Supplier Failed to Deliver (Philippines): How to Rescind the Contract and File a Small Claims Case

Friendly disclaimer: This is practical legal information for the Philippine setting, not a substitute for tailored legal advice. Rules and thresholds (especially for small claims caps and court fees) get updated from time to time. Double-check specifics with the clerk of court of the first-level court (MeTC/MTC/MCTC) where you’ll file.

The Situation at a Glance

You paid (in full or partially) for goods/services, the supplier didn’t deliver (or delivered late/defective), and you’d like to cancel (rescind) the deal and get your money back (plus damages). In the Philippines, you typically combine two tracks:

Substantive right to cancel under the Civil Code (rescission/cancellation for breach).
Procedural path to recover money via Small Claims (a fast, paper-driven court process for pure money claims within a cap).

Small claims courts do not issue orders to rescind contracts in the abstract. Instead, you ground your money claim on rescission (e.g., “cancelled because of breach; therefore return my ₱___ plus damages”). Think of small claims as the vehicle to get a money judgment flowing from your cancellation.

Legal Foundations You’ll Rely On (in plain English)

Reciprocal obligations & rescission (Civil Code, e.g., Art. 1191):
- In a reciprocal contract (like a sale or service agreement), a substantial breach by one party lets the other choose specific performance or rescission, with damages either way.
- Judicial rescission is the default (i.e., courts declare it), unless your contract clearly allows extrajudicial rescission (a built-in cancellation clause). Even then, your notice can be questioned in court; judges have the final say.
- Effect of rescission: mutual restitution (each side gives back what it received). If you received nothing, you seek a refund of what you paid plus damages/interest.
Sales of goods/services:
- If time is of the essence (e.g., event date, production timeline) and the seller fails or anticipates failure, you may treat it as fundamental breach, rescind, and claim damages.
- Separate Civil Code remedies also exist for hidden defects and warranties, but a simple failure to deliver is usually handled under breach of a reciprocal obligation.
Small Claims (A.M. No. 08-8-7-SC, as amended):
- Purpose: quick, simplified recovery of a sum of money (e.g., unpaid loans, refunds, liquidated damages, or actual damages).
- Jurisdictional cap: There’s a peso limit (ceiling) that has been raised over the years; it’s currently high relative to the old ₱100k–₱400k era. Because this figure sometimes changes, verify the current cap with the clerk of court before you file.
- No lawyers as counsel at the hearing (with narrow exceptions under the Rules). Juridical entities (companies) appear through an authorized representative (typically non-lawyer) with a Secretary’s Certificate/SPA.
- Relief is a money judgment only (no injunctions/specific performance). Perfect for refunds, penalties/liquidated damages, interest, incidental damages.
Prescription (time limits):
- 10 years for actions upon a written contract (typical breach-of-contract/refund claims).
- 6 years for oral contracts.
- 4 years for quasi-delicts (torts). File sooner rather than later; proof gets stale.
Statute of Frauds:
- Certain contracts must be in writing to be enforceable in court, but partial payment, acceptance, or corroborating evidence can take many deals outside the Statute. If your bargain was online or via chat but you paid/they issued an invoice or receipt, you generally have enough writing.
Katarungang Pambarangay (Barangay conciliation):
- If both parties are natural persons residing in the same city/municipality, you usually need a Certificate to File Action (CFA) from the Lupon before going to court—unless an exemption applies (e.g., the supplier is a corporation, the parties live in different cities/municipalities, etc.). Skipping this when required can get your case dismissed.
Arbitration / ADR clauses:
- If your contract has an arbitration agreement, courts generally refer disputes to arbitration (ADR Act). Small claims can be dismissed or stayed if an arbitration clause covers your dispute and is invoked.

Decide Your Goal: Refund vs. Forcing Delivery

If you want the supplier to deliver (specific performance) or you need contract cancellation formally declared, you’re looking at a regular civil action, not small claims.
If you want your money back (and possibly damages/interest/penalties), small claims is ideal as long as your total claim fits within the cap.

Step-By-Step: Build a Rescission-Based Money Claim

1) Gather your evidence

Contract/quotation/proposal, purchase order, invoice, OR, delivery schedule.
Proof of payment (deposit slips, bank transfers, e-wallet records).
Communications showing agreed timelines/specs and the breach (emails, SMS, Viber, Messenger, screenshots).
Any revised timelines, excuses, or admissions.
Damages proof: e.g., rental of substitute equipment, lost venue fees (receipts), courier/transport costs, etc.
If goods were delivered late/defective, document with photos, videos, or an expert/technician’s note (even a simple affidavit).

2) Send a Demand & Rescission Notice

Even when not strictly required, a written demand:

Puts the supplier in default (mora solvendi), strengthening your claim to interest and damages.
Clarifies whether you’re giving a final cure period or immediate rescission because time was essential.
Demands: refund of ₱___, liquidated damages (if your contract has a penalty clause), legal interest (often 6% per annum on money owed from the date of default/demand until full payment), and itemized incidental damages.
Sets a deadline (e.g., 7–10 calendar days) and states that failure will lead to small claims filing.

Tip: If you ever received goods you’re rejecting, tender their return (or offer to return upon refund) to preserve mutual restitution.

3) Consider Barangay Conciliation (if required)

If applicable, file at the Lupon of the barangay where the respondent resides (or as allowed), attend mediation/conciliation, and secure a CFA if no settlement.
Exempt if any party is a juridical person (company), among other exceptions.

4) Compute your claim (be precise)

Refund of the price/down payment.
Liquidated damages/penalty (if stipulated).
Actual/Incidental damages (with receipts/affidavits).
Interest (commonly 6% p.a.) from date of demand or filing—show your basis and computation.
Attorney’s fees (optional, if justified by demand letters or bad faith under Civil Code, but keep expectations modest in small claims).

5) Check Small Claims Eligibility

Your total claim (principal + allowable damages, excluding costs) must not exceed the small claims cap.

The cap has been increased in recent years. Confirm the current peso limit with the first-level court.
The claim must be for a sum of money only. Frame your prayer as: “Pay me ₱___ (refund) + ₱___ (damages/penalty) + interest and costs,” not “Cancel the contract.”

6) Choose the Venue

File in the first-level court (MeTC/MTC/MCTC) with venue rules that typically allow filing where you reside/hold office, where the defendant resides/holds office, or where the cause of action arose (e.g., place of delivery or contract execution).
If your contract fixes venue (and it’s valid), courts usually honor it.

7) Fill out the Small Claims Forms

Statement of Claim (Small Claims): short, verified narrative of facts; attach all evidence and the CFA (if needed).
Addresses/contacts of both parties for service.
Computation sheet for your claim and interest.
If you’re a company, attach your Secretary’s Certificate authorizing the representative (usually non-lawyer) to file and appear. If you’re an individual, you personally appear.

8) Pay Filing Fees (or seek indigent status)

Court fees scale with your claim. Indigent litigants (meeting income/asset thresholds) may seek fee exemption per the Rules of Court.

9) After Filing: What Happens

The court issues Summons/Notice of Hearing and sets a prompt hearing date.
The defendant may file a Response with attachments (deadline is short).
On the hearing day:
- No lawyers as counsel (save exceptions). The judge facilitates a businesslike, one-sitting proceeding—often with settlement first.
- If the defendant doesn’t appear, you may get a default-style judgment based on your papers and testimony.
- If both appear, the judge receives documentary evidence and sworn statements; live testimony is brief and focused.

10) Decision & Enforcement

Decisions are intended to be quick (often the same day or shortly after).
If you win:
- The court may award principal, damages, interest, and costs.
- To collect, request a Writ of Execution:
  - Garnish bank accounts/receivables,
  - Levy on personal property,
  - Examine the judgment debtor’s assets in execution proceedings.
- Post-judgment interest continues until full payment.

Practical Playbooks

A) One-Page Demand & Rescission Template (editable)

[Date]

[Supplier Name]
[Address / Email]

Subject: Final Demand and Notice of Rescission – [Project/Order No.]

Dear [Name]:

On [date], we entered into a contract for [describe goods/services], with delivery on/before [date]. We paid ₱[amount] on [date] (see attached [proof]).

Despite follow-ups, you failed to deliver as agreed. Time was of the essence because [reason]. This constitutes a substantial breach of our reciprocal obligations under the Civil Code.

We hereby RESCIND the contract effective immediately. In line with mutual restitution, kindly refund ₱[amount] within [7/10] calendar days from receipt of this letter. We also demand ₱[amount] as [liquidated/actual] damages, plus legal interest at 6% per annum from [date of demand/default] until full payment.

Absent full payment within the deadline, we will file a small claims case without further notice.

Sincerely,
[Your Name / Company Rep]
[Contact details]
Attachments: [list]

If you received goods you’re rejecting, add: “We hold the goods at your disposal and will return them upon refund release.”

B) Small Claims – Core Allegations (sample skeleton)

Parties and addresses (and authority of representative, if any).
Existence of contract (attach).
Payment made (attach proof).
Delivery obligation & date (attach PO/communications).
Breach (non-delivery/late/defective; attach proof).
Rescission notice sent on [date]; no cure/refund (attach).
Damages computation + interest basis.
Prayer: “Order defendant to pay ₱___ (refund) + ₱___ (damages/penalty) + interest at 6% p.a. from [date] until full payment, plus costs.”

Strategy Tips & Common Pitfalls

Make it a money case. Don’t ask the small claims court to “cancel the contract.” Ask for refund/damages because you rescinded for breach.
Be document-heavy. Attach everything. Small claims is largely decided on papers.
Interest math matters. Show a clear computation (principal × 6% × days/365, or year-by-year).
Check ADR/venue clauses in the contract before filing.
Barangay conciliation: If needed and both parties are individuals in the same city/municipality, get the CFA first.
Penalty vs. actual damages: If you have a penalty clause, you can claim it; courts can reduce unconscionable penalties. If no penalty, claim actual/incidental damages with receipts/affidavits.
Moral/exemplary damages: Possible only with proof of bad faith or egregious conduct; be realistic in small claims.
Corporate parties: Prepare the Secretary’s Certificate; send a non-lawyer representative unless a specific exception applies.
E-commerce transactions: Keep platform records, order pages, chat logs, and payment screenshots. Consumer complaints may also be lodged with DTI (administrative track), which can run in parallel or before court, depending on your strategy.

If Your Claim Exceeds the Small Claims Cap (or You Want Specific Performance)

File a regular civil action in the proper court:
- Specific performance (force delivery); or
- Judicial rescission with damages; or
- Damages only for breach.
Expect longer timelines, fuller trial, and lawyer representation.

Quick Checklist

Read contract; note deadlines, venue, ADR, penalties.
Compile proof: contract, PO, OR, chats, receipts, photos.
Send Demand & Rescission; give a short cure window.
Barangay CFA (if required).
Compute claim (refund + damages + 6% interest).
Confirm you’re within the small claims cap and pick the proper venue.
File Statement of Claim with all attachments and IDs/authority docs.
Attend the hearing (no lawyer as counsel; bring originals).
If you win, move for execution if unpaid.

If you want, I can turn your facts into a ready-to-file Statement of Claim and a computation sheet (just share the dates, amounts paid, and any penalty clause).