Writing demand letter requirements for unpaid personal loans
The user is asking for a comprehensive article on the demand letter requirements for unpaid personal loans in the Philippines. They don't want any external searches, so I’ll rely on internal knowledge. I need to discuss the general legal provisions, ethics, and requirements for such letters, based on the Civil Code, relevant jurisprudence, and consumer laws like the Data Privacy Act. I’ll also cover timing, purpose, services, and differences with other debts, and include additional details on causes for interest accrual and potential damages.
Drafting demand letter in the Philippines
The user is asking for an article about the requirements of a demand letter for unpaid personal loans in the Philippines. Key points to discuss include compliance with laws like the Securities Regulation Code, Lending Company Regulation Act, Data Privacy Act, and the Philippine Financial Consumer Act. I'll cover necessary elements like the principal obligation, due date, interest, and penalties, while emphasizing the importance of written demand for small claims and the proper service methods. Legal procedures, disclaimers, and fair debt collection rules are also key focuses.
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Demand Letter Requirements for Unpaid Personal Loans in the Philippines
A comprehensive legal guide (May 2025)
1. Why a Demand Letter Matters
A demand letter is the borrower’s formal notice that the lender considers the obligation due and unpaid. In Philippine practice it serves several functions simultaneously:
Puts the debtor in legal default (mora). Under Article 1169 of the Civil Code, delay exists only from the time the obligee “judicially or extrajudicially demands” performance, unless the obligation or law provides otherwise.
Interrupts prescription. An “extrajudicial demand” stops the prescriptive period (Art. 1155).
Triggers interest and damages. Legal interest (Art. 2209) and liability for damages under Art. 1170 can begin to run only after default.
Fulfils procedural prerequisites.
- Small Claims. Section 4 (b) of the 2020 Revised Rules on Small Claims (A.M. 08-8-7-SC, latest revision 2023) requires plaintiff-creditors to attach the written demand.
- Barangay Katarungang Pambarangay. For parties residing in the same city/municipality and whose loan does not exceed ₱400,000 (Lupong Tagapamayapa jurisdiction cap), the demand often ushers in the mandatory barangay conciliation.
Demonstrates good faith and can avert litigation.
2. Core Legal Bases
| Source | Key Point |
|---|---|
| Civil Code: Arts. 1159, 1169, 1170, 1179, 2209–2213 | Demand is necessary to put debtor in default, start interest, and recover damages. |
| Art. 1155 | Extrajudicial demand interrupts prescription (10 years for written contracts). |
| Revised Rules on Small Claims (2023) | Written demand letter is a condition precedent. |
| E-Commerce Act (RA 8792) & Rules on Electronic Evidence | Demand may be transmitted electronically; e-signatures acceptable. |
| Financial Products and Services Consumer Protection Act (RA 11765, 2022) & BSP Circ. 1048 (2020) | Fair-collection rules: no threats, obscene language, public humiliation, or disclosure to third parties except as allowed. |
| Data Privacy Act (RA 10173) | Letter must avoid unnecessary personal data disclosure. |
| Lending Company Regulation Act (RA 9474) & FinTech regulations | Licensed lenders must use registered business names and disclose “no-harassment” collection policies in any notice. |
3. Is a Demand Letter Mandatory?
- Strictly required where the contract does not fix a due date (“I will pay when able”)—otherwise, the debt is not yet demandable.
- Condition precedent for small-claims suits (≤ ₱1 million).
- Practical requirement for written-contract loans with a clear maturity date: while suit can technically be filed the day after maturity, Philippine courts expect a prior demand; absence may defeat claims for interest, attorney’s fees, or damages.
4. Timing: When to Send
| Scenario | Best-practice timing |
|---|---|
| Loan with fixed maturity | Immediately after due date, or after any contractual grace period. |
| Installment loan | After first missed installment (to preserve acceleration rights) or after final maturity if lender waived acceleration. |
| “Payable on demand” note | At lender’s discretion; default begins only upon demand. |
| Approaching prescription (10 yrs) | Before the 10-year mark to interrupt running prescriptive period. |
5. Form & Substance Requirements
Heading and Identification
- Date, lender’s name/company, borrower’s full name and address.
- Subject line: “Formal Demand for Payment of Personal Loan.”
Recitals / Statement of Facts
- Reference the loan agreement or promissory note (date, amount, maturity).
- State borrower’s default (missed due date, bounced check, etc.).
Demand Proper
Exact amounts due, broken down into:
- Principal balance
- Accrued contractual interest (cite rate and computation period)
- Late-payment or penalty charges (must be contract-based and reasonable; Art. 1229 allows courts to reduce iniquitous penalties)
- Attorney’s fees or collection charges, if stipulated
Cure Period and Instructions
- Specify a reasonable period to pay (standard 5–15 days for personal loans).
- Identify acceptable payment modes (bank transfer, GCash, cashier’s check) and where to tender payment.
Consequences of Non-Compliance
- Possible civil action (small claims or ordinary civil)
- Accrual of legal interest at 6 % p.a. on the total amount due (Nacar v. Gallery Frames, G.R. No. 189871, Aug 13 2013).
- Reporting to credit bureaus (if lender is reporting entity under Credit Information System Act, RA 9510)
Legal & Ethical Compliance Clauses
- Assurance of privacy under RA 10173.
- Statement that collection will conform to RA 11765/BSP rules (no harassment, no public shaming).
Signature Block
- Lender or authorized representative (with SPA or board resolution, if corporate).
- If signed by counsel, include attorney’s PTR & IBP numbers to demonstrate authority (Ethics Rule 138).
Enclosures (attach as copies)
- Loan agreement / promissory note
- Latest SOA (statement of account)
- Bank ledger or amortization schedule
6. Service & Proof
| Method | How to Prove |
|---|---|
| Personal delivery | Signed acknowledgment or affidavit of service. |
| Registered mail | Registry receipt + return card (Rule 13, Sec. 13 Rules of Court). |
| Courier service | Waybill + affidavit. |
| Email / Messenger | Server headers, screenshots, or affidavit + borrower’s confirmation/“seen” marker. RA 8792’s best-evidence rule allows electronic proof. |
| Barangay notice | LUPON stamp or certification of service. |
Retain originals; courts routinely reject photocopies without authentication when the original is available.
7. Barangay Katarungang Pambarangay Prerequisite
If both parties reside in the same city/municipality and the claim does not exceed ₱400,000, the case cannot be filed in court (even as small claims) unless barangay conciliation has failed (P.D. 1508, as amended). The demand letter often doubles as the “notice to settle” when brought to the Punong Barangay.
8. Effects of a Proper Demand
Constitutes Delay (mora solvendi) – borrower becomes liable for:
- Interest even without stipulation (Art. 2209) at 6 % p.a.
- Damages caused by delay (Art. 1170).
Interrupts Prescription – a fresh 10-year period starts from receipt of demand for written contracts.
Flags the dispute for Credit Bureaus (RA 9510) – only after default is confirmed.
Foundation for Attorney’s Fees and Costs – court normally awards fees only if a written demand was ignored (Art. 2208 (4)).
9. Fair-Collection & Privacy Rules
Prohibited practices (RA 11765 IRR, BSP Circ. 1048):
- Use or threat of violence, obscene language.
- Contacting debtor’s employer or family except to obtain location information.
- Publicly posting the debt on social media or barangay bulletin.
Data minimization. Demand should contain only necessary personal data; avoid CC-ing unrelated third parties.
Third-party collectors. If a collection agency is used, its accreditation number must appear on the demand, and the principal remains liable for abuses (agency law).
10. Failure to Send or Defective Demand—Consequences
| Consequence | Explanation |
|---|---|
| Interest/penalties disallowed | Courts can disallow contractual penalties if creditor never placed debtor in default. |
| Small claims dismissal | Complaint may be dismissed outright for lack of attached demand. |
| Barangay referral | Court will refer case back to Lupong Tagapamayapa if barangay process skipped. |
| No attorney’s fees | Art. 2208 requires a written demand first, unless defendant acted in gross and evident bad faith. |
11. Template (Outline)
Date Borrower Address
Subject: FORMAL DEMAND FOR PAYMENT OF PERSONAL LOAN
Dear Mr./Ms. ________:
- Statement of Account. As of , your outstanding obligation under the Promissory Note dated ____ stands at ₱, broken down as follows: principal ₱; accrued interest ₱; late charges ₱**.
- Default. The loan fell due on ____ and remains unpaid despite reminders. Under Art. 1169 of the Civil Code and Clause __ of our agreement, you are in default.
- Demand. Kindly pay the total amount of ₱___ within ten (10) calendar days from receipt of this letter, through any of the modes stated below.
- Consequence of Non-Payment. Failure to comply shall compel us to file the appropriate civil action, with a claim for legal interest, penalties, and attorney’s fees, and to report your default to the Credit Information Corporation, consistent with RA 9510.
Respectfully, [Signature] Name / Position / PTR No. (if counsel)
(Attach loan documents; indicate payment channels.)
12. Frequently Asked Questions
| Question | Brief Answer |
|---|---|
| Can I threaten criminal estafa? | Avoid outright threats; only factual statements. Estafa exists only if there was deceit or abuse of confidence. |
| How long must I wait before filing suit? | After the cure period in your demand expires, and after barangay conciliation (where required). |
| May I add new penalty rates in the letter? | No. Penalties must be in the original contract or mutually agreed afterward (Art. 1159). |
| Is email service enough? | Yes if the contract provides for electronic notices or the borrower has previously accepted e-mail communications. Keep proof of transmission. |
| Does a lawyer have to sign? | Not legally required, but letters on counsel’s letterhead carry weight and meet Rule 138 requisites for attorney representation. |
13. Key Takeaways
- Written, clear, and respectful demand is the cornerstone for enforcing unpaid personal loans in the Philippines.
- Comply with Civil Code (delay, interest), procedural rules (small claims, barangay), and fair-collection regulations.
- Proof of service is as important as the letter itself—courts rely on it to award interest, penalties, and fees.
- A proper demand often paves the way for amicable settlement, sparing both parties the costs of litigation.
Prepared by: [Your Name], Philippine lawyer (as of May 2025). This article is for information only and does not constitute legal advice. For case-specific guidance, consult counsel.