A doctrinal and practical overview

1. Introduction

Disputes over rental deposits are extremely common in the Philippines, especially in informal leases where everything is verbal:

No written contract;
Landlord promises “ibabalik ko ‘yung deposit after inspection”;
At the end of the lease, the deposit is not returned or is unreasonably withheld.

This article explains, under Philippine law:

When a verbal promise to return a rental deposit is valid and enforceable;
The legal nature of rental deposits;
The rights and obligations of landlord and tenant;
How a tenant can legally recover the deposit in case of refusal.

2. Legal Framework

Several areas of Philippine law are relevant:

Civil Code of the Philippines (obligations and contracts; lease of things; quasi-contracts; unjust enrichment; prescription);
Special rent laws (e.g., rent control laws over the years) – these regulate, among others, amount and handling of deposits for certain residential units;
Rules on evidence and the Statute of Frauds (regarding oral contracts);
Barangay justice system and small claims procedures for practical enforcement.

Even without a written contract, Philippine law recognizes leases, deposits, and verbal promises, as long as basic legal requirements are met.

3. Is a Verbal Lease / Verbal Promise Legally Valid?

3.1 Consensual Nature of Lease

Under the Civil Code, a lease of things is generally a consensual contract:

It is perfected by mere consent (agreement on the object and the price/rent);
No special form is required for validity, except in specific situations.

Therefore:

A verbal lease is valid between landlord and tenant.
A verbal promise regarding deposit and its return can also be valid and binding.

3.2 Statute of Frauds and Oral Leases

The Statute of Frauds (Civil Code) requires certain contracts to be in writing to be enforceable, including:

Leases longer than one year.

Key points:

If the lease is for one year or less, it can be fully oral and still enforceable.
Even if the lease is for more than one year, and is only verbal, once it has been partially or fully performed (tenant actually stays, pays rent, etc.), courts generally consider the contract taken out of the Statute of Frauds.
So, practically speaking, most real-world verbal leases are enforceable, especially after performance.

3.3 Verbal Promise to Return the Deposit

A landlord’s verbal promise to return the deposit:

Is part of the lease agreement or an accessory obligation.
Is generally binding if:
- There is a valid lease;
- The deposit was actually given;
- The condition (like “at the end of the lease, after inspection”) has been met or has lapsed.

4. Nature of Rental Deposits in Philippine Law

4.1 What Is a Rental Deposit?

Common forms:

Security deposit – held to cover:
- Unpaid rents;
- Utility bills;
- Damage to the unit beyond normal wear and tear;
Advance rent – rent paid in advance for future months.

Important distinctions:

Security deposit: tenant remains owner of the money in a beneficial sense; landlord only holds it as security.
Advance rent: this is payment, not just security; it is generally applied to specific rental periods.

When the lease ends and:

All rent is fully paid;
Utilities are settled;
No deductible damage exists;

the security deposit should be returned to the tenant, consistent with the verbal promise and with applicable rent control rules, if covered.

4.2 Limitations Imposed by Rent Control Laws (Conceptual)

Over time, Philippine rent control laws have tended to:

Limit deposits (e.g., often to not more than two months deposit plus one month advance for certain covered units);
Require that the deposit be returned after the lease, minus lawful deductions (like unpaid obligations and damage).

Although the details depend on the specific rent control law and whether the unit is covered, the policy direction is clear: Security deposits are not meant to be forfeited automatically without valid basis.

5. Landlord’s Right to Apply the Deposit

A landlord can legitimately apply the deposit to:

Unpaid rent at the end of the lease or upon early termination;
Unpaid utility bills (electricity, water, association dues) that the tenant was responsible for;
Damage to the property beyond normal wear and tear (e.g., broken fixtures, deliberate damage).

However, the landlord cannot:

Arbitrarily declare the deposit “non-refundable” if:
- The lease (verbal or otherwise) did not clearly provide that the deposit is non-refundable; or
- Such a stipulation would be contrary to rent control policy (if applicable) or unconscionable;
Use the deposit as a penalty unrelated to actual damages or unpaid obligations.

If the landlord uses the deposit beyond what is legally justified, the tenant can claim the excess.

6. The Verbal Promise: Elements and Proof

6.1 Elements of an Enforceable Verbal Promise

To recover a deposit based on a verbal promise, the tenant must essentially show:

There was a lease agreement (even verbal);
The tenant paid a deposit to the landlord (or authorized agent);
The landlord promised (even verbally) to return the deposit under certain conditions (usually upon vacating, minus lawful deductions);
The tenant complied with those conditions:
- Paid all rent and utilities;
- Vacated the premises on the agreed date (or reasonably);
- Did not cause damage beyond normal wear and tear;
Despite compliance, the landlord refused or failed to return the deposit.

6.2 Evidence in Verbal Arrangements

Because everything is verbal, evidence becomes crucial. Useful evidence includes:

Receipts or acknowledgment of deposit;
Text messages, chat messages, emails:
- Confirming the existence and amount of the deposit;
- Showing the landlord’s statements about return/refund;
Bank transfer records or proof of payment for the deposit;
Witnesses:
- Family members or friends who were present when the deposit was handed over or when the promise was made;
- Neighbors who know the arrangement;
Photos or videos:
- Of the condition of the unit upon move-out (to counter claims of damage);
Documents from the landlord:
- Move-out checklists;
- Statements of account.

Even if there is no single “perfect” document, Philippine courts and barangay officials can rely on a combination of circumstantial evidence and testimony to establish the agreement.

7. Legal Theories for Recovery

A tenant seeking to recover a deposit may rely on several legal bases:

7.1 Enforcement of Contractual Obligation

The lease contract (including accessory deposit clause) is a valid contract.
The landlord’s promise to return the deposit (subject to deductions) is an obligation under that contract.
When the tenant performs their duties and the landlord refuses to return the deposit, the landlord breaches the contract, giving rise to an action for recovery.

7.2 Quasi-Contract and Unjust Enrichment

Even if the landlord argues:

“There was no agreement to refund,”

the tenant can alternatively argue:

The landlord holds money that no longer has legal cause to be retained (no unpaid rent, no damage, no valid penalty).
This falls under quasi-contracts and unjust enrichment — no person should unjustly enrich themselves at the expense of another without legal or contractual basis.
Thus, the landlord must return the deposit or the unjust portion of it.

7.3 Damages and Interest

In addition to the principal deposit, the tenant may claim:

Legal interest (generally 6% per annum from the time of judicial demand, as shaped by Supreme Court jurisprudence);
Damages:
- Actual damages (e.g., extra rent paid elsewhere because deposit was illegally withheld);
- Moral and exemplary damages, in extreme cases involving bad faith or harassment;
Attorney’s fees, if the tenant was compelled to litigate.

In small claims proceedings, however, attorney’s fees as litigation expenses are not the main focus, because parties generally do not need lawyers.

8. Prescription (Time Limits to Sue)

The prescriptive period depends on the legal characterization:

Action based on oral contract: generally 6 years from the time the cause of action accrues (e.g., when the landlord clearly refuses to refund after demand);
Action based on written contract: 10 years (if there is a written acknowledgment or written lease, even partly);
Quasi-contract (unjust enrichment): 6 years.

In practice, tenants should act quickly, not wait several years; delay can:

Make evidence harder to secure;
Make witnesses unavailable;
Weaken the perception of urgency and good faith.

9. Practical Remedies and Procedure

9.1 Negotiation and Demand Letter

First step is usually informal negotiation:

Politely remind the landlord:
- That all obligations are settled;
- That the deposit was promised to be returned;
Show proof of paid utilities, rent, and clean turnover of the unit.

If informal talks fail, send a formal demand letter, which should:

Identify:
- Parties;
- Property leased;
- Amount of deposit;
State:
- Facts of the lease and deposit;
- Landlord’s verbal promise to return;
- Tenant’s full compliance;
- Landlord’s refusal or failure;
Demand:
- Full or partial amount due;
- Within a specific time (e.g., 5–15 days);
Indicate:
- That failure to comply will lead to barangay or court action.

The demand letter also helps mark the start of default and can be used as evidence later.

9.2 Barangay Conciliation

For disputes between residents or parties in the same city/municipality, most landlord–tenant disputes are:

Subject to mandatory barangay conciliation, unless exempt.

Process in brief:

File a complaint with the Punong Barangay;
Attend mediation and, if needed, pangkat hearings;
Possible outcomes:
- Amicable settlement (written, binding, enforceable);
- Issuance of certificate to file action if no settlement.

Barangay records, minutes, and settlements can serve as useful evidence in court.

9.3 Small Claims Court

If the amount of the deposit is within the monetary jurisdiction of small claims (which in recent years has been significantly increased), the tenant may:

File a small claims action in the appropriate first-level court (Metropolitan, Municipal Trial Court, etc.);
Use simplified forms;
Appear without a lawyer (representation by counsel is generally not required or may not even be allowed in small claims);
Ask the court to order the landlord to pay the amount claimed, plus costs and legal interest.

Small claims is designed to be:

Fast and less technical;
Evidence-driven, with emphasis on documents and affidavits.

9.4 Regular Civil Action

For more complicated cases or larger amounts, a tenant may file an ordinary civil action for sum of money and damages. This usually:

Takes longer and is more formal;
May require legal representation;
Is suitable where:
- There are complex factual issues;
- The tenant also claims significant damages, not just refund.

10. Common Issues and Defenses

10.1 Landlord Alleging Damage to Property

Landlords often justify refusal by claiming:

Extensive damage to the unit;
Need for major repairs paid out of the deposit.

Key points:

Tenant is not liable for normal wear and tear (e.g., minor nail holes, faded paint, minor scratches due to ordinary use).
Only damage beyond normal wear and tear can justify deductions.
Tenant should:
- Take photos/videos upon move-out;
- Ask the landlord to specify the damage, cost, and repairs;
- Ask for receipts or estimates.

If the landlord’s claim is exaggerated or undocumented, the tenant can contest it.

10.2 Landlord Alleging Unpaid Utilities or Rent

Landlords may insist:

“May utang ka pa sa kuryente/tubig/rent.”

Tenant should:

Present receipts, statements of account, or screenshots of payments;
Show final meter readings or clearance from the building/utility company if possible.

If the tenant did truly leave unpaid amounts:

The landlord may lawfully deduct from the deposit only up to the amount actually due;
The remaining balance of the deposit should still be refunded.

10.3 Landlord Claims Deposit Is “Non-Refundable”

Sometimes, landlords say:

“From the start, sabi ko non-refundable ‘yan.”

Legal response:

If there was no clear agreement that the deposit is non-refundable, the default understanding for a security deposit is refundable, subject to lawful deductions.
Even if “non-refundable” is claimed, such a clause may be:
- Questionable under rent control policies (where applicable);
- Vulnerable to being struck down if unconscionable or if it results in unjust enrichment.

Courts often look at:

The actual purpose of the deposit;
Whether the landlord incurred real losses or costs.

11. Special Situations

11.1 Deposit Paid to Agent or Broker

If the tenant paid the deposit to an agent, caretaker, or broker:

That person is usually deemed to have acted on behalf of the landlord if:
- The landlord allowed them to manage the property;
- The landlord accepted tenants through them regularly.
The tenant can claim against the landlord, who must then deal with the agent.

Evidence:

Agency relationship (messages, past dealings, landlord’s acknowledgment, etc.);
Proof that the landlord knew the tenant was occupying and paying.

11.2 Transfer of Ownership of the Property

If the property is sold during the lease:

Typically, the buyer/ new owner steps into the shoes of the previous landlord under the lease.
Regarding the deposit, the new owner and old owner should settle between themselves who ultimately holds or owes the deposit.
From the tenant’s perspective, they may:
- Demand refund from whoever is, in law and in fact, the current lessor at the end of the lease; and/or
- Use the chain of ownership and receipts to trace liability.

11.3 Early Termination of Lease

If the tenant terminates early:

Effect on deposit depends on:
- The agreement (even verbal) on early termination;
- Whether the tenant gave sufficient notice;
- Whether the landlord actually suffered losses (e.g., long vacancy).

Landlords sometimes try to forfeit the entire deposit due to early termination. Courts may uphold or reduce this depending on:

Bad faith or good faith of parties;
Reasonableness of forfeiture as liquidated damages vs. an unconscionable penalty.

12. Practical Tips for Tenants

Keep receipts and proof of payments (rent, utilities, deposit).
Save all messages with the landlord or agent (texts, chats), especially those referring to the deposit and its return.
Document the unit’s condition upon move-in and move-out (photos, videos).
Demand the deposit in writing (demand letter or at least email/chat clearly asking for specific amount and giving a deadline).
Use barangay conciliation when applicable; settlements can be powerful evidence.
If the amount is within small claims limits, consider filing a small claims case to recover the deposit without needing a lawyer.
Act promptly to avoid prescription issues and weakening of evidence.

13. Summary

In Philippine law:

A verbal lease and a verbal promise to return a rental deposit are generally valid and enforceable, as long as the essential elements of a contract are met and the agreement has been partly or fully performed.
A rental security deposit is normally refundable at the end of the lease, minus:
- Unpaid rent;
- Unpaid utilities; and
- Proven damage beyond normal wear and tear.
A landlord who refuses to return the deposit without legal basis can be compelled, through:
- Demand letters,
- Barangay conciliation, and
- Small claims or civil action, to refund the money, with possible interest and damages.
The tenant’s success turns largely on evidence, so keeping proof of payments and communications is crucial, especially where everything else is verbal.

This is a general overview for educational purposes only. Specific cases can have unique facts and nuances, so for substantial sums or complicated situations, it is wise to seek personalized advice from a Philippine lawyer who can review actual documents and circumstances.