Attorney‑Fee Demand Letters for a ₱1.1 Million Loan in the Philippines
A comprehensive legal guide (2025 edition)
1. Overview
A demand letter is the creditor’s first formal step toward collecting an unpaid loan. When it is drafted and sent by counsel, the letter also lays the groundwork for recovering attorney’s fees should the matter reach court. This article explains—in Philippine legal context—everything a practitioner, creditor, or debtor needs to know when the principal obligation is ₱1.1 million, a sum that now exceeds the ₱1 million ceiling of the Small Claims Court and therefore falls under the regular jurisdiction of the trial courts.
2. Governing Law on Loans
| Source | Key Points for a ₱1.1 M Private Loan |
|---|---|
| Civil Code (Arts. 1156‑1304, esp. Arts. 1953‑1961 on mutuum) | A simple loan (mutuum) transfers ownership of money to the borrower. Obligation: return the same kind and amount plus any agreed interest. |
| Bangko Sentral ng Pilipinas regulations | Statutory interest ceilings apply only to lending/financing companies and online lenders. Private loans between natural persons are governed by the parties’ stipulation, subject to unconscionability review. |
| Usury repeal (CB Circular 905, 1982) | Numerical ceilings were lifted, but courts still strike down “excessive and unconscionable” rates under Art. 1229 and jurisprudence (e.g., Spouses Abella v. Spouses Abella, 2022). |
| Prescription | Written loan: 10 years from default (Art. 1144). Demand accelerates running of interest and prescription. |
3. Why Send a Demand Letter?
- Constitutes Delay (Mora) – Under Art. 1169, the debtor incurs delay only after judicial or extrajudicial demand, except when the obligation expressly fixes a due date.
- Determines Start of Legal Interest – Absent stipulation, 6 % p.a. (per Nacar v. Gallery Frames, 2013) accrues from the date of demand.
- Supports a Claim for Attorney’s Fees – Art. 2208(2) allows recovery when “the defendant’s act or omission has compelled the plaintiff to incur expenses to protect his interest.”
- Shows Good Faith & ADR Compliance – Courts look favorably on creditors who first attempt amicable settlement.
4. Attorney’s Fees in Philippine Practice
| Concept | Practical Notes |
|---|---|
| Professional Fee for Drafting/Sending Letter | No fixed tariff; prevailing market range in Metro Manila (2025) is ₱5,000 – ₱20,000 for a single, non‑complex demand, plus VAT if applicable. |
| Retainer vs. Contingency | Common to combine a modest fixed fee for the letter with a contingency of 10 % if collection succeeds or when judgment awards attorney’s fees. |
| Ethical Standards | 2023 Code of Professional Responsibility and Accountability (CPRA) Rule 14 forbids fees that are “unconscionable, excessive, or out of proportion to the service rendered.” |
| Recoverability in Court | Award is discretionary; claimant must (a) plead the specific contractual or statutory basis, (b) prove actual payment or obligation to pay counsel, and (c) court must explain the factual/legal justification for granting fees (ABS‑CBN v. Atty. Yabut, G.R. 195909, 2018). Courts often fix 10 % of the principal as reasonable. |
5. Drafting the Demand Letter
Essential Elements
- Header & Parties – Lawyer’s letterhead; identify creditor, debtor, date, and subject (“Re: Demand for Payment of ₱1,100,000 Loan”).
- Statement of Facts – Date of loan, instrument (e.g., notarized promissory note), due date, partial payments if any, present balance, agreed interest and penalties.
- Legal Basis – Cite Civil Code provisions and any special agreement (e.g., acceleration clause, attorney’s‑fee clause).
- Demand – Unequivocal request to pay principal + accrued interest + attorney’s fees within a specified period (commonly 7–15 days).
- Consequences of Non‑Compliance – Intent to file civil action, reporting to credit bureaus (if applicable), and prayer for costs of suit.
- Payment Details – Mode (cash, manager’s check, bank transfer) and where to tender payment.
- Counsel’s Signature & Authority – Include Integrated Bar of the Philippines (IBP) number, Roll number, PTR, and MCLE compliance.
Service & Proof
- Registered Mail with Return Card or Courier with Tracking plus electronic copy by e‑mail for redundancy.
- Execute a Certification of Service or attach the registry receipt to the complaint to prove extrajudicial demand.
6. Accrual of Interest and Penalties
| Scenario | Rate & Computation |
|---|---|
| Interest Stipulated (<= data-preserve-html-node="true" 24 % p.a.) | Generally upheld if not unconscionable; computed until full payment or judgment. |
| Interest Stipulated (> 24 % p.a.) | Courts may reduce to 12 % or even 6 % p.a. (Imperial v. Jaucian, 2020). |
| No Interest Stipulated | 6 % p.a. from demand (Art. 2209). |
| Penalty Clause | Enforced unless iniquitous; court may equitably reduce (Art. 1229). |
| Judgment Interest | 6 % p.a. on the total adjudged amount from finality of decision until full satisfaction (per Nacar). |
7. From Demand to Litigation
- Waiting Period – Give debtor reasonable time; courts deem 7‑15 days sufficient for domestic payors.
- Pre‑Action Mediation – For contracts, Barangay Katarungang Pambarangay (KP) mediation applies only if parties reside in the same city/municipality; otherwise voluntary.
- Jurisdiction & Venue
- Amount in Controversy: ₱1.1 M > ₱1 M → Regional Trial Court (RTC).
- Venue: Where plaintiff resides or where loan contract was executed (Rule 4).
- Civil Action for Sum of Money
- Pleadings: Complaint with verified statement, copies of loan document, demand letter, statement of account.
- Filing Fees: Around ₱11,000 – ₱18,000 inclusive of idi (increase by SC 13‑22‑sc) depending on location.
- Possible Defenses – Payment, prescription, lack of consideration, forged signature, absence of capacity, invalid interest rate.
- Evidence of Attorney’s Fees – Present Engagement Contract, official receipts, and time sheets (if hourly).
8. Alternatives to Litigation
| Option | Mechanics | Pros | Cons |
|---|---|---|---|
| Loan Restructuring | Execute new promissory note with extended term and reduced interest. | Preserves relationship; faster recovery. | May still default. |
| Compromise Agreement | Lump‑sum or installment settlement, normally with partial write‑off of interest. | Enforceable as judgment upon judicial approval (Art. 2028). | Creditor may collect less than full amount. |
| Mediation/ADR | Court‑annexed after filing, or before filing via PMC or private mediator. | Confidential; cheaper. | Debtor’s participation voluntary. |
| Extra‑Judicial Sale of Security | If loan secured by real estate mortgage or chattel mortgage. | Bypasses court; quicker. | Notice and publication costs; possible deficiency suit. |
9. Tax, Accounting, and Reporting Considerations
- Attorney’s Fees paid by creditor are deductible business expense if loan is part of trade.
- Attorney must issue BIR‑registered OR; fees are subject to 5 % creditable withholding tax and 12 % VAT (unless exempt).
- Uncollectible Accounts may be written off after suit is filed or demand proved futile.
10. Ethical and Practical Tips for Counsel
- Avoid Harassment – Letters must not threaten criminal cases for simple non‑payment (PD 1689 and BP 22 apply only when elements are present).
- Maintain Confidentiality – Disclosing debtor’s private data without legitimate purpose violates Data Privacy Act.
- Explain Options to Client Up‑Front – Lay out cost‑benefit of litigation vs. settlement.
- Keep Fees Reasonable – Courts scrutinize large contingency percentages, especially when the lawyer’s effort is limited to a form letter.
- Document Everything – Engagement letter, drafts, service receipts, time records.
11. Sample (Annotated) Demand Letter Excerpt
Dear Mr. Juan D. Cruz:
Our firm represents Ms. Maria S. Reyes (“Creditor”) with respect to the ₱1,100,000.00 you borrowed on 10 February 2024 under the enclosed notarized Promissory Note. The Note matured on 10 February 2025, yet the outstanding balance ₱1,100,000.00, plus agreed interest of 2 % per month from maturity, remains unpaid.
Pursuant to Articles 1159 and 1169 of the Civil Code, we hereby demand that you remit the total amount of ₱1,154,000.00 (breakdown attached) within ten (10) calendar days from receipt of this letter, or not later than 05 May 2025, at the offices of this firm or via the bank details below.
Failure to comply will compel our client to file the appropriate civil action before the Regional Trial Court of Makati, seeking the principal, interest, liquidated damages, plus attorney’s fees equivalent to ten percent (10 %) of the amount due, and all costs of suit.
This constitutes our final demand.
Very truly yours,
Atty. Jose L. Santos
IBP No. 123456 / PTR No. 78910 / Roll No. 56789 / MCLE VI Compliance
Annotations: note the precise demand date, computation sheet, and invocation of Articles 1159, 1169, and 2209‑2212 for interest and damages.
12. Key Take‑Aways
- Send a formal, lawyer‑signed demand before suit; it crystallizes the debtor’s default and strengthens later claims for interest and attorney’s fees.
- ₱1.1 M cases must be filed in the RTC, not Small Claims, raising costs and complexity.
- Attorney’s fees are not automatic; include them in the demand and be ready to prove engagement and reasonableness.
- Interest rules differ depending on stipulation, but the 6 % legal rate nearly always applies from demand or judgment.
- Settlement is usually cheaper and faster, yet a well‑crafted demand letter is the leverage that often drives parties to the table.
This article is for informational purposes only and is not a substitute for individualized legal advice. Laws and jurisprudence cited are current as of 21 April 2025.