Legal Question in Business Law in California

''Deposit'' or ''Retainer'' - What's the legal Difference?

A member of our professional association has asked for advice on disposal of monies received as a ''deposit'' or ''retainer'' in advance for professional services to be provided at a later, specified date.

Once the funds are received, and a contract for services signed, further inquiries for similar services on those dates are declined.

Our members question involves the situation where the reservation for services is cancelled and the date released, after a period of time during which several other opportunities for similar business have been declined.

What is the obligation of our member with regard to the ''deposit'' or ''retainer'' paid to reserve his services in this situation? Does it make a legal difference if these monies are referred to as a ''deposit'' or a ''retainer''?

Can the disposition of these funds be covered in a written contract at the this the services are initially reserved?

Is it permissable to keep a deposit or a retainer so paid as a compensation for time already invested in consultations, etc. with the client and for lost business?

Thank you for your consideration.


Asked on 4/16/02, 2:50 pm

2 Answers from Attorneys

Ken Koenen Koenen & Tokunaga, P.C.

Re: ''Deposit'' or ''Retainer'' - What's the legal Difference?

That is a lot of questions, and the answer to them all is, "It Depends."

In the legal profession, a retainer is more so that the attorney gets paid for services actually provided. A retainer of $4000 may be paid, but if the attorney does 20 hours of word at $150/hr, the unused balance is returned.

A deposit could be refundable or non-refundable, and since you indicate that there were some other possible customers for specific dates,it could be that damages were suffered.

It is best to have some sort of contract signed at the beginning, which identifies what happens if there is a cancellation. Sometimes liquidated damage clauses can be used, but they must be a fair estimate of actual damages, and not just a penalty clause.

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Answered on 4/16/02, 3:15 pm

Re: ''Deposit'' or ''Retainer'' - What's the legal Difference?

I do not believe there is any difference between a ''deposit''and a ''retainer'' in any profession.

The disposition of the funds can be covered in a written contract as the services are initially reserved. In fact, I would highly recommend that you do so. The only exception would be if there is a statute which provides otherwise for your specific business.

Whether it is permissable to keep a deposit to cover time already invested in consultations with the client and for lost business depends on what your contract or oral agreement provides. If the contract does not provide otherwise, you may be able to sue under a theory of promissory estoppel or restitution to cover these expenses.

Let me know if I can be of further assistance.

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Answered on 4/16/02, 4:21 pm


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