Published — June 22, 2018
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.
Related Topic: Things to Know About Filing a Small Claims Case
When dealing with others, it is a part of every business operations to incur obligations in favor of another. These obligations may be incurred through loan transactions, or through purchases on credit, among others. It is quite common for some businesses to experience aging receivables, and collecting from debtors can be quite difficult. Our laws recognize this problem.
For sure, payment extinguishes the obligation, which takes place when the amount consisting the obligation has been completely delivered [See: Art. 1231 & 1233, Civil Code]. The challenge for creditors, however, is on how will they get their debtors to pay.
The concept of default
Under the law, those who are obliged to deliver something are considered to be in default only from the time the creditor demands payment [See: Art. 1169]. Without the debtor incurring default, the creditor would have no right to enforce his credit through legal action. Since default can be incurred only when there is demand by the creditor upon the debtor, such demand is therefore necessary before a collection case may be filed by the creditor in court.
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.
Civil action for collection of sum of money
As a legal recourse, creditors may enforce their right to collect what is due from their creditor by filing a collection suit in court, which is done by doing the following steps:
Prepare the complaint – Though a non-lawyer creditor may draft a civil complaint all by himself, it is still advisable for him to get the services of a lawyer to ensure that the complaint is sufficient in form and substance. Certainly, the complaint for sum of money must state the following matters in order to prosper.
- The existence of a transaction creating an obligation in favor of the creditor to be paid a certain sum of money. This may be a loan transaction, or any dealings that create obligations such as sale (concerning purchase price) or lease (concerning rentals), among others;
- The amount of money owed by the debtor to the creditor;
- The fact that the indebtedness already fell due and is now demandable;
- The fact a demand was made upon the debtor to pay the amount of the obligation.
- If claiming for payment of interest, the written agreement entered by and between creditor and the debtor containing a stipulation as to the payment of interest being claimed, as well as the rate of interest.
Attach all necessary documents to the complaint – One has to make sure that all documents needed to prove the claim are already annexed to the complaint, because these supporting documents will be the evidence that the one suing would need to prove the basis of his claim.
Execute a notarized verification and certification against forum shopping – Towards the end of the complaint, there should be a portion for verification and certification against forum shopping, which the plaintiff needs to execute. Don’t forget to have it notarized before actually filing it in court.
File the complaint before the court – If the obligation does not exceed Php 300,000.00 (Php 400,000.00 if within Metro Manila), the complaint must be filed before the Metropolitan/Municipal Trial Court of the place where the creditor resides, or where the debtor resides. If the amount of obligation is more than the said amount, then the complaint shall be filed with the Regional Trial Court [See: Sec. 5, R.A. No. 7691].
What must be stated in the complaint
To be considered sufficient, the complaint must state the following matters:
- The existence of a transaction creating an obligation in favor of the creditor to be paid a certain sum of money. This may be a loan transaction, or any dealings that create obligations such as sale (concerning purchase price) or lease (concerning rentals), among others;
- The amount of money owed by the debtor to the creditor;
- The fact that the indebtedness already fell due and is now demandable;
- The fact a demand was made upon the debtor to pay the amount of the obligation.
- If claiming for payment of interest, the written agreement entered by and between creditor and the debtor containing a stipulation as to the payment of interest being claimed, as well as the rate of interest.
The matters stated above may be proved by testimonial or documentary evidence. However, it may be more difficult to establish factual matters if what needs to be proved are not documented. Also, as to the stipulation on payment of interest, the law requires that it must be in writing, otherwise payment of interest cannot be enforced [See: Art. 1956].
For being an enforceable right in court, creditors who are having a hard time collecting their credit may resort to legal action. Of course, it is still better for the parties to simply resolve their issues without having to go into a legal dispute, but our law cannot close its eyes to the creditor’s rights especially when some debtors simply make collection of debts more difficult than is necessary.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding credit and debt collection laws, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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