In the Philippines, many financial transactions—especially between friends, family, or small business partners—are conducted through "handshake deals" or verbal agreements. While a written contract is the gold standard for evidence, the absence of one does not extinguish the legal obligation of a debtor to pay.

Under Philippine law, a contract exists the moment there is a meeting of the minds between two parties, where one binds himself to give something or to render some service.

1. The Legal Basis: Are Verbal Agreements Valid?

According to Article 1356 of the Civil Code of the Philippines, contracts shall be obligatory in whatever form they may have been entered into, provided all essential requisites for their validity are present:

Consent of the contracting parties;
Object certain which is the subject matter of the contract;
Cause (Consideration) of the obligation which is established.

While certain contracts (like the sale of real property or those covered by the Statute of Frauds) must be in writing to be enforceable in a large-scale court action, a simple loan (mutuum) remains a valid obligation even if verbal.

2. The Hurdle: The Statute of Frauds

Article 1403 (2) of the Civil Code contains the "Statute of Frauds." This rule requires certain agreements to be in writing to be enforceable by a court action, specifically:

An agreement that by its terms is not to be performed within a year from the making thereof.
A special promise to answer for the debt, default, or miscarriage of another (guaranty).

However, the Statute of Frauds only applies to executory contracts (those not yet started). If you have already handed over the money, the contract is "partially executed," and the Statute of Frauds generally no longer applies. You can prove the debt through other means.

3. Alternative Evidence to Prove the Debt

Without a formal notarized deed or promissory note, the creditor must gather "circumstantial" or secondary evidence to prove the existence of the loan:

Digital Trail: SMS messages, Facebook Messenger threads, Viber chats, or emails where the debtor acknowledges the debt or asks for an extension.
Proof of Transfer: Deposit slips, GCash or Maya transaction receipts, bank transfer screenshots, or cleared checks.
Witness Testimony: Statements from third parties who were present when the money was handed over or when the verbal agreement was made.
Partial Payments: If the debtor paid a small amount previously, the receipt or record of that payment serves as an admission that a debt exists.

4. The Procedural Route: Where to File

A. Small Claims Cases

If the debt does not exceed PHP 1,000,000.00 (exclusive of interest and costs), the most efficient route is a Small Claims case.

No Lawyers Allowed: You cannot bring a lawyer to the hearing. This levels the playing field and reduces costs.
Speed: These cases are resolved quickly, often in one hearing.
Evidence: You simply fill out a "Statement of Claim" and attach whatever proof you have (screenshots, etc.).

B. Barangay Conciliation

Before filing in court, the Local Government Code usually requires parties living in the same city or municipality to undergo mediation at the Barangay level (Katarungang Pambarangay). If no settlement is reached, the Lupong Tagapamayapa will issue a Certificate to File Action, which is a prerequisite for court intervention.

C. Collection of Sum of Money

If the debt exceeds the Small Claims limit, a formal civil case for "Collection of Sum of Money" must be filed in the Municipal Trial Court or Regional Trial Court, depending on the amount. This will require the assistance of legal counsel.

5. Potential Defenses of the Debtor

A debtor might attempt to argue that the money was a gift (donation) rather than a loan. Under Philippine law, a donation of movable property (cash) exceeding PHP 5,000.00 must be in writing to be valid. If there is no writing and the amount is high, the "gift" defense often fails, and the court may lean toward it being a loan to prevent "unjust enrichment" at the creditor's expense.

6. Important Reminders on Interest

Under Article 1956 of the Civil Code, "No interest shall be due unless it has been expressly stipulated in writing."

If your agreement was purely verbal, you cannot legally demand 5% or 10% monthly interest.
You can, however, demand legal interest (currently 6% per annum) as compensatory damages once the debtor falls into "legal delay" (usually after a formal demand letter is sent and ignored).

Summary of Action Steps

Demand Letter: Send a formal, written demand letter via registered mail. This proves the debtor is in "default."
Gather Records: Print all chat logs and bank transfers.
Barangay: Seek mediation to get a settlement or a certificate to sue.
Small Claims: File the case in the Metropolitan or Municipal Trial Court of the city where you (or the debtor) reside.