In the Philippine legal system, a formal Demand Letter is not merely a courtesy; it is often a mandatory legal instrument. It serves as the bridge between a private disagreement and a formal judicial proceeding. Under the Civil Code of the Philippines, the demand letter transitions a debtor from a state of simple non-payment to a state of legal delay (mora), which carries significant legal consequences.
1. Legal Basis: The Necessity of Demand
The primary governing law is Article 1169 of the Civil Code, which states:
"Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation."
Without a demand, the debtor is generally not considered in "legal delay," even if the due date has passed. This means interest may not begin to accrue, and the creditor cannot yet successfully file a collection case in court because the "cause of action" has not fully matured.
Exceptions to the Requirement
Demand is not necessary when:
- The obligation or the law expressly so declares.
- From the nature and the circumstances of the obligation, it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract (Time is of the essence).
- Demand would be useless, as when the obligor has rendered it beyond his power to perform.
2. Essential Elements of a Valid Demand Letter
To be legally effective and withstand scrutiny in court, a demand letter should contain the following specific details:
- Identity of the Parties: Clear names and addresses of both the creditor and the debtor.
- The Basis of the Debt: A brief description of the contract, loan agreement, or invoice that created the obligation.
- The Specific Amount Due: The principal amount plus any clearly computed interests or penalties.
- A Definite Period to Pay: A specific timeframe (e.g., "within five (5) days from receipt hereof") for the debtor to settle the obligation.
- The Consequence of Non-Compliance: A clear statement that failure to pay will result in legal action (civil or criminal, as applicable).
3. Modes of Service and Proof of Receipt
A demand letter is only effective if it is actually received by the debtor. Proving receipt is the most critical hurdle in a collection suit.
| Method of Service | Requirement for Proof in Court |
|---|---|
| Personal Service | A duplicate copy of the letter signed and dated by the debtor or a person of sufficient age/discretion at their residence/office. |
| Registered Mail | The Registry Receipt (issued by the Post Office) and the Return Card (signed by the recipient). |
| Private Courier | The tracking report and a signed delivery receipt from the courier service. |
| Electronic Mail | Admissible under the Rules on Electronic Evidence, provided the email's authenticity can be verified. |
4. Specific Requirements for Small Claims
For debts not exceeding PHP 1,000,000.00, the Revised Rules on Small Claims Cases apply. In these cases, the filing of a demand letter is a strictly enforced condition precedent. The court will often dismiss the case if the plaintiff cannot prove that a demand was made and that the defendant failed to comply.
5. Prohibited Practices: Fair Debt Collection
While creditors have the right to demand payment, they are constrained by Philippine laws against harassment and unfair practices.
SEC and BSP Regulations
The Securities and Exchange Commission (SEC) and the Bangko Sentral ng Pilipinas (BSP) have issued circulars (e.g., SEC Memorandum Circular No. 18, Series of 2019) to prevent "Unfair Debt Collection Practices." Prohibited acts include:
- Threats of Violence: Threatening physical harm to the debtor or their reputation.
- Obscene Language: Using insults or profane language to shame the debtor.
- Disclosure of Debt: Contacting the debtor's employer or family members about the debt (unless they are co-makers).
- False Representation: Falsely claiming to be a lawyer, a court official, or a government agency to intimidate the debtor.
6. Legal Consequences of the Demand Letter
Once a valid demand letter is served and the period to pay expires, the following legal effects occur:
- Accrual of Interest: If no interest rate was stipulated, the legal interest of 6% per annum begins to run from the date of extrajudicial demand.
- Transfer of Risk: In obligations to deliver a specific thing, the debtor becomes liable for "fortuitous events" (accidents) once they are in legal delay.
- Right to File Suit: The creditor may now file a Complaint for Sum of Money or, if a bounced check is involved, a criminal case for B.P. 22 (Bouncing Checks Law) or Estafa.
Note on B.P. 22: For criminal liability under the Bouncing Checks Law, a written notice of dishonor (a specific type of demand letter) is an absolute requirement. Without proof that the debtor received this notice and was given five (5) banking days to pay, the criminal case will fail.