I. Overview

In the Philippines, unpaid debts are primarily a civil matter governed by the Civil Code, not criminal law. When a debtor signs a payment agreement (often a promissory note, acknowledgment of debt, or compromise agreement) before a lawyer—especially if it is notarized—that document becomes a powerful tool for the creditor to enforce payment.

This article explains, in Philippine context, how such agreements work, what legal weight they carry, how to enforce them in and out of court, the defenses available to the debtor, and practical tips for both parties.

II. Nature of the Payment Agreement

A “payment agreement” for unpaid debt signed before a lawyer is usually one of the following:

Promissory Note – A written promise to pay a definite sum at a certain time or in installments.
Acknowledgment of Debt / “Kasunduan sa Pagbabayad” – A document where the debtor admits owing a certain amount and commits to pay under agreed terms.
Compromise Agreement – Parties settle an existing dispute or potential lawsuit by agreeing on how the debt will be paid, often to avoid litigation.

Legally, these are typically contracts of loan or novations (a restructuring or replacement of an old obligation with a new one) under the Civil Code.

To be valid, they must have the basic elements of a contract:

Consent – The debtor voluntarily agrees.
Object – A determinate or determinable sum of money.
Cause – The underlying reason (e.g., money already borrowed, goods received, prior obligation being settled).

III. Role of the Lawyer and Notarization

When the document is signed before a lawyer, there are two common scenarios:

Lawyer as witness/drafter only
- The lawyer prepares the document and witnesses the signing, but does not notarize it.
- The agreement remains a private document—valid and enforceable, but with lesser evidentiary weight than a notarized one.
Lawyer as Notary Public
- The lawyer notarizes the document, turning it into a public document.
- Legal effects of notarization:
  - The document is presumed to have been duly executed and authentic.
  - It is admissible in court without further proof of its due execution (subject to challenge).
  - It carries strong evidentiary weight, making it harder for the debtor to deny having signed or accepted its contents.

Even without notarization, the agreement is still enforceable between the parties. Notarization mainly affects proof, not existence of the obligation.

IV. Common Contents of a Payment Agreement

A well-drafted agreement typically includes:

Parties’ details – Full names, addresses, sometimes IDs.
Clear acknowledgment of the debt – Amount due and origin (e.g., “loaned on [date]”).
Payment terms
- Lump sum or installments (frequency and dates).
- Mode of payment (cash, bank transfer, online, post-dated checks).
Interest
- Stipulated interest rate, if any.
- Must be expressly agreed and not unconscionable; otherwise, courts can reduce or apply legal interest only.
Penalty / Late payment charges
- Additional percentage or fee for late payments.
- Courts may reduce excessive or iniquitous penalties.
Acceleration clause
- If debtor defaults on an installment, entire remaining balance becomes immediately due and demandable.
Security/Collateral (if any)
- Chattel mortgage over personal property, real estate mortgage, or guarantee by another person.
Venue and governing law
- Agreement that any dispute will be filed in a specific court (must still comply with Rules of Court).
Attorney’s fees and costs
- Stipulation that if the creditor is forced to sue, debtor will pay attorney’s fees and litigation costs.
Notarization clause
- If notarized, there is an acknowledgment section signed by the notary public.

V. Legal Effects and Strength of the Agreement

If validly executed:

The debtor’s acknowledgment of debt is strong evidence of obligation.
The debtor is in default once they fail to pay as agreed, especially after demand.
The agreement may serve as basis of a complaint in court for a:
- Sum of money (ordinary civil action), or
- Small claims case (if the amount and nature of the claim falls within small claims rules).

A notarized agreement with clear terms often makes litigation simpler and faster because many facts are already documented.

VI. Pre-Litigation Enforcement Options

Before going to court, a creditor should usually exhaust out-of-court remedies.

1. Friendly Demand and Negotiation

Remind the debtor (calls, messages, meetings).
Offer restructuring (extension, lower installment, temporary interest adjustment).
Document any new agreements in writing—possibly as a revised or additional “Kasunduan.”

2. Formal Demand Letter

A lawyer’s demand letter is usually the first serious legal step. It typically:

States the amount owed and basis (payment agreement).
Refers to debt’s due date and debtor’s failure to pay.
Gives a specific deadline to pay (e.g., 5–15 days).
States that failure to pay will result in legal action at debtor’s expense.

Legal effects:

Places the debtor in delay (mora) if they were not already in default.
May start the computation of interest and penalties.
Shows the court that the creditor acted in good faith and tried to settle.

VII. Barangay Conciliation Requirement (Katarungang Pambarangay)

For many money claims, Philippine law requires prior barangay conciliation before going to court.

You generally need to go through Lupong Tagapamayapa (Barangay Justice System) if:

Both parties are natural persons (not corporations) who reside in the same barangay or same city/municipality (or if one resides in a barangay adjoining the other); and
The dispute is not among those exempted (e.g., offenses punishable by imprisonment above a certain level, disputes involving government, parties living in different cities/municipalities, etc.).

If required, the barangay will:

Summon both parties.
Try to mediate and conciliate.
If settlement is reached:
- A written settlement is prepared and signed.
- Once not repudiated within the period allowed by law, it has the force and effect of a final judgment and is directly enforceable.
If no settlement:
- Barangay issues a Certification to File Action, which is required to file a case in court.

Failure to undergo mandatory barangay conciliation (when required) can lead to dismissal of the case for lack of prior recourse.

VIII. Judicial Remedies: Enforcing the Agreement in Court

If the debtor still does not pay, the creditor may file a civil action.

1. Small Claims Case

If the money claim is within the jurisdictional amount for small claims (which is periodically updated by Supreme Court rules), and the nature of the claim qualifies (purely money claim, not criminal), the creditor may file a small claims case in the first-level courts.

Features:

No lawyers appear in court (parties represent themselves, though they may consult a lawyer before filing).
Simple forms and relatively quick resolution.
Judgment is immediately final and unappealable (though some extraordinary remedies might exist in rare cases).

The payment agreement and any acknowledgment of debt form the primary evidence.

2. Ordinary Civil Action (Complaint for Sum of Money)

If the amount exceeds small claims limit or does not qualify, creditor files a complaint for sum of money:

Filed in the proper Metropolitan/Municipal Trial Court or Regional Trial Court depending on amount involved.
Venue is usually:
- where plaintiff (creditor) resides; or
- where defendant (debtor) resides; or
- as agreed in the venue clause, if valid.

Process:

Filing of Complaint attaching the payment agreement and demand letter.
Court issues summons to the debtor.
Debtor files an Answer, possibly raising defenses.
Pre-trial conference, mediation, and possibly judicial settlement.
If no settlement, trial where both sides present evidence.
Judgment:
- If creditor wins, the court orders debtor to:
  - pay principal,
  - plus interest,
  - plus penalties (if reasonable),
  - plus costs and possibly attorney’s fees.

IX. From Judgment to Actual Payment: Execution

A favorable judgment does not automatically translate into money; it must be executed if debtor still does not pay voluntarily.

Steps:

Motion for Execution
- After judgment becomes final and executory, creditor moves for a writ of execution.
Issuance of Writ of Execution
- Court issues a writ directing the sheriff to satisfy the judgment from the debtor’s properties.
Modes of Execution
- Levy on personal property
  - Sheriff seizes debtor’s non-exempt personal properties (vehicles, equipment, etc.) for auction.
- Levy on real property
  - Sheriff records levy on debtor’s real estate and sells it at public auction, subject to redemption rules.
- Garnishment
  - Court orders banks or other entities holding debtor’s money or debts owed to debtor to turn them over to satisfy the judgment (e.g., bank accounts, receivables, a portion of salary).
- Examination of Judgment Debtor
  - Court may summon the debtor to disclose assets and income sources.
Third-Party Claims and Exempt Properties
- Third parties may claim property levied is not the debtor’s.
- Certain properties may be exempt from execution (e.g., some necessary clothing, tools for trade, etc., subject to legal limits).

X. Criminal Aspects: When Non-Payment Becomes a Crime

Mere failure to pay a debt is generally not a crime in the Philippines. However, certain acts related to the debt may give rise to criminal liability, such as:

Estafa (Swindling)
- If the debtor obtained money through fraud, deceit, or abuse of confidence, or misappropriated property entrusted to them, it could be estafa.
- The civil contract and payment agreement can be evidence of the relationship, but the essence is fraud, not simple non-payment.
Bouncing Checks (B.P. 22)
- If payment was made by check that bounced for lack of funds or closed account, the debtor may face a criminal case under Batas Pambansa Blg. 22, separate from the civil action.
- This is not about the loan itself, but about issuing a worthless check.

Creditors should be cautious not to use criminal complaints as a harassment tool when the real issue is simply inability to pay without fraud.

XI. Possible Defenses of the Debtor

Even with a signed agreement, the debtor still has possible legal defenses, including:

Lack of consent or vitiated consent
- Coercion, intimidation, undue influence, or fraud.
Invalidity of the contract
- Illegal cause or object; simulation of contract; incapacity of parties (e.g. minor, mentally incompetent).
Alteration or forgery
- Signature was forged; document was altered after signing.
Lack of consideration
- No money was actually received; obligation already extinguished.
Payment already made (total or partial)
- Debt satisfied earlier; creditor refuses to issue receipt. Proof can be bank deposits, receipts, messages, etc.
Compensation (Set-off)
- Creditor also owes debtor; mutual debts may be compensated under the Civil Code.
Prescription (Statute of Limitations)
- Actions based on written contracts generally prescribe after 10 years from when the cause of action accrues (e.g., date of default or date of demand, depending on terms).
- If too much time has passed, debtor may invoke prescription.
Novation
- A later agreement replaced the original; the creditor is enforcing the wrong or extinguished obligation.

Courts will examine these defenses based on evidence.

XII. Prescription and Interruptions

Prescription period for enforcing the payment agreement:

For written agreements, the general rule is 10 years from when the right of action accrues.
Actions can be interrupted, restarting the prescriptive period, by:
- Filing a case in court.
- Written extrajudicial demand by the creditor.
- Written acknowledgment of debt by the debtor (including new payment agreements, partial payments clearly acknowledging the debt).

This is why creditors often seek a new signed agreement or acknowledgment when restructuring: it can reset prescription and strengthen proof.

XIII. Special Situations

1. Corporate or Business Debtors

If the debtor is a corporation, barangay conciliation usually does not apply.
Enforcement is through regular court processes.
Corporate officers may be liable only if there are specific grounds (e.g., personal guarantee, fraud, B.P. 22 for corporate checks).

2. Co-Debtors and Guarantors

The agreement may include co-makers, sureties, or guarantors.
A solidary co-debtor or surety can be made to pay the whole amount directly.
A simple guarantor may only be liable after creditor first tries to collect from the principal debtor, unless that benefit is waived.

3. Death of the Debtor

The obligation generally passes to the debtor’s estate, not personally to heirs.
Creditor may file a claim against the estate during settlement of the estate in court.
The estate’s liability is limited to the assets left by the deceased.

4. Assignment of Credit

Creditor may assign the credit (sell or transfer it) to another person or entity, who then assumes the right to collect, subject to proper notice to the debtor.

XIV. Practical Tips for Creditors

Get everything in writing
- Ensure the debtor signed the agreement and, if possible, have it notarized.
- Attach any supporting documents (receipts, original loan terms).
Be clear with terms
- Amount due, due dates, interest rate, penalties, and consequences of default should be specific.
Use reasonable interest and penalties
- Courts may strike down unconscionable charges and reduce them. Reasonable, clearly stated terms are more likely to be enforced.
Keep records
- Save copies of the agreement, receipts, demand letters, and all communications.
- Keep proof of sending the demand (registered mail, courier, email with acknowledgment).
Observe mandatory barangay conciliation
- If applicable, go to the barangay first and secure the Certification to File Action when no settlement is reached.
Act within prescriptive periods
- Don’t wait too long; enforce your rights while evidence and witnesses are still available.

XV. Practical Tips for Debtors

Read before you sign
- Understand the interest, penalties, and consequences.
- Ask the lawyer to explain in simple terms.
Negotiate realistic terms
- Only commit to amounts and schedules you can reasonably pay.
- Ask for restructuring if your situation changes—and document it.
Keep proof of payments
- Always demand a receipt or written acknowledgment.
- For digital payments, keep screenshots or transaction records.
Communicate early
- If you can’t pay on time, talk to the creditor before default.
- Courts look more favorably on debtors who act in good faith.
Be aware of your defenses
- If you believe you didn’t actually receive money, or the document was altered, or you were forced, consult a lawyer promptly.

XVI. Conclusion

A payment agreement for unpaid debt signed before a lawyer in the Philippines is a powerful legal instrument. Properly drafted and, ideally, notarized, it serves as strong evidence of the debt and its terms, and greatly facilitates enforcement through barangay conciliation, small claims, or ordinary civil actions.

For creditors, it provides a clear roadmap toward eventual payment, including court enforcement and execution if necessary. For debtors, it can formalize a realistic payment plan and avoid harsher remedies—provided they understand the terms and comply in good faith.

Because details such as interest limits, small claims thresholds, and procedural rules evolve over time, anyone facing a significant debt issue—whether as creditor or debtor—should strongly consider consulting a Philippine lawyer to review their specific documents and circumstances.