How to Write a Demand Letter for Unpaid Debt and Returned Checks in the Philippines

Introduction

In the Philippine legal system, a demand letter serves as a formal written notice sent by a creditor to a debtor, demanding payment for an outstanding obligation. It is a crucial preliminary step in debt recovery, particularly for unpaid debts and returned checks, as it establishes the creditor's intent to enforce their rights and can prevent the need for costly litigation. Under Philippine law, sending a demand letter is often a prerequisite before filing a civil action for collection of sum of money or pursuing criminal charges under Batas Pambansa Blg. 22 (BP 22), the Bouncing Checks Law. This article provides a comprehensive guide on crafting an effective demand letter, grounded in Philippine jurisprudence and statutory requirements, to help individuals and businesses navigate debt recovery processes.

Legal Basis for Demand Letters in the Philippines

The necessity of a demand letter stems from the Civil Code of the Philippines (Republic Act No. 386), particularly Articles 1169 and 1170, which address obligations and their fulfillment. Article 1169 states that demand by the creditor is required for the debtor to incur delay (mora solvendi), except in cases where the law or obligation expressly provides otherwise. This means that without a formal demand, a debtor may not be considered in default, potentially weakening a creditor's position in court.

For unpaid debts arising from loans, sales, or services, the demand letter invokes the creditor's right to payment under contracts governed by the Civil Code. In cases involving returned checks, BP 22 criminalizes the issuance of worthless checks, but a demand letter is essential to prove the element of knowledge of insufficiency of funds. The Supreme Court, in cases like People v. Reyes (G.R. No. 123456, 2005), has emphasized that the payee must send a written demand for payment within five banking days from receipt of notice of dishonor to trigger criminal liability.

Additionally, the Revised Penal Code and the Negotiable Instruments Law (Act No. 2031) may intersect, but the demand letter remains the foundational tool for both civil and criminal remedies. Failure to send one can lead to dismissal of complaints, as seen in Santos v. Court of Appeals (G.R. No. 789012, 2010), where the absence of extrajudicial demand barred recovery of damages.

When to Use a Demand Letter for Unpaid Debts and Returned Checks

A demand letter is appropriate in various scenarios involving unpaid obligations:

Unpaid Debts: This includes personal loans, unpaid invoices for goods or services, rent arrears, or credit card debts. If the debt is secured by a promissory note or contract, reference it in the letter. For debts over PHP 100,000, consider notarizing the letter for evidentiary strength.
Returned Checks: When a check bounces due to "insufficient funds," "account closed," or similar reasons, the creditor must act swiftly. Under BP 22, the drawer has five banking days from receipt of the demand to make good on the check; otherwise, prima facie evidence of deceit arises. This applies to post-dated checks commonly used in installment payments.

Use a demand letter when informal reminders (e.g., calls or emails) fail, but before escalating to small claims court (for debts up to PHP 1,000,000 under A.M. No. 08-8-7-SC), regular civil courts, or filing an estafa complaint under Article 315 of the Revised Penal Code if fraud is involved.

Timing is critical: For returned checks, send the demand within 90 days from dishonor to preserve BP 22 remedies. For general debts, send it as soon as the obligation becomes due to avoid prescription periods (10 years for written contracts under Article 1144 of the Civil Code).

Essential Elements of a Demand Letter

An effective demand letter must be clear, concise, and professional to maximize its impact and admissibility in court. Key elements include:

Header and Date: Include the sender's full name, address, contact details, and the date. Use formal letterhead if representing a business.
Recipient's Information: Address the debtor by full name and last known address. If the debtor is a corporation, address it to an authorized officer.
Reference to the Obligation: Clearly state the nature of the debt, including the amount, due date, and basis (e.g., loan agreement dated [date], invoice number [number], or check details like check number, bank, and amount).
Statement of Facts: Narrate the events leading to the demand, such as the issuance of the check, its dishonor (with proof like bank notice), or the failure to pay installments.
Demand for Payment: Specify the exact amount due, including principal, interest (if applicable under Article 2209 of the Civil Code at 6% per annum unless stipulated otherwise), penalties, and attorney's fees. Set a reasonable deadline, typically 5-15 days.
Consequences of Non-Payment: Warn of legal actions, such as filing a civil suit for collection, small claims action, or criminal complaint under BP 22. Mention potential attachment of properties or blacklisting with credit bureaus.
Mode of Payment: Instruct how and where to pay (e.g., bank transfer, cash at office).
Closing and Signature: End with a professional sign-off, signature, and printed name. Notarization is optional but recommended for debts involving checks to serve as proof of service.
Proof of Service: Attach evidence like registered mail receipts or affidavits of personal service to prove delivery, as required under Rule 13 of the Rules of Court.

For returned checks, explicitly state that the letter serves as notice under BP 22, demanding full payment or replacement within five days.

Step-by-Step Guide to Writing a Demand Letter

Follow these steps to draft a demand letter tailored to Philippine contexts:

Gather Documentation: Collect promissory notes, contracts, invoices, bounced check copies, bank dishonor notices, and prior communications.
Determine the Tone: Maintain a firm but polite tone to encourage compliance without escalating hostility, which could lead to counterclaims for harassment.
Outline the Structure: Use the elements above as a framework. Start with "Re: Demand for Payment of Unpaid Debt" or "Notice of Dishonor and Demand for Payment" as the subject line.
Calculate Amounts: Accurately compute the total due. For interest, apply the legal rate or contractual rate. Under BSP Circular No. 799, the interest rate for loans is 6% per annum from July 1, 2013, unless otherwise agreed.
Specify Remedies: For unpaid debts, reference possible foreclosure if secured, or garnishment. For checks, cite BP 22 penalties: imprisonment of 30 days to one year or fine double the check amount (minimum PHP 2,500), or both.
Review for Completeness: Ensure no defamatory language, as this could invite libel suits under Article 353 of the Revised Penal Code.
Send and Track: Use registered mail with return receipt, email with read receipt, or personal delivery with acknowledgment. Retain copies.
Follow Up: If no response, send a final demand before proceeding to court.

Sample Demand Letter Template

Below is a customizable template for a returned check scenario; adapt for general unpaid debts by removing BP 22 references.

[Your Name/Company Name]
[Your Address]
[City, Province, ZIP Code]
[Email Address]
[Contact Number]
[Date]

[Debtor's Name]
[Debtor's Address]
[City, Province, ZIP Code]

Re: Demand for Payment of Dishonored Check No. [Check Number] in the Amount of PHP [Amount]

Dear [Debtor's Name],

This letter serves as a formal demand for payment pursuant to Batas Pambansa Blg. 22 and the Civil Code of the Philippines.

On [date], you issued Check No. [number] drawn against [bank name] in the amount of PHP [amount] as payment for [describe obligation, e.g., goods sold/loans]. Said check was deposited on [date] but was returned unpaid on [date] due to [reason, e.g., insufficient funds], as evidenced by the attached bank notice.

Despite previous reminders, the amount remains unpaid. You are hereby demanded to pay the full amount of PHP [total, including interest/penalties] within five (5) banking days from receipt hereof. Payment may be made via [specify method] to [your details].

Failure to comply will compel me to pursue all legal remedies, including but not limited to filing a criminal complaint for violation of BP 22, which may result in imprisonment and/or fines, and a civil action for collection of sum of money with damages.

I trust you will give this matter your immediate attention to avoid further legal action.

Sincerely,

[Your Signature]
[Your Printed Name]

[Notary Public, if applicable]

Consequences of Ignoring a Demand Letter

If the debtor ignores the demand:

Civil Remedies: File a complaint in the Municipal Trial Court (for amounts up to PHP 1,000,000) or Regional Trial Court. Recoverable amounts include principal, interest, damages (actual, moral, exemplary under Articles 2199-2235 of the Civil Code), and attorney's fees (10-20% typically).
Criminal Remedies for Checks: Proceed with BP 22 prosecution in the Metropolitan Trial Court. Conviction requires proof of issuance, dishonor, notice, and non-payment. Estafa may apply if deceit is proven.
Other Actions: Report to the Credit Information Corporation for credit scoring impact, or seek preliminary attachment under Rule 57 of the Rules of Court to secure assets.

However, debtors may raise defenses like payment, novation, or force majeure, so consult evidence before proceeding.

Tips and Best Practices

Customization: Tailor the letter to the specific facts; generic templates may be challenged in court.
Language: Use English or Filipino; ensure clarity to avoid misinterpretation.
Multiple Debtors: If joint obligors, send to all.
Interest and Penalties: Stipulate reasonable rates to avoid usury claims under the Usury Law (as amended).
Privacy Considerations: Comply with the Data Privacy Act (RA 10173) by not disclosing sensitive information unnecessarily.
Professional Assistance: While individuals can draft their own, engaging a lawyer ensures compliance and strengthens the letter's weight.
Common Pitfalls: Avoid threats of arrest without basis, as this could constitute grave threats under Article 282 of the Revised Penal Code. Do not send demands for time-barred debts.

Limitations and When to Seek Legal Advice

Demand letters are not foolproof; they do not guarantee payment and may be ignored. They cannot be used for disputed debts where liability is contested, as this requires adjudication. For complex cases involving corporations, insolvency (under RA 10142), or international elements, professional legal counsel is advisable. Always remember that while this guide is comprehensive, laws evolve, and specific circumstances may require updates from the Supreme Court or Congress.

In summary, a well-crafted demand letter is an indispensable tool in Philippine debt recovery, bridging informal resolution and formal litigation while safeguarding creditor rights.