1) What a promissory note is (and why it matters)

A promissory note (PN) is a written undertaking where a borrower (maker) promises to pay a lender (payee) a sum of money under stated terms (date, interest, installments, penalties, maturity, etc.). In practice, a PN functions as:

Evidence of a loan or credit accommodation, and
A written contract you can sue on if unpaid.

Negotiable vs. non-negotiable promissory notes

Some promissory notes are also negotiable instruments under the Negotiable Instruments Law (Act No. 2031). A PN is typically negotiable if it has the usual requirements (in simplified form):

Written and signed by the maker
An unconditional promise to pay
A sum certain in money
Payable on demand or at a fixed/determinable future time
Payable to order or to bearer

If a PN is non-negotiable, it is still enforceable as a contract—you just won’t get the special “holder in due course” rules that apply to negotiable instruments.

Practical point: Most collection cases work fine whether the PN is negotiable or not; what changes is usually the set of defenses and issues if the note has been transferred to another person.

2) What counts as “breach” of a promissory note

A borrower breaches a promissory note when they fail to perform what they promised, commonly:

Nonpayment at maturity or missed installments
Failure to pay interest as agreed
Violation of acceleration clauses (e.g., one missed installment makes the whole balance due)
Breach of related undertakings (e.g., to maintain collateral insurance, to keep a post-dated check arrangement, etc.), if the PN is part of a broader contract set

Default and demand: do you always need a demand letter?

Often, yes—but not always.

If the PN is payable on a specific due date, the debtor is generally in default upon nonpayment at maturity.
If payable on demand, a demand is essential because the obligation becomes due only upon demand.
Many PNs require written demand before acceleration, penalties, or attorney’s fees kick in.

Even when demand isn’t strictly required, sending a demand letter is usually critical because it:

Establishes a clear date of default,
Supports a claim for interest from demand, and
Helps show good faith and opens settlement.

3) Key PN provisions that drive collection outcomes

When enforcing a PN, courts look closely at these clauses:

A) Interest

Contractual interest is enforceable if clearly agreed and not illegal/unconscionable.
The Philippines has no fixed usury ceiling in most ordinary loans due to the long-standing suspension of the Usury Law ceilings; however, courts can still reduce “unconscionable” interest and penalties based on equity and Civil Code principles.

B) Penalty charges / liquidated damages

Penalty clauses are generally enforceable, but courts may reduce iniquitous or unconscionable penalties.

C) Acceleration clause

Common wording: “Upon default, the entire remaining balance becomes immediately due and payable.” This can convert an installment obligation into a single due-and-demandable obligation.

D) Attorney’s fees and collection costs

Attorney’s fees in PNs are often written as a percentage. Courts may:

Enforce reasonable amounts, but also
Reduce excessive fees, and
Require proof that fees are warranted under law and the facts.

E) Waivers (notice, demand, presentment)

Some notes include waivers. Courts generally respect valid waivers, but the exact effect depends on context, fairness, and whether the waiver contradicts mandatory rules.

4) Before filing: practical and legal “pre-case” steps

A) Assemble proof

Typical documents:

The original PN (or best evidence of execution and terms)
Proof of loan release (acknowledgment receipt, bank transfer, voucher, etc.)
Statement of account / amortization schedule
Proof of payments made and outstanding balance
Proof of demands (letters, emails, messenger logs, courier registry return cards)
If applicable: collateral documents (real estate mortgage, chattel mortgage, pledge), surety/guaranty agreements

B) Compute the claim carefully

A collection complaint is stronger when the amounts are transparent:

Principal balance
Accrued interest (and the basis/rate)
Penalties (and basis)
Less payments
Plus allowable fees/costs, if justified

Overstated computations can backfire (credibility, reductions, or even partial denial of add-ons).

C) Send a demand letter (best practice)

A strong demand letter usually includes:

The PN details and maturity/default
Exact amount due and breakdown
Deadline to pay
Payment instructions
Notice of legal action if unpaid
Reservation of rights (interest, fees, costs)

D) Check if barangay conciliation is required (Katarungang Pambarangay)

Many civil disputes between individuals who reside in the same city/municipality must go through the barangay conciliation process before court filing, unless an exception applies (e.g., different cities/municipalities, certain urgent remedies, government parties, etc.).

Why it matters: Filing in court without required barangay conciliation can lead to dismissal or a “premature” filing issue.

E) Consider settlement tools

Restructuring (new schedule, reduced penalties, conditional discounts)
Compromise agreement with confession/consent to judgment style safeguards (crafted carefully)
Post-dated checks (be cautious—can trigger separate criminal exposure if dishonored)

5) Your main civil remedies in the Philippines

Collection strategy depends on whether there is collateral and what you want to achieve.

Remedy 1: Collection of sum of money (action on the promissory note)

This is the standard civil case to obtain a money judgment, then enforce it through execution (levy, garnishment, etc.).

Remedy 2: Foreclosure (if secured by mortgage/chattel mortgage)

If the loan is secured:

Real estate mortgage → judicial or extrajudicial foreclosure (depending on documentation)
Chattel mortgage → foreclosure under applicable rules/law and registration

Foreclosure focuses on the collateral; if proceeds are insufficient, you may pursue a deficiency claim depending on the arrangement and applicable rules.

Remedy 3: Provisional remedies (to prevent asset dissipation)

In select cases, a creditor may seek:

Preliminary attachment (to secure assets during the case)
Injunction (rare in pure collection, but possible depending on circumstances)

These require strict factual and procedural bases and often a bond.

6) Choosing the right court and procedure

A) Small Claims (fastest for many straightforward debts)

The Rules of Procedure for Small Claims Cases provide a streamlined process for certain money claims (including many PN-based claims) within a set monetary threshold.

Common features:

Simplified forms and hearings
Limited pleadings
Designed for speed
Parties often appear without lawyers (rules have specific limitations and allowances)

Important: The monetary threshold and procedural details are set by Supreme Court issuances and can change over time; confirm the latest threshold and requirements before relying on small claims.

B) Regular civil action: collection of sum of money

If not eligible for small claims (e.g., higher amount, complexity, need for certain relief), you file a regular civil case.

Jurisdiction (general guide):

The amount claimed (typically excluding certain add-ons like interest/damages/fees when determining jurisdiction, depending on rules and jurisprudence) affects whether the case falls under:
- Metropolitan/Municipal Trial Courts (MeTC/MTC/MCTC), or
- Regional Trial Courts (RTC)

As a commonly used statutory baseline under B.P. Blg. 129 as amended by R.A. 7691, the trial court jurisdiction thresholds are often treated as:

Up to ₱400,000 in Metro Manila; up to ₱300,000 outside Metro Manila → MTC/MeTC/MCTC
Above those → RTC

Note: Always verify current rules and interpretations that may affect jurisdiction computations and thresholds.

7) Venue: where to file

For collection cases, venue is generally proper where:

The plaintiff resides, or
The defendant resides, at the plaintiff’s election, subject to:
A valid venue stipulation in the PN or related contract (if enforceable), and
Specific rules for corporations, multiple defendants, or special circumstances

If the PN contains a clause like “exclusive venue,” courts may enforce it if it’s clear and not contrary to law/public policy.

8) The civil case process (what “filing a case” actually looks like)

Step 1: Draft and file the Complaint

A collection complaint typically includes:

Parties and addresses
Facts: loan, PN execution, release, maturity/default, demands
Cause of action: breach/nonpayment
Prayer: principal, interest, penalties (if justified), attorney’s fees (if justified), costs, and other relief

Usually required:

Verification
Certification against forum shopping
Attached annexes (PN, demand letter proof, statement of account, etc.)

You pay docket fees based on the claim.

Step 2: Summons and Answer

Court issues summons; defendant files an answer and defenses may include:

Payment/partial payment
Prescription (time-bar)
Forgery/denial of signature (must be specifically raised)
Lack of consideration
Novation (restructuring replaced the PN)
Unconscionable interest/penalty
Defects in demand/acceleration conditions

Step 3: Mandatory court processes (typical in regular cases)

Possible referral to mediation/JDR (depending on rules and court practice)
Pre-trial (issues are defined; evidence marked; stipulations)
Trial (if no settlement)
Decision

Step 4: Execution (turning judgment into money)

Winning the case is often only half the battle. To collect, you may use:

Writ of execution
Garnishment of bank accounts or receivables
Levy on real or personal property
Auction sale of levied property

There are exemptions and procedural safeguards; execution is highly technical and evidence-driven.

9) Prescription: deadlines to sue (crucial)

A debt claim can prescribe (become time-barred). The applicable prescriptive period depends on the nature of the action and instrument:

Actions upon a written contract generally have a longer prescriptive period than oral ones (commonly taught as 10 years for written contracts under the Civil Code).
For negotiable instruments, specialized rules can apply (e.g., timeframes for actions depending on the party sued and the instrument’s terms).

Bottom line: Identify:

The PN’s maturity date,
Whether it’s payable on demand,
The date of written demand (if relevant),
Any written acknowledgments or partial payments (which can affect timelines), and consult the correct prescriptive rule for your specific configuration.

10) Evidence and litigation issues specific to promissory notes

A) Proving authenticity and due execution

If the maker admits the signature, authenticity is straightforward.
If the maker specifically denies the signature under oath or in the proper manner, you may need proof (witnesses, handwriting comparison, notarial details if notarized, etc.).

B) Notarization: helpful but not invincible

A notarized PN may carry stronger evidentiary weight because notarization converts a private document into a public document, but:

Notarization can still be attacked for defects, irregularities, or fraud.

C) Interest and penalties are frequently reduced

Even if written in the PN, courts often examine:

Whether rates are excessive,
Whether penalties are disproportionate,
Whether the total financial burden is inequitable, and may reduce them.

D) Solidary debtors, guarantors, sureties

Solidary obligors can be pursued for the whole amount.
Guaranty is generally subsidiary (you go after the principal first, subject to terms and exceptions).
Suretyship is typically direct and solidary in effect (depending on the contract).

Correctly identifying the type of undertaking changes:

Who you sue,
What you must prove, and
Collection leverage.

11) Is there a criminal case for an unpaid promissory note?

Nonpayment of debt by itself is generally a civil matter. However, criminal exposure may arise from related acts:

B.P. Blg. 22 (Bouncing Checks Law): if the debtor issued a check that bounced (distinct from the PN itself).
Estafa (fraud): if the debt arose from deceit or fraudulent acts meeting criminal elements.

These are separate from civil collection and require different proof. Creditors sometimes pursue civil and criminal tracks when facts support it—but misuse (filing without basis) can backfire.

12) Practical strategy: how creditors usually choose a path

If the debtor is cooperative

Demand letter → restructure → settlement/compromise This is often the cheapest and fastest “collection.”

If the claim is straightforward and within small claims coverage

File small claims for speed and lower complexity.

If the debtor has assets but may hide them

Consider a regular civil action with a carefully supported request for provisional remedies (when legally justified).

If the loan is secured

Consider foreclosure (often faster to realize value), then deficiency action if appropriate.

13) Common mistakes that derail collection cases

Filing without required barangay conciliation
Wrong court (jurisdiction errors)
Weak documentation of loan release and payments
Sloppy computations (overstated interest/penalties)
Demand letter not aligned with PN conditions (especially acceleration)
Suing the wrong parties (e.g., guarantor vs surety, or missing solidary debtor)
Waiting too long and running into prescription

14) What a “good” promissory note looks like (creditor-friendly)

If you’re drafting or improving a PN template, creditor-friendly terms commonly include:

Clear principal, interest, payment schedule, and maturity
Express acceleration and default definitions
Reasonable penalties and attorney’s fees clauses
Payment application clause (to interest/penalty before principal)
Solidary liability language where appropriate
Venue clause (carefully drafted)
Collateral and cross-default references (if part of a secured package)
Clear statement on notices/demand and acceptable service methods

15) Final reminders (practical, not theoretical)

A promissory note is powerful evidence, but collection still depends on proof, procedure, and the debtor’s asset situation.
The fastest route is often small claims (if eligible) or settlement; the strongest leverage comes from good documentation and traceable assets.
Court rules (especially small claims thresholds and procedural requirements) can change through Supreme Court issuances, so for an actual filing plan, confirm the current version of the applicable rules and local court practices.

If you want, share a sanitized PN (remove names/addresses and identifying details) and the basic facts (amount, due date, payments, and where parties reside), and I can outline the most likely best procedural route (barangay vs small claims vs regular action) and a checklist tailored to that scenario.