(The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.)
Q: Will I be penalized if I do not pay my debt?
You may be subjected to civil penalties, based on what you, as debtor, has agreed with your creditor (such as higher applicable interest rates, or forfeited benefits of installment payments, etc.). However, you cannot be imprisoned for not paying your debt. It is so because the Philippine Constitution itself guarantees such non-imprisonment under Article III which provides that “[n]o person shall be imprisoned for debt or non-payment of a poll tax.”
The prohibition was brought about by the force of public opinion which looked with abhorrence on statutes permitting the cruel imprisonment of debtors. The control of the creditor over the person of his debtor has been abolished on humanitarian considerations. One should not be punished on account of his poverty [Ganaway vs. Quillen, G.R. No. 18619, February 20, 1922].
Thus, if anyone is threatening to get you to jail simply because you failed to pay your debt, you have absolutely nothing to worry about.
Q: What if I swindled someone of his money, will I not go to jail if I refused to pay my debt?
If you have contracted your debt by using deceitful or fraudulent means, payment or non-payment of your debt is inconsequential. In such case, you can be imprisoned not because you refused to pay your debt, but because of employing deceit or fraud in obtaining money from your victim. This is without prejudice to the right of the creditor to recover whatever you owe him.
The same is true if your debt arises from a bouncing check. Please take note that Batas Pambansa Blg. 22 punishes with imprisonment the issuance of a bouncing check. Therefore, you can be imprisoned not because you have unpaid debt, but because you issued a worthless check.
Q: Somebody borrowed money from me. Am I allowed to collect interest from the amount he borrowed?
You may collect interest, but only if there is a stipulation as to the payment of interest, and such stipulation must be in writing. If no there is no such stipulation, or if the stipulation was not reduced into writing, then the debtor may refuse paying any amount of interest.
Q: What if there is stipulation for payment of interest, but there was no stipulation as to the rate, how much will I be able to collect from my debtor?
Monetary Board Circular No. 799 fixes the legal rate of interest for loans and forbearance of money at 6% per annum.
Q: My debt has already fallen due, but I still have not yet paid what I owe. Am I already considered in default (or in legal delay) of paying my obligation?
If the creditor already made a demand for you to pay, then you are already considered to have defaulted in paying your obligation. However, if there is no demand, then you are not yet in default. Under the law, it is not enough that the debt is already due before the debtor incur delay. It is important that, aside from the debt being due, the creditor should have already made a demand for the debtor to pay before default arises.
However, if the obligation is reciprocal, meaning that your creditor is also obliged to give something to you in return as consideration for what you owe (which also makes him a debtor, and you a creditor, with respect to that thing he is obliged to give in return), then neither of you shall be in default if the other does not comply also with what is due from him. When one of you fulfills his obligation, then that is the time that the other shall be considered in default.
Q: How is demand made?
Demand can be made in any form, whether oral or written. However, written demand is more advisable, as it would provide physical evidence that demand was indeed made upon the debtor.
Q: If I am a creditor and the debt is already due, am I allowed to pressure my debtor to pay his debt?
You may, but only through legitimate means, such as filing an action for collection, or a complaint for violation of the law punishing the issuance of bouncing checks (if any). You may not, however, resort to harassment in collecting from your debtor, as he would practically be forced to pay just to avoid being harassed. Examples of these unethical means of collection are as follows:
• Calling debtors during very inconvenient hours (e.g. between 10:00 PM and 6:00 AM);
• Employing threats; misrepresenting oneself as lawyers, police officers, or other government authorities, in order to intimidate the debtor and force him into submission;
• Making false statements about an impending punishment, in connection with a pending case, where no case is actually pending;
• Misrepresenting that an ordinary document is a legal process; misrepresenting a legal process to be an ordinary document, and persuading the creditor not to take action on it in order to secure a default judgment;
• Threatening to make false credit reports that would adversely affect his credit standing in disproportionately exaggerated levels;
• Contacting the debtor’s friends, family, neighbors, and workmates, and discussing with them the details of the debtor’s indebtedness;
• Threatening to write the debtor’s employer to have the amount of his indebtedness be deducted from his salary;
• Deceiving the debtor to issue post-dated checks, with the intention of charging him criminally, giving the creditor more leverage in bargaining;
• Threatening to deposit post-dated checks prematurely.
[See the Fair Debt Collection Practices Act, a law in the U.S., subjecting to damages anyone who would resort to harassment or other unethical means in collecting debts.]
Q: As creditor, what are my options if the debtor fails or refuses to pay me his debt?
You may resort to legal action to enforce debt collection.
1. You may file an action for collection of sum of money before the court. Please take note, though, that if the debt does not exceed P200,000.00 (excluding damages and interests), the you may file a Statement of Claim before the Small Claims Court, where the processes are much simpler.
2. In case the debt is secured by a mortgage, you may choose either to file an ordinary action for collection, or you may have the mortgage foreclosed.
3. In case there is a check issued, which bounced, you may file a criminal action for violation of Batas Pambansa Blg. 22, or the Anti-Bouncing Checks Law.This is a criminal action, and therefore imprisonment is among the possible consequences upon conviction.
Q: If I choose to file a lawsuit for collection before the court, what do I need to prove before the court?
You have to prove the following:
1. The existence of a transaction creating an obligation in your favor to be paid a certain sum of money;
2. The amount of money owed to you;
3. The indebtedness already fell due and is now demandable;
4. The fact that you made a demand upon your debtor to pay you the amount that he owes you.
5. If you are claiming for payment of interest, you have to show a written agreement entered by and between you and your debtor containing a stipulation as to the payment of interest that you are claiming.
The matters stated above may be proved by testimonial or documentary evidence. However, it may be more difficult for you to establish factual matters if what you need to prove is not documented. As to the stipulation on payment of interest, the law requires that it must be in writing.
Q: What is Small Claims?
Pursuant to A.M. No. 08-8-7-SC issued by the Supreme Court in September 9, 2008 ( 2016 Revised Rules of Procedure for Small Claims Cases), money claims that do not exceed P200,000.00 shall be filed before the Small Claims Court where the procedures to be followed are different from that of ordinary lawsuits for collection of sum of money, provided that the claims are:
(a) Purely civil in nature where the claim or relief prayed for by the plaintiff is solely for payment or reimbursement of sum of money, and
(b) The civil aspect of criminal actions, either filed before the institution of the criminal action, or reserved upon the filing of the criminal action in court.
Q: What are some examples of claims or demands that may be filed before the Small Claims Court?
These claims or demands may be:
(a) For money owed under the following:
1. Contract of Lease;
2. Contract of Loan;
3. Contract of Services;
4. Contract of Sale; or
5. Contract of Mortgage;
(b) For damages arising from any of the following:
1. Fault or negligence;
2. Quasi-contract; or
3. Contract;
(c) The enforcement of a barangay amicable settlement or an arbitration award involving a money claim.
Q: Why is it that when it comes to small claims, it is not being subjected to the same procedure as that applicable in ordinary lawsuits for collection of sum of money?
The procedure on small claims cases was promulgated for faster resolution of claims. Since the amount is relatively small, it is the court’s policy not to keep these cases from dragging for long periods before finally being decided. Since the proceedings must be speedy, inexpensive, and informal, the procedure must be simplified.
Q: How was the procedure in Small Claims cases simplified?
Among the most noticeable features of the procedure on Small Claims cases is that when a Statement of Claim is filed before the Small Claims Court, the Court may do either of the following:
(a) Dismiss the claim outright – If upon examination of the allegations contained in the Statement of Claim and the attached evidence, it becomes apparent that there exist grounds for the dismissal of a civil action.
(b) Issue summons and notice of hearing – If no ground for dismissal is found, summons shall be issued on the very day the Statement of Claim was filed before the court, directing the defendant to submit a verified Response. The court shall also issue a notice to both parties, directing them to appear before it on a specific date and time for hearing.
It is not always guaranteed, but there are some small claims cases that are being submitted for decision already after just one hearing. Moreover, a request for postponement of a hearing may be granted only upon proof of the physical inability of the party to appear before the court on the scheduled date and time. Such request for postponement may be availed of by either party only once.
Q: If I choose to file a criminal case for violation of the Anti-Bouncing Checks Law, what should be the minimum amount of the check?
There is no minimum amount required. As long as there is issuance of bouncing check, the issuer may be prosecuted for violation of the said law.
Q: Since violation of the Anti-Bouncing Checks Law is punishable by imprisonment, would it not violate the constitutional guarantee against imprisonment for non-payment of debt?
Please take note that imprisonment as a consequence of being found guilty of violating the Anti-Bouncing Checks Law is not inconsistent with the guarantee against imprisonment for non-payment of debt.
It is so because the gravamen of the offense punished by B.P. 22 is the act of making and issuing a worthless check or a check that is dishonored upon its presentation for payment. It is not the non-payment of an obligation which the law punishes. The law is not intended or designed to coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of penal sanctions, the making of worthless checks and putting them in circulation. Because of its deleterious effects on the public interest, the practice is prohibited by law.
Q: If I choose to file a criminal case for violation of the Anti-Bouncing Checks Law, what do I need to prove?
In order to secure a conviction, you must be able to prove the following elements of the offense:
(1) The making, drawing, and issuance of any check to apply for account or for value;
(2) The knowledge of the maker, drawer, or issuer that at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment; and
(3) The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit, or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.
As to the second element, since knowledge is a state of mind which is difficult to prove, the offender is presumed to have knowledge of insufficiency of funds if, within 5 banking days from receipt of a notice of dishonor, he did not make good of the check, or did not make any arrangement for the full payment of the value of the check. Please take note, it is very important that you must be able to prove that the accused actually received the notice of dishonor.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding debt collection and contract enforcement, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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