FOR : EAS

FROM : ACB
SUBJECT : RELATED LAWS AND JURISPRUDENCE GOVERNING
COLLETIONS OF SUM OF MONEY
DATE : 8 MAY 2015

Article 1953 of the Civil Code of the Philippines (CCP), provides that
a person who receives a loan of money or any other fungible thing acquires the
ownership thereof and is bound to pay to the creditor an equal amount of the
same kind and quality. The obligation of one person who borrows money is
governed by the provisions of Article 1249 and 1250 of the Civil Code of the
Philippines. According to Article 1249, the payment of debts in money shall be
made in the currency stipulated and if it is not possible to deliver such
currency, then in the currency which is legal tender in the Philippines.
Furthermore, promissory notes payable to order or bill of exchange or other
mercantile documents shall only produce effect of payment if and only if they
have been cashed. In some instance, effect of payment is considered when the
documents have been impaired through the fault of the creditor. Article 1250
contemplates a case of extraordinary inflation or deflation of the currency
stipulated. It provides that the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is
an agreement to the contrary.

A debtor has the obligation to return to the amount that he

borrowed on the date and time that he and the creditor have agreed upon.
The following provisions govern the rules on payment found in Section 1,
Chapter 4, Book V of the Civil Code of the Philippines:

Art. 1233. A debt shall not be understood to have

been paid unless the thing or service in which the
obligation consists has been completely delivered or
rendered, as the case may be.

Art. 1236. The creditor is not bound to accept

payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is
a stipulation to the contrary.
 Whoever pays for another may demand from the
debtor what he has paid, except that if he paid without
the knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial
to the debtor.

Art. 1237. Whoever pays on behalf of the debtor

without the knowledge or against the will of the latter,
cannot compel the creditor to subrogate him in his rights,
such as those arising from a mortgage, guaranty, or
penalty.

Art. 1240. Payment shall be made to the person

in whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive
it.

Art. 1247. Unless it is otherwise stipulated, the

extrajudicial expenses required by the payment shall be
for the account of the debtor. With regard to judicial costs,
the Rules of Court shall govern

Art. 1248. Unless there is an express stipulation

to that effect, the creditor cannot be compelled partially to
receive the prestations in which the obligation consists.
Neither may the debtor be required to make partial
payments.

However, when the debt is in part liquidated and

in part unliquidated, the creditor may demand and the
debtor may effect the payment of the former without
waiting for the liquidation of the latter.

Art. 1251. Payment shall be made in the place

designated in the obligation.

There being no express stipulation and if the

undertaking is to deliver a determinate thing, the
 payment shall be made wherever the thing might be at
the moment the obligation was constituted.
In any other case the place of payment shall be
the domicile of the debtor.

If the debtor changes his domicile in bad faith or

after he has incurred in delay, the additional expenses
shall be borne by him.

These provisions are without prejudice to venue

under the Rules of Court.

If a debtor fails to comply with his obligation, the creditor shall have
the right to institute an action against him for the collection of his
indebtedness. The right to institute an action against a debtor is also subject
to conditions set by law. One of which is the period of time given within which a
creditor must enforce his right. The failure to file a case within such period
shall result in the prescription of right of action for the collection of
indebtedness. Furthermore, an Immature filing of complaint for collections of
sum of money to an obligation not yet due and demandable will also constitute
as a ground for dismissal by the court. Below are the provisions found in
Section 2, Chapter III, Book IV of the Civil Code governing obligation with a
period:

Art. 1193. Obligations for whose fulfilment a

day certain has been fixed shall be demandable only
when that day comes. Obligations with a resolutory
period take effect at once, but terminate upon arrival of
the day certain.
A day certain is understood to be that which
must necessarily come, although it may not be known
when.
If the uncertainty consists in whether the day
will come or not, the obligation is conditional, and it shall
be regulated by the rules of the preceding Section.

Art. 1195. Anything paid or delivered before the

arrival of the period, the obligor being unaware of the
period or believing that the obligation has become due and
demandable, may be recovered, with the fruits and
interests.

Art. 1196. Whenever in an obligation a period is

designated, it is presumed to have been established for
the benefit of both the creditor and the debtor, unless from
the tenor of the same or other circumstances it should
appear that the period has been established in favor of
one or of the other.

Art. 1197. If the obligation does not fix a period,

but from its nature and the circumstances it can be
inferred that a period was intended, the courts may fix the
duration thereof.

The courts shall also fix the duration of the

period when it depends upon the will of the debtor.

In every case, the courts shall determine such

period as may under the circumstances have been
probably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them.

Art. 1198. The debtor shall lose every right to

make use of the period:

(1) When after the obligation has been contracted, he

becomes insolvent, unless he gives a guaranty or
security for the debt;

(2) When he does not furnish to the creditor the guaranties

or securities which he has promised;

(3) When by his own acts he has impaired said guaranties

or securities after their establishment, and when through
a fortuitous event they disappear, unless he immediately
gives new ones equally satisfactory;
 (4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the period;

(5) When the debtor attempts to abscond.

The period of prescription for the collection of sum of money varies

depending on the existence of a written agreement between creditor and debtor.
If parties executed a written contract of loan, the creditor may institute
an action for collection of sum of money within ten (10) years from the
time the right of action accrues. For efficiency and enforceability, it is
important that the loan agreement entered by both parties must comply to the
Statute of Frauds provided in Article 1403.

Art. 1403. The following contracts are

unenforceable, unless they are ratified:

xxx (2) Those that do not comply with the Statute of

Frauds as set forth in this number. In the following cases
an agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a
secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed

within a year from the making thereof;

(b) A special promise to answer for the debt, default, or

miscarriage of another; xxx

If, however, parties only orally agreed upon the loan, the action may
still be enforced but it shall be considered to have prescribed after the
lapse of six (6) years.

Article 1144. The following actions must be

brought within ten years from the time the right of action
accrues:
 (1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.

Article 1145. The following actions must be

commenced within six years:

(1) Upon an oral contract;

(2) Upon a quasi-contract.

In collections of sum of money, debts are not extinguished by simply

paying the principal obligation when there is a stipulation of interest. With
the suspension of Usury Law, the debtor and creditor are free to stipulate the
interest on their agreement provided it is done freely with no presence of fraud
or intimidation. The agreement shall be the law to both parties and shall be
controlling between them so long as it is not unconscionable or shocking to the
conscience of man.

Art. 1956. Provides that No interest shall be due unless it has been
expressly stipulated in writing. The interest referred in Art. 1956 is interest for
the use of money. The interest must be clearly and categorically written within
the agreement. The stipulation of an interest and absence of the specific rate,
however, shall not affect the validity of such stipulation. The interest shall be
considered to be the present legal interest in the country which is 6 % per
annum

xxx the rate of interest for the loan or forbearance of any

money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to
such rate of interest, shall be 6 percent per annum.
- (Cicular No. 779)

Moreover, according to Art. 1959, without prejudice to the provisions of

Article 2212, interest due and unpaid shall not earn interest. However, the
contracting parties may by stipulation capitalize the interest due and unpaid,
which as added principal shall earn new interest. The general rule is that
accrued interest (interest due and unpaid) will not bear interest, the exceptions
would be (a) if there is agreement to this effect (Art. 1959), or (b) if there is
judicial demand (Art. 2212). Such accrued interest will bear interest at the legal
rate unless, a different rate is stipulated.

In a contract of loan where both parties agreed that payment should be

made by installments, the parties may include an acceleration clause. It is a
clause in a contract stating that the happening of a certain event, like failure to
pay of a debtor to any of the installment due, shall make the entire balance
become due and payable. Parties may also agree that obligation becomes due
and demandable upon the happening of a future and certain event even in the
absence of oral or written demand. This is an exception rather than the rule
provided in Article 1169.

Legal Delay, Default or Mora is the failure to perform an obligation on

time, which failure constitutes a breach of obligation. Mora solvendi or the
delay on the part of debtor of his obligation by reason imputable to him exists
when ; there is failure failure of the debtor to perform his (positive) obligation
on the date agreed upon; demand (not mere reminder or notice) made by the
creditor upon the debtor to fulfill, perform, or comply with his obligation which
demand, may be either judicial (when a complaint is filed in court) or extra-
judicial (when made outside of court, orally or in writing); and failure of the
debtor to comply with such demand.

Article 1169 of the Civil Code on delay requires the

following:

Those obliged to deliver or to do something incur in delay

from the time the obligee judicially or extrajudicially demands
from them the fulfilment of their obligation.

However, the demand by the creditor shall not be

necessary in order that delay may exist:

(1) When the obligation or the law expressly so declares;

xxx

A creditor may only file an action for the collection of sum of money
before the court when the debt is already due and demandable and there is
failure of payment on the part of the debtor. But before resorting to filing a
case, a demand letter is important. Demand letters will ensure that the
debtor is reminded of his obligation and that he shall be given the chance to
pay his debt without resorting to a full blown trial. Demand Letters also serve
as compelling evidence that the creditor formally demanded payment of the
debt due.

In some cases, where one or more of the grounds for preliminary

attachment apply to the creditor, he may attach the debtors property by
including an application for preliminary attachment when the creditor files
action for collection of sum of money in court. This is provided in Rule 57 of
the Revised Rules of Court. Attachment is the process of including the
adverse partys property in the proceedings, so it can be used as security for
the satisfaction of the judgment.

Section 1. Grounds upon which attachment may issue.

At the commencement of the action or at any time before

entry of judgment, a plaintiff or any proper party may have the
property of the adverse party attached as security for the
satisfaction of any judgment that may be recovered in the
following cases:

(a) In an action for the recovery of a specified amount of

money or damages, other than moral and exemplary, on a
cause of action arising from law, contract, quasi-contract, delict
or quasi-delict against a party who is about to depart from the
Philippines which intent to defraud his creditors; xxx

xxx(d) In an action against a party who has been guilty

of a fraud in contracting the debt or incurring the obligation
upon which the action is brought, or in the performance thereof;

(e) In an action against a party who has removed or

disposed of his property, or is about to do so, with intent to
defraud his creditors; xxx

The institution of action also depends on the amount of money to be

collected. The amount of money determines where the action must be filed.
The Municipal Trial Court, Municipal Circuit Trial Court, Metropolitan Trial
Court has Exclusive Original Jurisdiction to actions demanding the sum of
money not exceeding 300,000 Php or 400,000 Php in cases in Metro Manila.
Amount exceeding 300,000 Php or 400,000 php shall be cognizable by the
Regional Trial Court.

In case of joinder of causes of action where the claims are principally for
recovery of money, Section 5, Rule 2 of the 1997 Rules of Civil Procedure
provides that the aggregate amount claimed shall be the test of jurisdiction.

When the amount to be collected does not exceed One Hundred

Thousand Pesos (100,000 Php), Section 2, A.M. No. 08-8-7-SC provides that
the case should be filed under the jurisdiction of the small claims court which
is the Metropolitan or Municipal Trial Court in the place where the creditor or
debtor resides.