DEMAND LETTER FOR UNPAID DEBT IN THE PHILIPPINES
A comprehensive legal guide for creditors, debtors, and practitioners
1. Why a Demand Letter Matters
| Purpose | Practical Effect |
|---|---|
| Formally notifies the debtor of default | Shows that payment is already due and outstanding. |
| Interrupts prescription | In most money claims the four‑year (quasi‑delict) or six‑/ten‑year (written/oral contract) prescriptive period is tolled from the moment demand is made (Civil Code, Arts. 1145‑1150). |
| Satisfies a statutory or contractual condition precedent | Many promissory notes, loan agreements, and even the Rules on Summary Procedure (when the loan is less than ₱100,000) require “prior written demand.” |
| Prepares the ground for litigation or ADR | Courts often ask if a demand letter was sent before accepting a collection suit; mediation centers do the same. |
| May constitute the “demand” element of Estafa | For criminal prosecution under Art. 315(1)(b) of the Revised Penal Code (bouncing cheques) a written demand is indispensable. |
2. Governing Law and Rules
| Source | Key Provisions Re: Demand |
|---|---|
| Civil Code of the Philippines | Art. 1169 (when demand is necessary to put debtor in delay); Arts. 1155 & 1150 (interruption of prescription); Art. 1256 (tender of payment). |
| Rules of Court | Rule 2, Sec. 3 (conditions precedent); Rule 70 (ejectment with non‑payment of rent); 2021 Rules of Procedure for Small Claims (require demand within 30 days before filing). |
| Revised Penal Code | Art. 315(1)(b) – Estafa by post‑dated or bouncing cheque; written demand is an element. |
| Batas Pambansa Blg. 22 (B.P. 22, “Bouncing Checks Law”) | Sec. 1 requires notice of dishonor and demand to constitute the offense. |
| Data Privacy Act of 2012 | Personal data in the letter must be relevant and not excessive; public posting of debt may be an unlawful disclosure or unjust vexation. |
| Code of Professional Responsibility & Accountability (CPRA, 2023) | Lawyers must avoid threats, harassment, or frivolous suits in demand letters (Canon III, Rule 1). |
3. When Is a Demand Required Before Suit?
- If expressly required by contract.
- When the obligation does not fix a date for payment (Civil Code, Art. 1169).
- For certain causes of action — e.g., B.P. 22, estafa under Art. 315, small‑claims, ejectment for non‑payment of rent, and some bank foreclosure proceedings (NB: for real estate mortgages, judicial or extrajudicial foreclosure needs at least 30 days’ notice under Act 3135).
- When the debtor is in delay but delay has not yet begun (i.e., no prior extrajudicial demand).
Not required when (a) the obligation declares “payable on demand” and contains a date certain; (b) demand would be useless or impossible; (c) debtor admits inability to pay; or (d) time is of the essence and the debtor failed to perform on the very day fixed (Art. 1169, 3rd paragraph).
4. Essential Elements of a Philippine Demand Letter
- Complete identification of the parties – legal names, addresses, TIN/SEC/DTI registration for entities.
- Reference to the source of the debt – e.g., “Promissory Note dated 4 January 2024.” Attach a copy when prudent.
- Precise amount due – principal, interest (legal or contractual), penalties, and computation method.
- Legal bases – cite specific Civil Code or contractual clauses to show entitlement.
- Clear demand – “We hereby demand that you pay the foregoing amount within [x] calendar days from receipt.” Avoid ambiguous language.
- Consequences of non‑payment – civil action, costs, interest, possible criminal complaint, negative credit reporting (compliant with BSP/IC guidelines).
- Mode and deadline of payment – bank details, office address, or accredited payment center; state cut‑off time (e.g., “on or before 5 p.m.”).
- Offer of amicable settlement or restructuring – shows good faith, may reduce litigation expenses, and is looked upon favorably by courts/CIAC.
- Proof of authority – if signed by counsel or collection agent, attach Special Power of Attorney (SPA) or board resolution.
- Data Privacy notice – a brief clause that the debtor’s data is processed only for lawful collection purposes.
5. Drafting Tips and Common Pitfalls
| DO | DON’T |
|---|---|
| Use formal letterhead and paginate exhibits. | Use insulting, threatening, or defamatory language; it may expose the sender to libel or unjust vexation. |
| Attach supporting documents (loan, SOA, ledger excerpts). | State an amount you cannot later substantiate — that can lead to dismissal or counter‑claims. |
| Write specific, realistic deadlines (usually 7–15 days). | Demand immediate payment “within 24 hours” if the amount is sizeable; courts find such periods unreasonable. |
| Send via multiple modes (registered mail, courier with tracking, personal service with signed acknowledgment). | Publish the demand letter on social media or post it on the debtor’s office door – often an invasion of privacy unless judicial notice is warranted. |
6. Service and Proof of Receipt
| Mode | Best Practice for Proof |
|---|---|
| Registered Mail (PhilPost) | Registry Return Card (green slip) stamped by the post office; track via PhilPost website. |
| Private Courier | Official waybill + online tracking print‑out + courier photograph of delivery, if available. |
| Personal Service | Ask debtor (or a responsible adult in the premises) to sign at least two copies, retain one. |
| Electronic Mail | Ensure the e‑mail address is contractually accepted as a mode of notice; enable read‑receipt and keep server logs. |
| Posting (Real Property) | For lease/non‑payment of rent, Rule 70 allows posting at the premises and service by mail. Take timestamped photos. |
Tip: Combine at least two modes (e.g., registered mail + e‑mail) to pre‑empt claims of non‑receipt.
7. After the Deadline Expires
Re‑assessment – check partial payments or settlement overtures.
Final demand / Notice of last opportunity – optional, but helpful in showing reasonableness.
Choice of forum
- Small Claims Court – money claims up to ₱400,000 (as of 2024 amendments), no lawyers required.
- Regular civil action for sum of money – if amount exceeds small‑claims ceiling or the case involves complex issues.
- Arbitration/CIAC/Construction disputes – if an arbitration clause exists.
Criminal complaint – only if elements of B.P. 22, estafa, or syndicated estafa are present; otherwise stick to civil remedies.
Asset preservation – consider securing a writ of preliminary attachment (Rule 57) by showing fraudulent disposition or imminent departure, or annotate the demand on the debtor’s Transfer Certificate of Title (TCT) by filing a notice of lis pendens.
8. Interest, Charges, and Legal Costs
| Item | Statutory / Typical Rate | Notes |
|---|---|---|
| Legal interest (no stipulation) | 6 % p.a. (Bangko Sentral Monetary Board Circular 799, effective 1 July 2013) | Runs from extrajudicial demand if amount is certain. |
| Conventional interest | Any rate agreed, unless unconscionable (> 24 % p.a. often struck down). | Must be in writing (Art. 1956). |
| Penalties / Late charges | Common range 3 – 5 % per month in micro‑finance; courts reduce if iniquitous. | Supreme Court may equitably temper (e.g., Spouses Abella v. Spouses Abella, G.R. 206634, 2019). |
| Attorney’s fees | If stipulated (usually 10 % of amount due) or when debtor acts in bad faith; still subject to judicial review. | A demand letter may itself be the basis to award attorney’s fees. |
9. Consumer‑Protection and Fair‑Debt‑Collection Issues
- BSP Circular 1138 (2022) – requires banks and financing companies to maintain scripts and prohibits threats or harassment in collection.
- SEC Memorandum Circular 19‑2019 – lending and financing companies must avoid publicly shaming debtors or using obscene language; they may call only between 6 a.m. and 10 p.m.
- Violations can lead to fines, license suspension, or criminal liability under the Lending Company Regulation Act (R.A. 9474).
- For peer‑to‑peer apps, NTC may revoke value‑added service certificates for harassment calls.
10. Sample Structure (Skeleton)
RE: DEMAND FOR PAYMENT OF OUTSTANDING OBLIGATION
Dear Mr./Ms. [Debtor]:
- Statement of account (details).
- Legal basis (cite contract & Civil Code).
- Computation (attach SOA).
- Demand: “Please pay ₱123,456.78 within ten (10) calendar days from receipt via [mode].”
- Consequence: civil suit, interest @ 6 % p.a., costs; possible B.P. 22 if cheque was dishonored.
- Settlement option: call/email within 5 days to discuss restructuring. Very truly yours,
[Signature]
Always adjust tone and complexity to your audience—courts favour clarity over legalese.
11. Frequently Asked Questions
| Question | Answer |
|---|---|
| Can I add moral damages in the demand? | You may state your intention, but moral damages are awarded at the court’s discretion and need proof of anguish, social humiliation, etc. |
| What if the debtor refuses to receive the letter? | Leave it at the address with a barangay official witness or send by registered mail; constructive receipt occurs. |
| Is notarization necessary? | Not required, but notarizing converts the letter into a public document, facilitating authentication. |
| Can I charge interest from the date of the loan or the demand? | Contractual interest runs from date stipulated; legal interest runs from extrajudicial demand or judicial filing if the loan is payable on demand. |
| Will posting on Facebook speed things up? | Usually no; it risks civil/criminal liability for privacy breaches and libel. Serve properly and litigate if needed. |
12. Ethical & Practical Takeaways
- Be fact‑based and respectful — hostility rarely produces payment and may backfire in court.
- Match the deadline to the amount — small debts (≤₱20k) may justify a short 5‑day demand; larger loans deserve 10‑ to 15‑day periods.
- Document everything — retain proof of mailing, screenshots, and call logs; these are exhibits in a future suit.
- Evaluate cost‑benefit — sometimes selling the debt to a collection agency or entering compromise saves time and resources.
- Stay compliant — the regulatory trend (BSP, SEC, DPA) penalizes aggressive tactics; follow the rules to avoid licensing issues.
Conclusion
A well‑drafted demand letter is more than a formality—it is a strategic legal tool that protects your rights, interrupts prescription, and often prompts voluntary payment without costly litigation. Mastery of its content, tone, and procedural nuances is essential for anyone engaged in credit transactions in the Philippines.
(This article is for informational purposes only and does not constitute legal advice. For specific situations, consult a Philippine attorney or the appropriate regulatory authority.)