1) What counts as a “special order” (and why deposits happen)

A special order is typically a purchase that the seller does not keep as regular stock and will procure, produce, assemble, or customize only after the buyer commits—often by paying a deposit. Examples:

made-to-measure furniture, cabinets, curtains, uniforms
imported items “for indent,” or items that must be ordered from a supplier
custom printing/engraving
appliances/electronics ordered in a specific model/color not on hand
special-order auto parts; sometimes vehicles or motorcycles (depending on the deal)
services with advance bookings (events, catering, bespoke fabrication)

Sellers ask for deposits to cover risk: supplier commitments, materials, labor, and opportunity cost if the buyer backs out.

2) The key legal framework (Philippines)

There is no single “special order deposit law”. Instead, disputes are resolved through a mix of:

A. Civil Code (Obligations, Contracts, Sales)

Core principles:

Contracts have the force of law between the parties (Civil Code, Art. 1159).
Parties may stipulate terms as long as they are not contrary to law, morals, good customs, public order, or public policy (Art. 1306).
In reciprocal obligations (typical sale: pay vs. deliver), a party injured by the other’s breach may seek rescission (cancellation) and/or damages (Art. 1191).
If a contract has a penalty / liquidated damages clause (e.g., “deposit is forfeited”), courts may reduce it when it is iniquitous or unconscionable (Art. 1229).

B. Consumer Act of the Philippines (Republic Act No. 7394)

The Consumer Act protects consumers against deceptive, unfair, and unconscionable sales acts and practices, and supports the consumer’s right to information and fair dealing. Deposit clauses that are hidden, misleading, or grossly one-sided can be challenged under these principles, especially when a business is dealing with a retail consumer.

C. Special laws that may apply depending on the transaction

Installment sale of personal property (Civil Code “Recto Law,” Arts. 1484–1486) — relevant if the purchase is on installments and the seller exercises remedies for default.
Real estate on installments (Maceda Law, RA 6552) — relevant when the “special order” is effectively a house/lot/condo bought on installment; it creates statutory grace periods and refund (cash surrender value) rules when contracts are cancelled due to buyer default.
Online/e-commerce transactions may involve additional duties on disclosure and dispute handling under later consumer/e-commerce regulations and statutes, but the fundamentals still trace back to contract law + consumer protection.

3) Not all “deposits” are the same: why the label matters

In Philippine practice, the word “deposit” can mean very different things. The legal consequences often depend on whether it is:

A. Earnest money (Civil Code, Art. 1482)

Earnest money is typically given after the sale is perfected and is treated as part of the price and proof of the sale.
It is not automatically forfeited by law just because a buyer cancels. Forfeiture usually requires a clear agreement (e.g., as liquidated damages) or proof of damages from breach.

B. Downpayment / partial payment

Usually treated similarly to earnest money: part of the price.
Refundability depends on the contract, and on whether the seller breached or the buyer breached, plus damage principles.

C. Option money (different animal)

Option money is payment to keep an offer open for a period (an “option contract”).
It is commonly treated as non-refundable, if it is truly option money (separate consideration), and the buyer simply chooses not to exercise the option.
However, many sellers call something “option money” even when it functions as a downpayment/earnest money. In disputes, what matters is the substance: Was there already a binding sale? Was the amount meant to be applied to the price?

D. Reservation fee / booking fee

Often used in retail, events, and sometimes real estate.
May be refundable or non-refundable depending on terms, but again may be reviewed as a penalty if forfeiture is excessive compared to actual loss.

E. “Security deposit” (performance security)

Less common in consumer purchases; more common in rentals and certain services.
Usually intended to secure performance and cover specific costs/damages, implying a duty to account and return any unused portion.

Practical takeaway: Ask what the deposit is for, whether it will be applied to the price, and what happens upon cancellation—then get it in writing.

4) The most important question: Why is the order being cancelled?

Refund rules are not one-size-fits-all. Philippine outcomes usually turn on who breached, what the contract says, and how reasonable the forfeiture is.

Scenario 1: Buyer cancels for “change of mind” (no seller breach)

This is the hardest case for consumers.

General rule: In ordinary in-store retail transactions, there is no automatic statutory right to a refund just because the buyer changed their mind—especially for custom or made-to-order goods. Your rights will mostly depend on:

The written contract/receipt/purchase order

If it says “non-refundable deposit,” that clause can be enforceable if properly disclosed and not unconscionable.

Whether the forfeiture is really a penalty

Even with a forfeiture clause, Philippine law treats this like a penalty/liquidated damages concept. Courts can reduce penalties that are iniquitous/unconscionable (Art. 1229).
A “non-refundable” label does not immunize an unfair clause.

Actual losses and proportionality

If the seller has not started procurement/production, a 50–100% forfeiture may be difficult to justify as “reasonable” unless the seller can show real costs (e.g., supplier cancellation charges).
If production is underway or materials are already specially purchased and can’t be resold, the seller can more credibly retain an amount reflecting provable loss.

What a fair outcome often looks like (fact-dependent):

Seller keeps documented costs (supplier charges, materials already cut/printed, committed labor) and refunds the balance; or
Parties agree to apply the deposit to a different order, or store credit—only if the consumer accepts.

Scenario 2: Buyer cancels because the seller breached (delay, non-delivery, non-conformity, misrepresentation)

This is where consumer rights strengthen considerably.

Common seller breaches:

failure to deliver by the promised date (especially with a firm delivery deadline)
delivery of the wrong specifications
refusal to honor agreed features, price, or scope
deceptive claims (e.g., “already ordered/imported” when it was not)

Legal effect: The buyer may treat the contract as breached and seek rescission/cancellation and refund, and possibly damages (Civil Code, Art. 1191; plus consumer protection principles against unfair/deceptive practices).

In this scenario, a “non-refundable deposit” clause is much less likely to justify keeping the money, because the seller cannot profit from its own breach. At minimum, the buyer can argue for:

return of the deposit/downpayment, and
reimbursement of proven consequential losses (e.g., extra costs due to delay), where legally recoverable.

Scenario 3: Seller cancels or cannot fulfill (supplier issues, out of stock, import fails)

If the seller cannot deliver what was agreed (even if not “bad faith”), the typical consumer remedy is:

refund of amounts paid, and
potential damages if the seller acted in bad faith or misrepresented availability.

A seller usually cannot keep the buyer’s deposit when the seller is the one unable to perform—unless the contract very clearly allocates that specific risk and it remains fair under consumer standards.

Scenario 4: Both sides agree to cancel (mutual rescission)

Parties may mutually agree to cancel and settle:

full refund,
partial refund (with stated deductions), or
conversion to another product/service.

Get the agreement in writing to avoid later disputes.

Scenario 5: Force majeure / fortuitous events

If performance becomes impossible due to a fortuitous event (e.g., calamity) and no party is at fault, obligations may be extinguished under general Civil Code principles on fortuitous events (fact-specific). Often, fairness and risk allocation in the contract will control:

who bears supplier cancellation fees,
whether deposits are returned,
whether timelines are extended.

5) “Non-refundable deposit” clauses: when they stand—and when they can be attacked

A clause stating “deposit is non-refundable” is not automatically invalid. But it is not automatically absolute either.

More likely enforceable when:

The term is clear, written, and disclosed before payment (not just said verbally afterward).
The item is truly customized (hard to resell) or the seller must pay a supplier immediately.
The forfeited amount is reasonable relative to likely damages/costs.
The seller is acting in good faith and can show the basis for keeping the amount.

More vulnerable to challenge when:

The term was not disclosed at the time of sale (fine print, hidden policy, not in the receipt/order form).
The seller breached first (delay, wrong specs, misrepresentation).
The forfeiture is grossly disproportionate to any real loss (e.g., keeping a large deposit when no work began and the seller can resell the item).
The clause functions as an unconscionable penalty, which courts may reduce (Art. 1229) and consumer authorities may view as unfair/unconscionable.

Important nuance: “special order” is not a magic word

Businesses often say “special order—no refund.” Legally, the question is still:

What was agreed?
Who breached?
What were the actual losses?
Is the forfeiture fair and properly disclosed?

6) Seller deductions: what can reasonably be charged against the deposit?

Where the buyer has no legal ground (pure change-of-mind), a seller typically argues it can deduct losses. The strongest deductions are those that are:

A. Direct, documented costs

supplier cancellation fees
materials purchased specifically for the order (especially if customized/cut/printed)
paid labor already performed
shipping/import charges already incurred

B. Costs that the seller can prove were caused by the cancellation

Under general damages principles, the seller should not keep money for speculative losses.

C. Subject to mitigation

As a fairness principle in damages, a seller should not sit on avoidable losses. If the item can be resold as standard stock, keeping a large deposit becomes harder to justify.

What often becomes contentious: “administrative fee” or “inconvenience fee.” These can be acceptable if modest and agreed, but can be attacked if they operate like a punitive penalty.

7) Special rules by transaction type

A. Services (events, catering, fabrication labor, design work)

These are not “sale of goods” disputes; they are service contracts. Common patterns:

Deposits function as a booking fee to reserve time/slots.
If the service provider already performed work (design drafts, site visits, sourcing), they can argue entitlement to compensation.

Fair outcomes typically revolve around:

value of work performed to date,
non-recoverable third-party costs,
whether the provider can rebook the slot.

B. Installment purchases of personal property (appliances, gadgets, furniture on installment)

If the buyer defaults and the seller cancels/repossesses, the seller’s remedies can be constrained by the Recto Law framework (Arts. 1484–1486), which is designed to prevent oppressive double recovery in installment contexts. How a deposit is treated will depend on the structure of the deal and the remedy chosen.

C. Real estate “reservation fees” and “special orders” (condos/house-and-lot)

If the transaction is a real estate sale on installment, Maceda Law (RA 6552) may govern the buyer’s protective rights when cancellation is tied to payment default (grace periods and cash surrender value rules). Developers often label early payments as “reservation,” but the legal analysis can shift once a binding contract to sell exists.

Real estate disputes often fall under specialized regulators and rules, and the paperwork (reservation agreement, contract to sell, disclosures) matters enormously.

D. Online special orders

Online sellers generally must provide clear terms, disclosures, and refund/return policies. Where the seller fails to deliver, delivers non-conforming goods, or misrepresents availability, the consumer case becomes stronger (rescission/refund + potential administrative complaint).

8) Evidence that usually decides these cases

Consumers win or lose refund disputes based on documentation. The most important pieces:

official receipt / sales invoice
purchase order / order form / quotation with specs and delivery date
written cancellation/refund policy provided before payment
messages showing promises (delivery timelines, “available,” “already ordered,” etc.)
proof of delay (missed deadlines) and your notices to the seller
seller’s accounting of deductions (if any)

Tip: A simple receipt that says “deposit” but has no cancellation terms often creates room to argue that full forfeiture was never agreed.

9) How to cancel properly (to protect refund rights)

Even when cancellation is justified, how you do it matters.

Step 1: Give written notice

State:

order details (date, item, amount paid)
reason for cancellation (e.g., seller missed delivery date; change of specs; etc.)
the remedy you demand (refund, within a deadline)

Step 2: Preserve evidence of breach (if applicable)

If it’s delay, identify:

promised delivery date
follow-ups and responses
any admissions (“still not ordered,” “no stock,” etc.)

Step 3: Demand an accounting if the seller claims deductions

Ask for:

itemized costs
receipts or supplier documentation
explanation why the item can’t be resold (if claimed)

Step 4: Avoid verbal-only settlements

If you agree to partial refund, store credit, or rebooking:

put it in writing (email, chat confirmation, signed acknowledgment)

10) Remedies and where to complain

A. Direct negotiation

Many disputes settle when the seller realizes the consumer has documentation and is ready to file a complaint.

B. DTI (Department of Trade and Industry)

For consumer goods/services (non-real-estate), the DTI is a common venue for mediation/complaints, especially when the issue involves:

unfair/deceptive practices
refusal to honor stated policies
failure to deliver or defective goods without appropriate remedy

C. Courts (civil case or small claims for money recovery)

When the dispute is primarily about recovering a sum of money (refund), court action may be considered. Small claims procedures can be an option for straightforward money claims within the current jurisdictional limits set by Supreme Court rules (limits have been revised over time).

D. Specialized forums

Real estate issues may fall under specialized housing regulators and rules, depending on the structure of the transaction.
Credit card/charge disputes may be pursued through the card issuer’s dispute process (contractual chargeback mechanisms), separate from civil remedies.

E. Possible damages

Depending on facts (especially bad faith or deception), claims can include:

refund/restitution
actual damages (proven losses)
interest (legal interest may be imposed by courts depending on circumstances)
in appropriate cases, moral/exemplary damages and attorney’s fees (more fact-sensitive)

11) Common myths (and the more accurate view)

Myth: “All deposits are automatically non-refundable for special orders.”

More accurate: Refundability depends on the agreement, breach, and fairness/proportionality. “Non-refundable” can be enforceable, but not as a shield for seller breach or unconscionable penalties.

Myth: “If it says ‘earnest money,’ the seller can always keep it.”

More accurate: Earnest money is generally part of the price and proof of sale (Art. 1482). Keeping it after cancellation typically requires legal basis (breach + damages or valid liquidated damages clause), and penalties may be reduced if unconscionable (Art. 1229).

Myth: “DTI will always force a full refund.”

More accurate: Outcomes depend on evidence and the reason for cancellation. Strongest cases involve seller breach or unfair/deceptive conduct.

12) Drafting and policy best practices (what fair terms look like)

Whether you are a consumer evaluating terms or a business writing them, fair special-order terms usually specify:

exact item specs and what counts as “custom”
delivery date or delivery window + what happens if delayed
what the deposit is: part of price vs option/reservation
cancellation windows (before ordering materials vs after)
a clear formula for deductions tied to documented costs
whether the seller will attempt resale/repurposing to reduce loss
refund timeline and method (cash, bank transfer, original payment method)

Fairness is not only ethical; it reduces disputes and makes clauses more defensible.

13) Bottom line rules of thumb

Always anchor the dispute on the reason for cancellation. Seller breach → refund rights are strongest.
The label “non-refundable” is not absolute. It must be disclosed, fair, and cannot excuse seller breach; extreme penalties can be reduced.
Documentation is decisive. Receipts, order forms, and messages often matter more than arguments.
Special orders justify some protection for sellers—but only to the extent of real loss. The law generally aims to prevent unjust enrichment and unconscionable penalties while respecting valid contracts.