The contract is there to protect everyone, and to protect the cake (all the clauses about outdoor cake conditions come to mind.)
For the most part, contracts are used to clarify expectations, and should be adhered to all the time. But then life can hand you a nasty turn of events.
In general, there are a couple of reasons why I would tell a bride "don't worry about what the contract says, we can work it out." One of those would be a death or an illness in the family that makes it necessary to alter the wedding plans.
There's no reason to be a jerk and add insult to injury. Additionally, the profit margin on cakes isn't so high that I can't afford to try to help in cases where someone is in that position. If a bride told me, as one recently did, that a family member has just been diagnosed with an illness that is going to make it necessary to change the wedding plans, then there are some things that are more important than a contract.
On the other hand, cancelling the wedding itself isn't usually enough to make me return deposits. That depends on the situation.
What kinds of situations would make you willing to cancel a contract, or refund deposits?
Kara Buntin owns A Cake To Remember LLC, custom wedding cakes in Richmond VA