If one party refuses to sign the contract that is a bad sign from day 0. What are their reasons for not signing it, out of interest?
You can't judge people that quickly. I had a client I worked with on several projects and they paid fully up front which was fantastic. On the final project I worked with them they still owed me half the bill, deleted our basecamp project (nearly all communications), stopped replying to my emails, and ignored my invoices. It was 6 months before I tracked down their new company and surprised them with a phone call and threat of court. I eventually got the money but needless to say the guy was an asshole about it.
I guess my point is that even when you think you have built a good relationship with someone over a few months, when you're working on the internet people think they can do whatever they like. The internet makes it easy to gain trust and easier to destroy it.
As for how to deal with the client try to work things out without threats. Only resort to threats when necessary as the second you mention court people go on the defensive.
Of course, one important thing is too decide how money you're willing to risk. If you're not willing to risk more than two week's worth of work, then bill them weekly so that you can act quickly in case they decide to stiff you.