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After deciding on a list of requirements with a client and agreeing on a price, the client sent me 50% of the total before work was started, and we agreed the remaining was to be paid at delivery.

I did what I believe to be about 80% of the work, when the client decided he did not like my services and asked to cancel the order. To leave in good terms, I decided to send him the work I've done anyways and not ask for any extra payment.

However the client is asking me to reimburse the first 50% and threatening to use lawyers.

Am I wrong to ask to keep the initial payment? I did a lot of work, paid for products and services. I did not break anything in our arrangement and was following the requirements.

What should I do? I can't really afford a lawyer.

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You may be able to get free legal aid through any nearby law schools, if it comes to it. Check to see if any in your area have a law school clinic program. A very important question is: do you have your agreement with your client in writing? (As in, a signed contract, or even an exchange of emails in which he clearly agrees to proposed terms.) – Jay Neely Nov 8 '11 at 21:06

4 Answers

up vote 9 down vote accepted

All of this depends on the wording of your agreement.

Let me make a couple assumptions:

  • Your agreement did not include a clear process for cancellation
  • Your agreement was with a company, not you as a person
  • The amount of the retainer was less than $10,000 (or so)
  • That you are located in the United States.
  • That the agreement had an agreed upon jurisdiction for resolution of issues
  • That you live in the location

If that is the case, then:

  • Send him a letter telling him that you are sorry he was not happy with the work, and that you fulfilled your responsibilities under the terms of the agreement and that there is no option for a refund.
  • Let him sue your company. You won't need a lawyer. It will go to small claims court. Go to court. If he tried to sue you rather than your company, make sure that you point out to the judge that you were not as a person a party to the contract, that your company was.
  • File a counter claim for 50% of the remaining balance due.
  • Bring the agreement. The work and documentation of all communications. Also include a complete financial registry which shows products and services paid for -- and your own compensation. Since you finished more than 50% your expenses should exceed that which he paid for. The amount over should be the amount of your counter claim.
  • If he wins a judgement against your company, shut down your company and start over.

Of course -- if any of the assumptions are wrong-- then the advice may not be correct. Usually a client like this blusters-- but in the end doesn't move forward.

(Ask another question about how to avoid this situation in the future.)

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Excellent damage control process. You appear to have covered it all. – user2757 Nov 9 '11 at 0:24
@DonWallace thanks-- the really important issue is limiting this type of exposure moving forward! – Joseph Barisonzi Nov 9 '11 at 0:52
I operate as a freelancer under my name - so no company. The agreement did not specify a jurisdiction for resolution of issues. – nute Nov 9 '11 at 5:41
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So, you will be there as an individual -- ouch. Most places in the US require a small court claim to be filed in the county where the "defendant" lives/works. If he lives there, then he might do it. If he doesn't -- well, then he would have to travel there. – Joseph Barisonzi Nov 9 '11 at 9:04
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Good answer, I couldn't think of much to add. Unless there is a explicit clause in the contract I'd be surprised if you are required to refund. I also like the idea of the counter-claim for the rest of the money they owe you; it might even work. And use the phrase "non-refundable deposit" next time :-) – Darren Cook Nov 13 '11 at 5:25
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up vote 3 down vote

This is an example why a contractor should always insist on getting paid by milestones. Establish at least 3 or 4 different milestones during the course of the project. This way, if they will have a hard time explaining in court that they were not happy with the entire project after having sent you several payments, also if you have to take a loss because client is fishy then it's not as much of a loss as 50% of the project.

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+1 on the recommendation that future agreements include payment for incremental milestones. – Joseph Barisonzi Nov 9 '11 at 0:51
If that was the case if he did a lot of work for Milestone 1 and the client said NO I don't want it then he would have received 0 money and be in a worse spot. I still think a downpayment is crucial for this type of business. But, yes sign off's and approvals at milestones is a good practice. But cash in hand upon starting the project is a must. Otherwise you are working for free and you may need the lawyer to extract the cash, or get stuck doing free work. – Ryan Doom Nov 9 '11 at 3:18
Yes I've realized now that milestones are key. However I have to deal with the current situation first. – nute Nov 9 '11 at 5:42
up vote 1 down vote

I'd probably give the money back but be clear that you will sue for damages if they use the IP.

It is sunk cost. Nothing good can come out of this.

It is unlikely to come to "lawyers" if the amount is less than $7,000 or so. However, they may take you to small claims court. (if in the US) You'll likely win, but if it comes to that everyone loses anyway. It is a huge waste of time and effort and goodwill.

The energy should be spent on how to avoid this in the future.

Fix your policy or process or acceptance of clients so that it does not happen again.

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+1 for identification that part of prevention in the future includes the client qualification process. – Joseph Barisonzi Nov 9 '11 at 0:51
up vote 0 down vote

I did what I believe to be about 80% of the work, when the client decided he did not like my services and asked to cancel the order.

Does the client have a specific claim about the reasons for which he "does not like" your services? Did you breach the agreement in any specific way?

I am so not a lawyer but my guess is that "not liking" is not sufficient reason to cancel a contract and demand a refund.

What should I do? I can't really afford a lawyer.

No. Wrong answer. You really better find one anyway and there is absolutely no excuse. None whatsoever. If you are short on cash, this is one expense that legitimately you should put on a credit card if possible.

That's the most common complaint we read from very new and young entrepreneurs.

You're doing business - you MUST have representation. If you don't have that representation, you may make mistakes that can lose you MUCH more than what the fee would cost you. Besides that real life motivator, perhaps the information you get will set your mind at ease.

Possibly an attorney here would SAVE you money. If the attorney determines that you have a solid case for not honoring the client's request, you may recover his fee many fold.

Really, all you need at this point is a one-two hours of an attorney's time. Most attorneys will offer a limited free consultation that can at least set a path for you.

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