Demand letter in the Philippines: what it does, what to include, and small claims

What a demand letter is and does

A demand letter is a written request to pay a debt, or keep a promise, by a set date. The Civil Code calls it an extrajudicial demand: one made outside court. It is not a court order, and Article 1169 does not require a lawyer to send it.

Under Article 1169, a person who must deliver or do something is in delay from the time the creditor demands performance, in or out of court. Demand is not needed when the obligation or the law expressly says so, when the time of performance was a controlling reason for the contract, or when demand would be useless.

In reciprocal obligations, neither party is in delay if the other has not complied or is not ready to comply, so settle your own side first.

A written extrajudicial demand also interrupts prescription, the time limit for filing a case (Article 1155): ten years on a written contract and six on an oral one (Articles 1144 and 1145).

Interest and charges after demand

Monetary interest, the price for using money, is due only if expressly agreed in writing (Article 1956). Interest for delay differs: under Article 2209, a debtor in delay on a money debt owes the agreed interest or, if none, legal interest, which the Code puts at six percent a year.

In Romago, Inc. v. Associated Bank (2023), the Supreme Court said that, absent an agreed start date, this interest runs from default, that is, from extrajudicial or judicial demand. It applied a six percent legal rate from 1 July 2013 under BSP Circular No. 799 and said courts may reduce unconscionable rates.

If not agreed, attorney's fees are recoverable only in the cases listed in Article 2208. Claim only charges with a clear basis; a court settles the final figure.

What to put in a demand letter

The Tagalog text of the Supreme Court's small claims forms calls a demand letter a liham ng paniningil. Keep yours short, factual, and easy to prove.

A clear demand letter includes:

• The date and both parties' full names and addresses.
• Where the debt came from: the loan, lease, service, or sale, its date, and the contract, promissory note, invoice, or receipt behind it.
• The amount due and how you computed it, including payments made and any interest with its written basis.
• Supporting documents, attached or available on request.
• A clear deadline to pay or reply in writing. Article 1169 does not fix a number of days.
• How and where to pay, and who can confirm the balance.
• The lawful next step if unpaid, such as barangay conciliation or small claims, stated as a possibility, not a threat.
• Your signature. Send it in a way you can prove, such as personal delivery with a receiving copy, registered mail, or courier.

What to leave out, and rules for lenders

Not paying a debt does not, by itself, lead to jail: the Constitution says no person shall be imprisoned for debt (Article III, Section 20).

SEC Memorandum Circular No. 18 (2019) covers financing and lending companies and their collectors. Its unfair practices include threats of violence or of action that cannot legally be taken, insults, disclosing or publishing borrowers' personal information, deception, contact before 6 a.m. or after 10 p.m. (with limited exceptions), and contacting people in the borrower's contact list other than guarantors or co-makers.

Republic Act No. 11765 also bars financial service providers regulated by the BSP, SEC, Insurance Commission, and Cooperative Development Authority from abusive collection. BSP Circular No. 1160 (2022) applies this to BSP-supervised institutions such as banks.

These rules bind lenders, not private persons collecting personal loans. Everyone remains bound by general law: Article 26 of the Civil Code allows damages for disturbing another's private life or family relations, and the Revised Penal Code punishes grave threats, libel, and seizing a debtor's property by violence to pay the debt.

Whoever you are, avoid:

• Threats of arrest, jail, violence, or a case you do not intend to file.
• Insults, or calling the debtor a criminal or a scammer.
• Posts about the debt online, or messages to the debtor's employer, family, or friends to shame them.
• Taking the debtor's belongings yourself.

Barangay conciliation before court

Under the Local Government Code (Republic Act No. 7160, Section 408), the barangay lupon handles disputes between parties who actually live in the same city or municipality, with exceptions, such as parties living in different cities or municipalities, unless their barangays adjoin and both agree. Section 410 lets an individual complain against another individual.

Under Section 412, such a dispute cannot go straight to court unless the parties first met before the lupon chairman or pangkat without reaching a settlement, as certified by the lupon or pangkat secretary. Exceptions include cases that would otherwise be barred by prescription. Parties appear in person, without lawyers (Section 415).

The small claims Statement of Claim asks whether the claim went through the barangay, and the court may dismiss a claim if a condition precedent to filing was not met.

Small claims: the limit, the forms, and no lawyers

Small claims fall under Rule IV of the Supreme Court's Rules on Expedited Procedures in the First Level Courts (A.M. No. 08-8-7-SC), in effect since 11 April 2022. It covers money-only claims of up to PHP 1,000,000, exclusive of interest and costs, owed under a lease, a loan or other credit accommodation, services, or a sale of personal property, and some barangay settlements and awards.

The rule does not list a demand letter among the filing requirements, but the Statement of Claim (Form 1-SCC) asks whether, how, and when you asked the defendant to pay, or why not. It lists the latest demand letter, with proof of delivery and receipt, as proof, and the plaintiff's information sheet (Form 1-B-SCC) says to prepare it, if any.

Other points from the rule and forms:

• Attach certified photocopies of your documents, witness affidavits, and other evidence; evidence not attached is not allowed at the hearing without good cause.
• No attorney may appear for a party at the hearing unless the attorney is a party. You may consult a lawyer before or after.
• Parties appear in person. A representative may appear only for a valid cause, must not be a lawyer, and needs a Special Power of Attorney (Form 7-SCC) or a board resolution.
• There is one hearing day, and the judge decides within 24 hours after it ends. The decision is final, executory, and unappealable.
• Ask the clerk of court about current fees and any later rule changes.

If you received a demand letter

A demand letter, even from a lender or law office, is not a court order or a court case. Check it against your records rather than ignoring it or paying in panic.

Under Republic Act No. 11765, you may elevate an unresolved complaint against a financial service provider to its regulator, and while a disputed amount is under investigation, the provider must suspend interest, fees, and charges or give a similar reasonable accommodation.

Practical steps:

• Check that the debt is yours and the amount matches your records. Ask in writing for a statement of account if anything is unclear.
• Reply in writing before the deadline: pay, propose a schedule, or say exactly what you dispute, and keep proof you sent it.
• Get a receipt for every payment, and save collectors' texts and call logs.
• If you get a small claims summons, you have 10 non-extendible calendar days from receipt to file a verified Response (Form 3-SCC), and you must appear at the hearing.
• Get legal help early if you dispute the debt, get a summons, or the letter mentions a criminal case. LAW.PH's Find Legal Help page lists PAO, IBP, and Supreme Court legal aid contacts.

Common questions