An Unpaid Loan: What to Do Before Filing a Case

A friend or customer borrowed money and promised to repay it. The due date passes, reminders go unanswered, and you begin considering a case.

Start by proving the obligation and calculating what is actually due. A strong collection position depends on records and the applicable rules, not the intensity of the creditor’s frustration.

I. Assemble the transaction file

Gather the loan agreement or promissory note, bank transfers, acknowledgments, relevant messages, payment history, and any collateral documents. Identify the lender, borrower, amount released, repayment terms, and outstanding principal.

If the money passed through several accounts, document why. A transfer alone may not explain whether the payment was a loan, investment, gift, or payment for something else. The surrounding agreement matters.

Preserve complete communications rather than selected screenshots. Electronic records may require authentication and context if they are later offered as evidence.

II. Reconcile the balance before making a demand

Prepare a computation showing:

• Principal advanced, supported by release records.
• Repayments received, with dates and agreed application.
• Interest claimed, identifying the written stipulation and calculation.
• Other charges claimed, identifying their legal and contractual basis.
• The balance requested, as of a specified date.

Article 1956 of the Civil Code provides that interest shall not be due unless expressly stipulated in writing. This concerns stipulated interest; legal or compensatory interest arising from delay presents a separate question. Do not assume that an unwritten monthly rate, a penalty, and legal interest can all be added without analysis.

The enforceability of excessive charges and the proper rate and period for damages require review of the agreement and applicable jurisprudence. Avoid sending an inflated demand that cannot be defended.

III. Understand the role of demand

Article 1169 generally addresses delay following judicial or extrajudicial demand, subject to statutory and contractual exceptions and the circumstances identified in the provision. A due date and the onset of legal delay are therefore not always the same question.

A written demand should identify the obligation, the amount supported, the basis for the claim, how payment may be made, and a clear requested response. Keep evidence of receipt or the attempted delivery. The content and delivery method should suit the transaction.

IV. Consider a documented settlement

If repayment is possible in installments, record the dates, amounts, treatment of interest, consequences of missed payments, and any security. Clarify whether the new arrangement merely adjusts payment or replaces aspects of the old obligation.

Do not accept a vague promise as though it were a completed settlement. Obtain legal advice before surrendering original documents, releasing collateral, or signing a waiver of claims.

V. Choose the correct procedure

Some money claims may qualify for small claims proceedings; others require an ordinary civil action. Jurisdiction, claim type, amount, venue, and procedural prerequisites must be checked under the rules in force when filing.

Barangay conciliation may also apply depending on the parties, residences, dispute, and statutory exceptions. A collection case should not be filed on the assumption that every preliminary requirement is identical.

Nonpayment alone does not automatically establish estafa. A criminal accusation needs the elements of a particular offense and supporting facts. Use the appropriate remedy rather than treating prosecution as a general collection threat.

VI. The practical takeaway

Before filing, build the evidence, reconcile the debt, document demand, and identify the correct route. A precise, supportable claim is more useful than an aggressive but uncertain one.

Sources and further reading

• Civil Code, particularly Articles 1169 and 1956: https://lexiquire.com/laws/RA%20386
• Rules on Electronic Evidence: https://lexiquire.com/laws/A~M~%20No~%2001-7-01-SC

This article provides general information on Philippine law. The appropriate advice and remedy depend on the facts, documents, and applicable rules.

For assistance reviewing your documents and legal options, contact MJM Law & Partners: https://www.mjmlawpartners.com/contact.

Clarity. Strategy. Results.

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