Introduction

In the Philippine legal system, a promissory note serves as a fundamental instrument in commercial and personal transactions, embodying a written promise by one party (the maker) to pay a definite sum of money to another party (the payee) or to bearer, either on demand or at a specified future time. Governed primarily by the Negotiable Instruments Law (Act No. 2031, enacted in 1911) and supplemented by provisions of the Civil Code of the Philippines (Republic Act No. 386, as amended), promissory notes facilitate credit and lending activities. However, when the maker fails to fulfill the obligation—commonly through non-payment—this constitutes a breach, triggering various remedies available to the aggrieved party.

This article comprehensively explores the remedies for breach of a promissory note in the Philippine context, drawing from statutory provisions, jurisprudential interpretations, and procedural rules. It covers civil, criminal, and alternative remedies, emphasizing the interplay between negotiability, obligations law, and enforcement mechanisms. Understanding these remedies is crucial for creditors, debtors, and legal practitioners to navigate disputes effectively and ensure compliance with due process.

Nature and Elements of a Promissory Note

To contextualize remedies, it is essential to recall the legal nature of a promissory note. Under Section 184 of the Negotiable Instruments Law, a promissory note must contain:

An unconditional promise to pay a sum certain in money;
Payable on demand or at a fixed or determinable future time;
Payable to order or to bearer; and
Signed by the maker.

The instrument's negotiability allows it to be transferred, endowing holders in due course with protections against certain defenses (e.g., Sections 52-59). Non-negotiable notes, while not covered by the Negotiable Instruments Law in full, are still enforceable as ordinary contracts under Articles 1156-1422 of the Civil Code, which govern obligations and contracts.

A breach occurs when the maker defaults on payment, fails to comply with acceleration clauses, or violates ancillary terms (e.g., interest payments). Defenses such as lack of consideration, fraud, duress, or illegality may be raised, but these are limited against holders in due course.

Civil Remedies for Breach

Civil remedies form the core response to a breach, focusing on enforcement and compensation. These are pursued through judicial or extrajudicial means, with the goal of recovering the principal, interest, and damages.

1. Action for Specific Performance or Collection of Sum of Money

The primary remedy is filing a civil action for collection under Rule 2 of the Rules of Court. The payee or holder may sue in the Regional Trial Court (RTC) if the amount exceeds PHP 400,000 (or PHP 300,000 in Metro Manila), or in the Municipal Trial Court (MTC) for lesser amounts, per Republic Act No. 7691.

Procedure: The complaint must allege the execution of the note, demand for payment, and default. Evidence includes the original note or a duplicate if lost (Section 78, Negotiable Instruments Law). If the note is negotiable, presentment and notice of dishonor are required (Sections 70-88), unless excused (e.g., waiver or impossibility).
Interest and Damages: Under Article 2209 of the Civil Code, legal interest (6% per annum from July 1, 2013, per BSP Circular No. 799, Series of 2013, unless stipulated otherwise) accrues from judicial or extrajudicial demand. Compensatory, moral, exemplary, and nominal damages may be awarded if malice or bad faith is proven (Articles 2199-2220). Attorney's fees are recoverable if stipulated or under Article 2208 (e.g., for bad faith suits).
Prescription: Actions prescribe in 10 years from due date for written contracts (Article 1144, Civil Code), or 6 years if not written.

2. Foreclosure of Security

If the promissory note is secured by real or personal property, foreclosure provides an additional remedy.

Real Estate Mortgage: Governed by Act No. 3135 (as amended), extrajudicial foreclosure involves public auction after notice. Judicial foreclosure under Rule 68 of the Rules of Court requires court proceedings. Deficiency judgments are allowed if proceeds are insufficient (Section 6, Act No. 3135).
Chattel Mortgage: Under the Chattel Mortgage Law (Act No. 1508), foreclosure is extrajudicial via public sale. No redemption right exists post-sale, unlike real mortgages (1-year equity of redemption).
Pledge: For movable property, the pledgee may sell at public auction after demand (Articles 2112-2115, Civil Code). Surplus goes to the pledgor.

In all cases, antichresis (Article 2132) or pactum commissorium (prohibited automatic appropriation, Article 2088) must be avoided to prevent nullity.

3. Attachment and Execution

Pre-judgment attachment under Rule 57 secures the claim during litigation, requiring grounds like fraud or imminent removal of property. Post-judgment execution under Rule 39 enforces the decision, allowing levy on the debtor's assets.

4. Rescission or Reformation

If the breach stems from vitiated consent (e.g., fraud), rescission under Articles 1380-1389 or reformation under Articles 1359-1369 may be sought, though rare for promissory notes.

5. Alternative Dispute Resolution

Under Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004), mediation or arbitration clauses in the note allow non-judicial resolution. Barangay conciliation is mandatory for claims under PHP 200,000 involving residents of the same municipality (Republic Act No. 7160, Local Government Code).

Criminal Remedies

While breaches are primarily civil, criminal liability arises if elements of crimes are present.

1. Estafa (Swindling)

Under Article 315 of the Revised Penal Code (as amended by Republic Act No. 10951), estafa occurs if the note was issued with deceit and damage results (e.g., false representations inducing the loan). Penalty depends on amount: up to reclusion temporal for over PHP 2.5 million. Prosecution requires a complaint-affidavit, preliminary investigation, and trial in the RTC or MTC based on penalty.

2. Falsification of Documents

If the note is falsified (Article 171-172, Revised Penal Code), criminal action lies, but this targets forgery, not mere non-payment.

3. Bouncing Checks vs. Promissory Notes

Note that Batas Pambansa Blg. 22 (Bouncing Checks Law) applies only to checks, not promissory notes. However, if a post-dated check secures the note and bounces, BP 22 remedies (fine, imprisonment) apply separately.

Criminal actions do not bar civil recovery; under Rule 111 of the Rules of Criminal Procedure, civil liability is deemed instituted with the criminal case unless reserved.

Procedural Considerations

Jurisdiction and Venue

Actions are filed where the plaintiff or defendant resides, or where the property is located for secured notes (Rule 4, Rules of Court). Small claims procedures under A.M. No. 08-8-7-SC expedite claims up to PHP 1,000,000 without lawyers.

Evidence and Burden of Proof

The holder must prove the note's genuineness and default by preponderance of evidence. Parol evidence is inadmissible to vary terms unless ambiguity exists (Rule 130, Section 9).

Defenses Available to the Maker

Personal Defenses: Lack of consideration, payment, set-off (available against non-holders in due course).
Real Defenses: Forgery, material alteration, minority (absolute against all holders).

Effects of Negotiation

Holders in due course (Section 52) are protected from personal defenses, enhancing enforceability.

Jurisprudential Insights

Philippine jurisprudence underscores these remedies:

In Bataan Seedling v. Republic (G.R. No. 141009, 2005), the Supreme Court emphasized that promissory notes are actionable upon default, with interest from demand.
PNB v. CA (G.R. No. 107508, 1997) clarified that waiver of presentment does not excuse notice of dishonor unless stipulated.
On secured notes, DBP v. CA (G.R. No. 126200, 2003) invalidated pactum commissorium clauses.
For criminal aspects, People v. Nitafan (G.R. No. 81559, 1992) distinguished civil default from estafa requiring deceit.

These cases illustrate the courts' strict enforcement while protecting against abuse.

Special Considerations in Modern Context

With digitalization, electronic promissory notes under Republic Act No. 8792 (E-Commerce Act) are recognized if authenticated. During economic crises (e.g., COVID-19 moratoriums via Bayanihan Acts), temporary suspensions on enforcement applied, but general rules persist.

Inflation adjustments to jurisdictional amounts and interest rates (e.g., BSP Monetary Board resolutions) must be monitored.

Conclusion

Remedies for breach of a promissory note in the Philippines provide a robust framework for creditors to recover dues while affording debtors procedural safeguards. Civil actions dominate, with criminal recourse limited to fraudulent acts. Effective enforcement requires timely action, proper documentation, and adherence to rules. Parties are advised to incorporate clear terms, including remedies, in notes to minimize disputes. Ultimately, these mechanisms uphold the integrity of financial obligations, fostering trust in commercial dealings. For specific cases, consulting a legal professional is recommended to tailor remedies to factual nuances.