A person came to a House we were renting which belongs to us Gave a deposit of one month rent and one month damage deposit on a Sunday. Said he would come back Tuesday to sign the contract. We told everyone the house was rented and took it off the market. Tuesday the person said he did not want to rent because he decided not to move, then sued us to get his money back. There is no contract because he was to sign it Tuesday and the only thing we have is a receipt.

He is the one who should have the receipt, not you, he gave you the money so I don't exactly know what you mean there. Something doesn't add up here. While you had him there and he gave you money, why could he have not signed the rental agreement? When he sued you, did he get anymore money then what changed hands, the first and last or damage deposit.

Even though he gave you money, and didn't sign rental agreement, you should have kept your options open.