1) The situation: a “friendly loan” that turned into a dispute

In the Philippines, a personal loan to a friend is legally enforceable even if it began informally—cash handed over, a bank transfer, or funds sent through an e-wallet—so long as you can prove (a) money was delivered and (b) it was meant to be repaid (not a gift). The hard part in “friend loans” is usually not the law—it’s proof, paper trail, and process.

When repayment doesn’t happen, the typical escalation path is:

Document and compute what’s owed
Make a clear written demand (demand letter)
Barangay conciliation (when required)
Small Claims Court (if the amount qualifies) or a regular civil case
Enforcement (execution, garnishment, levy) if you win but the borrower still won’t pay

2) Legal foundation: what kind of “loan” is it?

Most personal money loans fall under simple loan (mutuum) under the Civil Code: you lend money; the borrower becomes owner of the money and must return the same amount, not the exact same bills.

Key consequences

The borrower’s obligation is to pay back the principal (the amount received).
Interest is not automatic. Under Philippine law, interest on loans must be expressly stipulated in writing to be collectible as “interest” (as opposed to damages interest—explained below).
Even if there is no written interest agreement, you may still recover legal interest as damages once the borrower is in delay (mora) after a proper demand, depending on circumstances.

3) Civil vs. criminal: nonpayment is usually a civil issue

A core principle in the Philippines is that imprisonment for debt is not allowed. That’s why mere failure to pay a loan is generally a civil matter, not a criminal one.

However, criminal liability may arise in common “loan-related” situations:

A) Bouncing checks (B.P. Blg. 22)

If the borrower issued a check that later bounced, the lender may have a B.P. 22 route, but it requires compliance with technical notice requirements (notably, notice of dishonor and a period to pay). This is separate from small claims.

B) Estafa (Swindling)

Estafa is not “didn’t pay.” It typically requires deceit or abuse meeting specific elements (e.g., fraud at the start, misappropriation in certain arrangements). Many unpaid loans do not qualify.

Practical takeaway: If the fact pattern is simply “friend borrowed money, promised to pay, then didn’t,” the main remedy is civil collection, usually through small claims if the amount fits.

4) Evidence: what wins (or loses) a friend-loan case

In collection cases, the court’s question is simple: Is there competent proof that money was loaned and remains unpaid?

Strong evidence (best)

Promissory note (ideally signed; notarized helps but is not required)
Acknowledgment receipt (“Received from ___ the amount of ₱___ as loan…”)
Written undertaking to pay with due date / payment terms
Bank transfer slips, remittance receipts, e-wallet transaction history showing the transfer, plus messages explaining it’s a loan

Very useful evidence (often enough when consistent)

Chat messages / SMS / email acknowledging the loan or promising repayment
Partial payments and proof of those payments (a partial payment is often treated as strong circumstantial proof a debt exists)
Demand letter and proof it was received or refused

Weak evidence (risky alone)

Purely verbal agreement with no transfers/receipts/messages
Vague messages without amounts or admission

Electronic evidence notes

Screenshots can help, but keep them reliable:

Preserve the full conversation, not only cherry-picked lines
Keep metadata where possible (dates, phone numbers, handles)
Back it up (cloud export, device backups)
Be prepared to explain authenticity if challenged

5) Computing what’s owed: principal, interest, penalties, and “legal interest”

A) Principal

The amount actually delivered (less any payments already made).

B) Contractual interest (only if agreed in writing)

To collect “interest” as interest on a loan, the agreement must be in writing. If there’s a signed promissory note or written chat clearly agreeing to interest, that can qualify.

C) Penalties and charges

Penalty clauses can be enforced if proven and not unconscionable. Courts may reduce excessive penalties.

D) Legal interest as damages (even without written interest)

Even if there is no valid written interest stipulation, courts may award legal interest as damages once the borrower is in delay, generally after a proper demand (unless demand is excused).

A widely applied framework (for many monetary obligations) is:

6% per annum legal interest (modern baseline used by courts), commonly counted from judicial demand (filing of the case) or from extrajudicial demand (demand letter) when delay is properly established, depending on the obligation and proof.

Because outcomes depend on exact facts and how the claim is pleaded, lenders commonly compute and claim:

principal
plus contractual interest (if provable) or legal interest (as damages)
plus costs (and sometimes attorney’s fees if there’s a basis)

6) Default and delay (mora): why the demand letter matters

Under the Civil Code, the borrower is generally considered in delay only after a proper demand—judicial (filing a case) or extrajudicial (a demand letter)—unless the law or the agreement makes demand unnecessary (for example, when a specific due date is fixed and demand is not required under the terms and circumstances).

What a demand letter accomplishes

Clarifies the amount due and basis
Proves you gave the borrower a final chance to pay
Helps establish delay (supporting legal interest as damages)
Creates a clean exhibit for small claims
Often triggers settlement without litigation

7) The demand letter: content, tone, and proof of service

A) What to include

Your name and address (and contact details)
Borrower’s name and address
Statement of facts: when and how the loan was given (cash/bank transfer), amount, and payment terms/due date
Demand: exact amount demanded (principal less payments), and any interest/charges claimed with basis
Deadline to pay (commonly 5–10 business days; choose a reasonable period)
Payment instructions (bank account / meeting for payment)
Consequence of nonpayment: barangay filing and/or small claims action, plus costs and interest as allowed
Signature and date

B) Keep the tone firm, factual, and non-defamatory

Avoid accusations like “scammer,” “thief,” or threats. Stick to:

“You borrowed…”
“Despite repeated reminders…”
“Please pay by…”

C) How to serve it (and why proof matters)

Aim for a method that produces a record:

Personal service with receiving copy signed
Registered mail with registry receipt and return card, if available
Courier with delivery proof
Email can help, but physical delivery proof is often stronger

Keep copies of everything: the letter, attachments, and proof of sending/receipt.

8) Demand letter template (Philippine-friendly)

DEMAND LETTER Date: ________

To: [Borrower Name] Address: ________

Dear [Name]:

On [date], you received from me the amount of ₱[amount] as a loan, delivered via [cash/bank transfer/e-wallet] ([reference details]). You agreed to repay the loan on or before [due date] / in installments of ₱[amount] starting [date].

As of today, despite prior reminders, you have not fully paid the loan. Your payments total ₱[payments], leaving an unpaid balance of ₱[balance].

I hereby demand that you pay ₱[balance] on or before [deadline date] at [payment method/details]. [If applicable: Pursuant to our written agreement dated ___, interest of ___% per ___ is also due.] [If no written interest: You may state that you reserve the right to claim legal interest and costs as allowed by law.]

If you fail to pay within the period stated, I will pursue the appropriate remedies, including barangay proceedings (if required) and/or filing a small claims case or other proper civil action, without further notice.

Sincerely, [Your Name] [Address] [Contact details]

9) Barangay conciliation: when you must go to the barangay first

Many personal disputes between residents fall under the Katarungang Pambarangay system. For covered disputes, filing a court case without first going through barangay conciliation can lead to dismissal for prematurity.

A) When barangay conciliation is commonly required

Both parties are individuals
They reside in the same city/municipality (often same barangay or within the barangay justice coverage rules)
The dispute is civil and not within an exception

B) Common exceptions (barangay not required)

These depend on the specific facts and rules, but typical exceptions include:

When a party is not an individual resident within the coverage (e.g., some disputes involving juridical entities or parties outside the locality)
Urgent legal action needed (limited circumstances)
Other statutory exceptions

C) What you get at the end

If settlement fails, you obtain a Certificate to File Action (CFA) (or equivalent certification), which is usually attached to the court complaint.

Practical note: Even when not strictly required, barangay proceedings can be an effective pressure point because it formalizes the dispute at low cost.

10) Small Claims Court in the Philippines: the main tool for unpaid personal loans

Small claims is designed for straightforward money claims where the court can decide quickly, usually with simplified forms and minimal procedure.

A) What cases fit small claims

Generally: civil actions for payment of money (sum of money) arising from:

Loans
Services
Sale/lease obligations
Other simple monetary obligations

What matters is that the remedy sought is basically: “Pay me ₱___.”

B) Amount limit (ceiling)

The Philippines has periodically adjusted the small-claims ceiling. Under the modern amendments up to recent years, the ceiling has been up to around ₱1,000,000 (excluding certain add-ons like interest and costs in computing the threshold under the rules). Because amendments can happen, the safest practice is to check the current court-issued forms and posted small claims guidelines at the filing court.

C) If your claim exceeds the limit

Two main options:

Regular civil case (collection of sum of money) in the proper court; or
Waive the excess so the claim falls within small claims (waiver is typically irrevocable for that excess)

D) Where to file (venue and jurisdiction)

Small claims are filed in the first-level courts (e.g., Metropolitan Trial Court, Municipal Trial Court in Cities, Municipal Trial Court, Municipal Circuit Trial Court) that have jurisdiction over the area.

Venue in personal actions is generally where the plaintiff or defendant resides, at the plaintiff’s election, subject to venue rules and any enforceable venue stipulation (if applicable).

E) Lawyers and representation

A defining feature of small claims:

Lawyers generally do not appear for parties during hearings (the process is meant to be user-friendly).
Parties usually appear in person.
Limited exceptions exist (e.g., representation for juridical entities through authorized representatives, or for parties who cannot appear due to valid reasons, under the rules).

This does not prevent consulting a lawyer behind the scenes for drafting and strategy; it mainly restricts courtroom appearance.

11) Small claims procedure: what actually happens

While details can vary slightly by court implementation and amendments, the practical flow is usually:

Step 1: Prepare the forms and attachments

You typically submit:

Statement of Claim (court form)
Affidavit(s) or sworn statements when required by the form/rules
Copies of evidence:
- promissory note / acknowledgment
- proof of transfer (bank/e-wallet)
- chat messages (printed)
- demand letter + proof of service
- barangay certificate (if required)

Bring multiple copies (for court and defendant), as required by the court.

Step 2: Pay filing fees (or apply as indigent)

There are filing fees (generally lower than regular cases). Indigent litigants may seek exemption under the rules (subject to proof and court approval).

Step 3: Court issues summons; defendant files a response

The court serves summons. The defendant files a Response within the short period provided by the rules (commonly around 10 days from service under many versions of the small claims rules).

Step 4: One hearing date; settlement efforts first

Small claims commonly uses a single hearing model:

The judge (or court) first explores settlement/compromise
If no settlement, the court proceeds to clarificatory questions and evaluation of documents

Postponements are typically discouraged and allowed only for limited reasons.

Step 5: Decision and executory nature

Small claims decisions are generally final and immediately executory, with no ordinary appeal. Remedies are limited; in exceptional cases involving jurisdiction or grave abuse, a special civil action (e.g., certiorari) may be attempted, but that’s not a normal “appeal.”

12) Winning is not the end: enforcing payment after judgment

If you obtain a favorable judgment and the borrower still won’t pay, you move to execution:

A) Writ of execution

You ask the court to issue a writ of execution. The sheriff enforces it.

B) Common enforcement methods

Garnishment of bank accounts (subject to rules and identification of accounts)
Levy on personal property (vehicles, equipment)
Levy and sale of real property (subject to procedures and annotations)
Sheriff’s demand for payment, then enforcement steps if unpaid

C) Practical realities

Enforcement succeeds faster when you can identify assets (employer, bank, vehicles, real property).
If the debtor is truly insolvent, collection may be difficult even with a judgment; the judgment still has value and can be enforced within the applicable periods.

13) When small claims is not available: regular civil collection

If the claim doesn’t fit small claims (e.g., exceeds the limit without waiver, or involves issues that require full-blown trial), the lender may file a civil action for collection of sum of money.

Key differences:

More formal pleadings and procedure
Lawyers usually appear
Longer timelines
Potentially broader remedies and claims (damages, attorney’s fees with proper basis), but still subject to proof

Depending on the amount and other factors, the case may fall under:

First-level courts (for lower amounts within their jurisdiction), or
Regional Trial Courts (for higher amounts), based on jurisdictional thresholds

14) Prescription (deadlines): don’t sleep on your claim

Philippine law imposes time limits to sue:

Actions based on a written contract generally prescribe longer than those based on an oral contract.
Commonly applied Civil Code periods include:
- 10 years for actions upon a written contract
- 6 years for actions upon an oral contract (Other specific actions have different periods.)

Prescription can be affected by acknowledgments of debt and certain interruptions, but those are fact-specific.

15) Common complications and how courts typically look at them

A) “It was a gift, not a loan”

This is a classic defense. Courts look for:

Any written admission of a loan
Repayment promises
Partial payments
Context (messages: “utang,” “hiram,” “pay ko next month,” etc.)
Demand letter and the borrower’s reaction (silence can be weighed with other evidence)

B) “No interest was agreed”

If there’s no written interest stipulation, contractual interest is hard to claim. Many lenders still recover:

the principal, and
legal interest as damages after demand or filing, depending on circumstances.

C) Multiple loans over time

You can claim the total unpaid amount, but clarity matters:

Provide a schedule/table (date, amount, transfer proof, payments, balance)
Tie each transfer to messages or acknowledgments

D) Debtor is married: what assets can be reached?

Collection against a married debtor can raise property regime issues (conjugal/community vs exclusive property). Enforcement can become technical when levying property. Proof of whether the debt benefited the family may matter in some contexts.

E) Debtor dies

Claims become claims against the estate, often requiring filing in settlement proceedings or following estate claims procedures.

F) Harassment and privacy risks

Excessive public shaming, threats, or contacting employers/family aggressively can backfire (civil, administrative, or even criminal exposure depending on conduct). Stick to formal, provable channels.

16) Best practices before lending (because this topic repeats itself)

If a loan is contemplated (even to a friend), these reduce future disputes dramatically:

Signed promissory note with due date and payment plan
Clear statement whether interest exists (and in writing if it does)
Proof of transfer and a short written acknowledgment
If using checks, understand B.P. 22 risks and notice requirements
Keep communications respectful and documented

17) Summary of the cleanest, court-friendly approach

Gather proof: transfers + acknowledgments/messages + payment history
Compute a clear balance (principal less payments; interest only if validly agreed or claim legal interest as damages after demand)
Send a demand letter with proof of service
Complete barangay conciliation if required and obtain certification
File small claims if within the ceiling (or waive excess), attach clean exhibits
If you win, move promptly for execution if payment still isn’t made