensersatz, so beträgt dieser 10 % des Kaufpreises. Der Schadensersatz ist höher oder niedriger anzusetzen, wenn der Verkäufer einen höheren oder der Käufer einen niedrigeren Schaden nachweist.
Translation by me:
If the seller demands compensation for damages, the compensation will be 10% of the sale price. The damages will be higher of lower, if the seller can prove higher damages, or if the buyer can prove lower damages.
This clause was confirmed to be valid by a court in 2010, but only because it explicitly allowed proving lower damages - otherwise the court would likely have thrown it out.
