Legal Action for Unpaid Debts: Demand Letters in the Philippine Setting
(A practitioner-oriented overview – July 2025)
Disclaimer – This material is for general information only and does not constitute legal advice. Statutes, rules and jurisprudence cited are current to 3 July 2025; always verify if later issuances have modified them.
1. Why Start with a Demand Letter?
- Civil-law default. Under Article 1169 of the Civil Code, a debtor is in delay (mora) only after the creditor “judicially or extrajudicially demands” performance, unless:
- the obligation or law fixes a date certain for performance;
- demand would be useless; or
- the debtor expressly or impliedly refuses to perform.
A written demand letter is therefore the safest way to place the debtor in legal default and to begin the clock for damages, interest and attorney’s fees (Arts. 1170–1171, 2209–2213).
- Condition precedent. In many forums the demand letter (or proof of attempts at amicable settlement) is an express requirement:
- Small Claims (A.M. 08-8-7-SC, as amended to 2023): a Certification of Non-Settlement or attested demand letter must accompany the Statement of Claim.
- Barangay conciliation (R.A. 7160, ch. VII): for parties who reside in the same city/municipality and claims ≤ ₱400 000, filing in court is barred until after barangay proceedings fail (§ 412).
- Collection agencies & financing companies: Sec. 4(b), SEC Memorandum Circular 18-2019 directs them to send a written demand before any collection visit or litigation.
- Proof and optics. A clear, courteous but firm demand letter often nudges a cooperative settlement, preserving business relationships and avoiding court costs.
2. Legal Foundations and Complementary Laws
| Topic | Key Provisions | Practical Note |
|---|---|---|
| Basic civil obligation | Civil Code Arts. 1159 ff. | Contract is law between parties; compliance in good faith. |
| Default & damages | Arts. 1169, 1170–1172, 2209–2213 | Default triggers 6 % p.a. compensatory interest (per Nacar v. Gallery Frames, G.R. 189871, 13 Aug 2013) unless rate stipulated. |
| Notarization | 2004 Rules on Notarial Practice | Converts private document into a public one – self-authenticating under Rule 132, §20. |
| Electronic service | E-Commerce Act (R.A. 8792) §§ 6–8 | Email demand valid if parties agreed to electronic communications or usage is “ordinary course of business.” |
| Bouncing checks | B.P. 22; estafa (Art. 315 2[d] RPC) | Separate criminal liability; Notice of dishonor is a statutory element distinct from civil demand. |
| Data privacy | R.A. 10173 | Disclose debtor’s personal data only on lawful, proportional grounds. |
| Harassment limits | R.A. 8484 (Credit Cards); SEC MC 18-2019 | Prohibits obscene language, late-night calls, threats of jail for mere debt. |
3. Core Elements of an Effective Demand Letter
- Heading and identity of parties – Full names, addresses, contract reference number or promissory note details.
- Statement of facts – When and how the obligation arose; maturity date; partial payments (if any).
- Precise amount – Principal, accrued interest, penalties, running interest per day/month; enclose computation sheet.
- Legal basis – Cite relevant contract clauses, invoice terms, Civil Code articles.
- Demand proper – Clear call to pay or perform within a definite period (customarily 5, 7, 10, or 15 days).
- Mode of payment – Bank details, office address, online portal.
- Consequences of default – Intent to file (a) small-claims or ordinary collection suit, (b) application for writ of replevin/attachment, and/or (c) criminal action if grounds exist (e.g., B.P. 22).
- Attorney’s fees and costs – Put debtor on notice that you will seek fees under Art. 2208/contract.
- Alternative dispute options – Offer compromise, restructuring, or mediation.
- Signature – Creditor or authorized counsel; include lawyer’s Roll number and IBP chapter.
- Notarization (optional but advisable).
4. Serving the Letter and Proving Service
| Mode | How to Prove | Practice Tips |
|---|---|---|
| Personal delivery | Signed acknowledgment copy or picture/video of actual receipt | Bring a witness or process server. |
| Courier / registered mail | Official receipt, airway bill, registry return card | Treat registry card as prima facie proof of receipt after five (5) days from delivery date (Rule 13, §15). |
| Server logs, read-receipt, print-out with hash, affidavit by IT custodian | Mention consent to e-correspondence in contract or prior course of dealing. | |
| Messenger apps | Screenshot plus affidavit; cross-reference to debtor’s verified number | Less orthodox—corroborate with another mode. |
5. Legal Effects After Due Date Expires
Debtor is in legal delay → liability for interest, damages, and litigation expenses attaches.
Interest computation
- If contractual rate: apply as stipulated; Supreme Court enforces unless unconscionable.
- If silent: 6 % p.a. from demand until full payment (Nacar rule).
Attorney’s fees – Courts may award if (a) contract so provides, or (b) debtor’s act/omission compelled litigation (Art. 2208).
Interruption of prescription – Extrajudicial demand interrupts prescriptive period (Art. 1155). Example: a written debt due 2017 normally prescribes in 2027; a 2025 demand restarts the 10-year clock to 2035.
Trigger for Small Claims filing – Attach demand letter and proof of service to Form 1-SC.
Barangay proceedings – Demand letter often annexed to Request for Mediation.
6. What If the Debtor Still Does Not Pay?
| Path | Jurisdictional Synopsis (as of 2025) | Key Requirements |
|---|---|---|
| Barangay mediation | Mandatory for intra-city parties & claims ≤ ₱400 000 | Exemptions: corporations, juridical entities, where one party is government, etc. |
| Small Claims | MTC/MCTC when principal + interest + penalties ≤ ₱400 000 | No lawyer-appearance allowed (except as friend). Judgment in 30 days, immediately executory. |
| Ordinary civil action (Sum of Money) | MTC: ≤ ₱2 million; RTC: > ₱2 million | Follows 2019 Amendments to Rules of Civil Procedure: mandatory mediation, JDR. |
| Provisional remedies | Attachment (Rule 57), Replevin (Rule 60), Garnishment | Requires affidavit showing debtor’s fraudulent intent or risk of dissipation. |
| Criminal case (B.P. 22 / Estafa) | MTC court of place of issuance/dishonor | Must serve Notice of Dishonor and allow 5-day grace before filing. |
7. Prescriptive Periods to Keep in Mind
| Nature of Debt | Prescription | Article / Law |
|---|---|---|
| Written contracts, promissory notes | 10 years | Civil Code 1144(1) |
| Oral contracts | 6 years | Art. 1145(1) |
| Quasi-contracts / unjust enrichment | 6 years | Art. 1145(2) |
| Demandable when debtor becomes solvent | 10 years from solvency | Art. 1150 |
| B.P. 22 offense | 4 years | Act 3326 |
Note: Extrajudicial demand suspends or tolls the running (Art. 1155).
8. Drafting Tips & Common Pitfalls
| Do | Why | Don’t | Why |
|---|---|---|---|
| Use professional tone | Courts frown on intimidating language | Threaten imprisonment for civil debt | May expose sender to criminal charges for grave threats/harassment |
| Give reasonable but firm deadline | Shows good faith; court may later award interest from expiry | Give open-ended “ASAP” demand | Ambiguous; hampers interest and delay computation |
| Itemize computations | Easier for debtor to verify and pay | Lump sums without breakdown | Debtor can claim surprise; brings issue of solutio indebiti |
| Attach supporting docs | Establishes basis and amount | Send bare letter with no records | Debtor can allege no knowledge |
9. Sample Outline
[Letterhead] Subject: Final Demand – ₱350 000 Promissory Note dated 01 Feb 2024
Dear Mr./Ms. __________:
- On 01 Feb 2024 you executed a Promissory Note in favor of ABC Corp. for ₱350 000, due on 01 Feb 2025.
- Despite repeated oral reminders, payment remains outstanding. Attached are (a) notarized Note, (b) SOA.
- DEMAND: Kindly remit ₱350 000 plus ₱17 500 contractual interest (5 % p.a.) and ₱5 000 penalty within seven (7) calendar days from receipt hereof, or not later than 11 July 2025, through BPI Account #### or at our office.
- Failing this, we are instructed to:
- file a Small Claims case under A.M. 08-8-7-SC;
- seek attachment of your deposits and movable assets; and
- pray for attorney’s fees equal to 10 % of the amount due, plus accruing legal interest at 6 % p.a. until satisfaction.
- Should you wish to discuss a payment plan, contact undersigned within the same period.
Very truly yours, [Signature of Counsel] Atty. Juan Dela Cruz, IBP No. ____ / PTR No. ____ / Roll No. ____ NOTARY PUBLIC
10. Frequently Asked Questions
Must the demand letter be notarized? Not legally required, but notarization elevates evidentiary weight and deters the debtor from denying receipt/signature.
Can I add collection charges beyond attorney’s fees? Yes, if stipulated in the loan/credit agreement and not unconscionable.
Will the debtor be jailed for ignoring the letter? Pure civil non-payment is not punishable by imprisonment (Constitution, Art. III §20). Criminal liability arises only under separate penal statutes (e.g., B.P. 22).
What if the debtor lives abroad? Serve through courier/email at last known PH address and abroad; for litigation, consider extraterritorial service under Rule 14 § 17 and enforcement via Rule 39 or the 2019 Hague Service Convention (PH acceded 1 Oct 2024).
May I post the demand publicly on social media? Risky – could violate Data Privacy Act and invite defamation claims.
11. Practical Timeline Checklist
| Day | Action |
|---|---|
| 0 | Draft & send demand letter (personal + registered mail + email) |
| 5–10 | Deadline lapses; compute interest from this date |
| 11–15 | Prepare barangay Request or Small Claims Statement, attach proof of service |
| 15–45 | Attend barangay/mediation; execute compromise or get Certificate to Sue |
| 45+ | File court action; consider provisional remedies with verified complaint |
12. Key Take-Aways
- A well-crafted, well-served demand letter is the linchpin of lawful debt recovery in the Philippines.
- It places the debtor in default, interrupts prescription, satisfies procedural prerequisites, and often triggers voluntary payment.
- Clarity, civility, and documentary support maximize its persuasive and evidentiary power while minimizing exposure to harassment claims.
- If ignored, the demand letter smooths the path to court – from barangay conciliation and small claims to full-blown civil suits and provisional remedies.
Handle each step methodically, keep detailed records, and seek qualified counsel for high-value or complex cases.