FOR: EASFROM: ACBSUBJECT: RELATED LAWS AND JURISPRUDENCE GOVERNING COLLETIONS OF SUM OF MONEYDATE: 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 areunenforceable, 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 fulll, perform, or comply with his obligation which demand, may be either judicial (when a complaint is led 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; x x x

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.