Introduction
When debt becomes past-due in the Philippines, the creditor (or its counsel or collection agent) will usually send written communications to the debtor before filing suit. Two of the most common instruments are the “notice of collection” and the “demand letter.” Although often used interchangeably in everyday speech, they have distinct purposes, formalities, and legal consequences under Philippine law. Understanding the difference matters because the step from notice to demand can mark the point when default (mora) begins, interest starts to accrue, and litigation becomes imminent.
Scope of this article – Philippine statutes, Bangko Sentral ng Pilipinas (BSP) regulations, Securities and Exchange Commission (SEC) advisories, and Supreme Court decisions up to 03 Aug 2025. This is general information, not legal advice.
1. Definitions
| Instrument | Working definition | Common issuers |
|---|---|---|
| Notice of Collection | An informal written reminder that an account is past-due and that payment is requested. It is primarily informational and does not necessarily place the debtor in legal default. | Internal collection departments, third-party collection agencies, banks’ consumer-finance units |
| Demand Letter (Extrajudicial Demand) | A formal written demand that (a) identifies the obligation, (b) declares the debtor in default if payment is not made within a stated period, and (c) usually warns of legal action. It constitutes extrajudicial demand under Art. 1169 of the Civil Code. | Lawyers, in-house counsel, collection agencies acting through counsel |
2. Governing Legal Framework
Civil Code of the Philippines
- Art. 1159 – Obligations must be complied with in good faith.
- Art. 1169 – In obligations to pay money, delay begins only from judicial or extrajudicial demand, unless exempted.
- Art. 1170–1171 – Fraud and negligence in performance give rise to damages.
- Art. 2209 – Interest for default is payable only if (a) stipulated or (b) expressly demanded and later judicially adjudged.
Supreme Court Jurisprudence
- Llorente v. Sandiganbayan, G.R. No. 122166 (Apr 22 1999) – Extrajudicial demand may be in writing or by unequivocal oral demand.
- Spouses Abella v. Spouses Abella, G.R. No. 191699 (Nov 12 2012) – A lawyer’s demand letter sufficed to put debtor in default; subsequent suit filed after 15-day grace period.
- Unicol Finance Corp. v. Spouses Soriano, G.R. No. 216487 (Jan 18 2022) – Collection letters from a non-lawyer agency did not qualify as legal demand; default counted only upon counsel’s demand.
Special Laws & Regulations
- BSP Circular 1133 (2022) – Fair Debt Collection Practices for BSP-Regulated Entities: distinguishes “simple reminders” from “formal demand letters” and requires a 3-day notice before any home/office visit.
- SEC Memorandum Circular 18-2019 (Financing and Lending Companies) – Outlines prohibited harassment and requires companies to issue written demand before reporting to credit bureaus.
- Data Privacy Act (RA 10173) – Limits disclosure of debtor information in notices/demands.
3. Key Distinctions
| Aspect | Notice of Collection | Demand Letter |
|---|---|---|
| Purpose | Reminder, request for voluntary payment | Place debtor in legal default; preserve right to sue & collect interest/damages |
| Legal Effect | Generally none; delay (mora) does not automatically begin | Constitutes extrajudicial demand → debtor in default once period lapses |
| Content Requirements | Account details, amount due, payment channels | Full account details, legal basis, specific deadline, consequences (suit, interest, foreclosure), often notarized |
| Formality | Often templated, unsigned or signed by collection supervisor | Usually on law-office letterhead, signed by counsel, may be notarized, sometimes accompanied by proof of authority |
| Timing | Sent soon after account becomes past-due (e.g., 1-30 days) and may be repeated periodically | Typically sent after internal collection fails (e.g., 60-90+ days) and before filing civil action or initiating foreclosure |
| Regulatory Notes | Must comply with BSP/SEC consumer-protection rules on call frequency, disclosure, privacy | Same rules apply plus legal service requirements if used to interrupt prescriptive period |
| Effect on Prescription | Does not interrupt running of prescription period | Yes – Written demand interrupts prescription under Art. 1155 (if acknowledged) |
| Consequences of Ignoring | Additional reminders, collection calls, possible credit-bureau reporting | Accrual of legal (penal) interest, attorney’s-fees exposure, lawsuit, asset seizure |
4. Procedural Flow in Practice
graph TD
A[Loan goes past due] --> B[Notice of Collection(s)]
B -->|Voluntary Payment| Z[Account cured]
B -->|No Payment| C[Demand Letter (15-30-day deadline)]
C -->|Payment/Restructuring| Z
C -->|Ignored| D[Creditor initiates legal remedies]Legal remedies after demand may include:
- Civil action to collect sum of money;
- Real-estate mortgage foreclosure (Rule 68, Rules of Court);
- Chattel mortgage foreclosure (Act No. 1508);
- Replevin for movable collateral;
- Small-claims suit (A.M. No. 08-8-7-SC) if ₱400 000 or less.
5. Practical Drafting Tips
| For Creditors | For Debtors |
|---|---|
| Use clear hierarchy: reminder → final notice → demand. | Treat any letter from a lawyer as potential pre-litigation—respond promptly. |
| In a demand letter, cite specific contract clauses and Civil Code articles. | Ask for account reconciliation if amounts seem inflated (BSP circular allows this). |
| Give a reasonable period (commonly 15 days) for compliance; courts frown on “48-hour” ultimatums unless contract so stipulates. | If disputing the debt, send a written reply; failure to protest may be taken as implied admission. |
| Attach statement of account & computation of interest to avoid later challenges. | Keep copies; they are crucial if you raise payment as defense or seek restructuring. |
| Avoid language deemed “harassing” under BSP/SEC rules (e.g., threats of imprisonment). | Beware of pseudo-lawyer “final” notices; verify sender’s authority and bar number. |
6. Frequently Asked Questions
Is a notice of collection required before a demand letter? No. The Civil Code requires only a demand (judicial or extrajudicial) to constitute default. However, regulators encourage a graduated approach to avoid harassment allegations.
Can a collection agency issue a valid demand letter? Yes, if it is issued through a licensed attorney or accompanied by a special power of attorney from the creditor. Otherwise, courts may treat it as mere notice.
Does email suffice for demand? Philippine jurisprudence recognizes electronic demand if it is received and its authenticity is undisputed (Act No. 8792, E-Commerce Act; Air France v. Carrascoso principles). Best practice is to send both hard copy (registered mail or personal service) and email.
What if the contract waived demand? Certain contracts (e.g., “failure to pay any installment automatically puts debtor in default without need of demand”) are valid; in such cases, even a notice of collection could be superfluous. But creditors still send demand letters to strengthen evidentiary record.
7. Case Law Capsule
| Case | G.R. No. / Date | Held |
|---|---|---|
| Rubia v. Gulmatico | 120103 / Aug 17 1999 | Default counted only upon written demand served at debtor’s last known address. |
| Sps. Gojeo v. Clark Development Corp. | 190445 / Nov 19 2014 | A faxed demand letter from counsel validly interrupted prescription. |
| F.F. Cruz & Co. v. Brillante | 184712 / Jun 15 2016 | Multiple reminder letters did not equal extrajudicial demand; interest began only at receipt of formal demand. |
8. Best-Practice Checklist (Creditor Side)
- Confirm contractual grace period has lapsed.
- Send at least one notice of collection (SMS, email, or letter) in compliance with consumer-protection rules.
- Prepare demand letter on counsel’s letterhead: cite loan, amount, due date, default clause, deadline.
- Attach SOA & computation.
- Serve via (a) personal delivery with acknowledgment, or (b) registered mail with return card, plus email for speed.
- Wait out deadline before filing case; document attempts at settlement.
9. Conclusion
In Philippine debt practice, a notice of collection is an early, usually low-stakes reminder aimed at voluntary payment, while a demand letter is a formal legal act that triggers default, interrupts prescription, and sets the stage for litigation or foreclosure. Creditors should use both tools strategically and compliantly, and debtors should treat a demand letter as a decisive warning to settle, negotiate, or prepare a defense. Mastery of these distinctions helps manage risk, uphold consumer rights, and streamline the resolution of credit disputes.
If you need tailored advice on a specific debt situation, consult a Philippine lawyer who can analyze your documents and circumstances.