In the Philippine legal landscape, the Revised Rules of Procedure for Small Claims Cases (A.M. No. 08-8-7-SC) provide an expedited and inexpensive means of recovering debts. However, a common point of confusion arises for creditors when a debt has ballooned due to interest: Can a case still be filed in Small Claims if the total amount, including interest, exceeds the jurisdictional cap?

Furthermore, debtors often question whether they are still liable to be sued when the total interest they have already paid exceeds the original amount borrowed.

1. Jurisdictional Thresholds and the "Principal" Rule

The primary factor determining whether a case qualifies for Small Claims is the Total Amount of the Claim. As of the most recent updates by the Supreme Court, the jurisdictional limit for Small Claims in Metropolitan Trial Courts (MeTCs), Municipal Trial Courts in Cities (MTCCs), Municipal Trial Courts (MTCs), and Municipal Circuit Trial Courts (MCTCs) is P1,000,000.00.

The Components of a Claim

When calculating whether a claim falls within the P1,000,000.00 limit, the court looks at the total demand at the time of filing. This includes:

The Principal amount borrowed.
Accrued Interest.
Penalties and liquidated damages.

Legal Reality: If the principal is P400,000.00 but the accumulated interest is P700,000.00, the total claim is P1,100,000.00. This exceeds the Small Claims limit, and the case must be filed as a regular civil action, which involves formal trial procedures and lawyers.

2. The Impact of Payments Exceeding the Principal

A common defense raised by debtors is the "Equitable Argument"—the idea that since they have already paid back more than the principal (in the form of interest), the debt should be considered satisfied.

Under Philippine law, specifically the Civil Code, this defense rarely holds up unless the interest rates are proven to be "unconscionable."

Article 1253: If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered.
The Rule: Creditors have the legal right to apply payments to interest first. Even if the debtor has paid 200% of the principal in interest, the principal remains "unpaid" if the interest was due and validly applied.

3. The "Unconscionable Interest" Doctrine

While the Central Bank Circular No. 905 effectively removed the ceiling on interest rates (suspending the Usury Law), the Philippine Supreme Court has consistently ruled that excessive interest rates are void.

If a Small Claims judge finds that the interest rate—even if agreed upon in writing—is "iniquitous, unconscionable, or contrary to morals," they have the authority to:

Reduce the rate to a "fair" level (usually 6% to 12% per annum).
Re-compute the total debt.
Credit excess interest payments toward the principal balance.

Scenario	Legal Outcome
Contractual Interest is 5% per month	Likely declared unconscionable; the court will reduce it to 1% per month or 6% per annum.
Total Paid > Principal	If interest is reduced by the court, the "excess" interest paid is applied to the principal, potentially zeroing out the debt.

4. Procedural Essentials for Filing

To file a Small Claims case when interest is high, the creditor must follow specific procedural steps:

The Statement of Claim (Form 1-SCC): The creditor must clearly break down the Principal, Interest, and Penalties.
Verification and Certification against Forum Shopping: Standard in all filings.
Evidence of Debt: Promissory notes, contracts, or even screenshots of digital transfers/messages.
The No-Lawyer Rule: Small Claims is a "pro se" process. Lawyers are strictly prohibited from representing parties during the hearing. They may only act as consultants outside the courtroom.

5. Can a Creditor "Waive" Interest to Stay in Small Claims?

Yes. If the total claim (Principal + Interest) is P1,200,000.00, a creditor may choose to waive the P200,000.00 excess to bring the claim down to the P1,000,000.00 Small Claims limit. This is often a strategic move to ensure a faster resolution (usually decided in one day) rather than undergoing a years-long regular civil trial.

Warning: Once a portion of the claim is waived to meet the jurisdictional limit, the creditor is barred from suing for that waived portion in a separate case (splitting a single cause of action).

Summary of Key Points

Total Claim Matters: The P1M limit includes interest. If interest pushes the total over P1M, it is no longer a Small Claims case unless the excess is waived.
Principal Survival: Payments of interest do not automatically reduce the principal unless the interest rate is judicially declared unconscionable.
Judicial Discretion: Judges in Small Claims have the power to slash "predatory" interest rates regardless of the signed contract.