Letter:

Dear Attorney,

I am currently facing a difficult financial situation. I have an outstanding credit card balance that I am unable to pay at this time due to a lack of steady employment and the absence of any tangible assets. I am contemplating the possibility of drafting a promissory note, wherein I would commit to paying the total amount by a specific future date when I hope my circumstances will have improved. Before I proceed, I would like to request your guidance on the legal ramifications of doing so, as well as any potential strategies or considerations I should keep in mind under Philippine law.

I am aware of the importance of ensuring that any written agreement I make is both fair and legally enforceable. I would greatly appreciate any insight you might offer on how to structure such a document, the best approach to negotiating terms with my creditor, and what to expect if I fail to pay by the promised date. Any explanation of my rights, obligations, and potential consequences under Philippine legislation and relevant case law would be invaluable.

Sincerely,
A Concerned Debtor

Legal Article on the Philippine Law Context:

When an individual in the Philippines faces significant credit card debt and lacks the immediate means to repay, one possible course of action to consider is drafting a promissory note that outlines a clear commitment to settle the obligation at a future date. This approach, while not guaranteed to prevent legal consequences or adverse credit reporting, can serve as a goodwill gesture towards the creditor and may provide both parties with a measure of clarity regarding expectations. To understand the intricacies of this option, it is essential to examine the legal principles governing obligations, contracts, and negotiable instruments in the Philippines, as well as consumer protection regulations and relevant financial industry guidelines.

1. Nature of the Obligation and the Governing Laws

The core legal framework that affects any written agreement to pay a sum of money, including promissory notes, is primarily found in the Civil Code of the Philippines. Book IV of the Civil Code, which covers Obligations and Contracts, lays out the general principles relating to debts and responsibilities. An unpaid credit card bill constitutes a civil obligation that arises from a contract—specifically, the credit card agreement executed between the debtor and the issuing financial institution. This contract typically spells out the terms of the credit line, interest rates, penalties, and the borrower’s duty to repay.

Additionally, should the debtor consider drafting a promissory note, reference may also be made to the Negotiable Instruments Law (Act No. 2031). While not all promissory notes must strictly follow the form prescribed for negotiable instruments, understanding what constitutes a negotiable instrument—and what does not—can guide the debtor in formulating an agreement that is precise and enforceable. The Negotiable Instruments Law requires specific criteria for an instrument to be considered negotiable: it must be in writing, signed by the maker, contain an unconditional promise to pay a sum certain in money, be payable on demand or at a fixed or determinable future time, and be payable to order or bearer. Not all promissory notes drafted in these circumstances will qualify, nor is it always necessary for them to be “negotiable” in the strict legal sense.

2. Validity and Enforceability of a Promissory Note

A promissory note can be seen as a reaffirmation of an existing obligation rather than the creation of a new one, assuming the debt in question—such as an unpaid credit card balance—already exists. The note can specify a new maturity date, adjusted interest terms, or installment arrangements. Under Philippine law, to be considered valid, the promissory note must not violate any existing statutes and must not be contrary to morals, good customs, public order, or public policy.

Key elements that strengthen the enforceability of a promissory note include:

Clarity of Terms: It must be clear how much is owed, when it is due, and what interest or penalties apply if payment is not made as promised. Ambiguity can lead to disputes and potentially weaken enforceability.
Consideration: The underlying credit card debt itself serves as consideration. In the context of a debt restructuring or deferred payment plan, the creditor’s forbearance (i.e., agreement to delay collection or legal action) can count as sufficient consideration.
Capacity of Parties: Both the debtor and the creditor must have the legal capacity to enter into agreements. Generally, this is not an issue unless one party is a minor, mentally incapacitated, or under some other legal disability.
Freedom from Vitiation of Consent: The agreement should not be the product of mistake, fraud, intimidation, undue influence, or other factors that vitiate consent. Each party must willingly and knowingly enter into the agreement.

While creating a promissory note does not erase the original credit card agreement or its terms, it can serve as a supplemental contract that modifies the repayment timeline. Should a dispute arise in court, a well-drafted promissory note can provide the court with clear evidence of the agreement between parties regarding payment terms.

3. Drafting Considerations

When drafting a promissory note under Philippine law, meticulous attention should be paid to the following details:

Identification of Parties: While one may choose to omit sensitive details for privacy reasons in a public setting, the actual document must identify the parties involved with sufficient specificity to leave no doubt as to who owes what to whom. The debtor is typically identified as the “Maker,” and the creditor or financial institution is identified as the “Payee.”
Amount Owed: Specify the exact amount due, including any accrued interest or penalties, as of the date of the note. If uncertain, it may be advisable to review the latest account statement or request a final payoff amount from the creditor.
Due Date: Clearly state when the payment is expected. This may be a specific calendar date or a certain period (e.g., “90 days from the date of signing this note”). Ensuring a fixed and determinable date avoids ambiguity.
Interest and Penalties: If the original credit card agreement included interest and late payment fees, clarify whether these will continue to accrue. Some creditors may be open to reducing interest or waiving penalties if the debtor shows sincerity in repaying by creating a formal commitment.
Payment Method: Indicate how the payment will be made (e.g., bank deposit, online transfer, post-dated checks). Clear instructions regarding the manner of payment can prevent future misunderstandings.
Default Clause: Provide what happens in the event of default. Typically, if the debtor fails to pay by the agreed date, the creditor reserves the right to pursue legal remedies, reinstate the original interest rates, or demand immediate payment of the entire balance due.
Signatures and Witnesses: While not always strictly required, having witnesses or notarization can add credibility to the promissory note. Philippine courts generally recognize notarized documents as having more substantial evidentiary weight, as notarization certifies the authenticity of the signatures and the voluntary execution of the document.

4. Implications of Non-Payment

Signing a promissory note that specifies a future payment date can buy the debtor time. However, failure to comply with the terms of this new agreement may lead to more severe consequences, both legal and financial. Potential outcomes of non-payment include:

Legal Action: The creditor may file a civil case to recover the amount owed, plus interest and legal costs. This can result in a court judgment against the debtor, which can then be enforced against any present or future assets. Even if the debtor currently has no income or assets, a judgment may be enforceable for a number of years, and any later-acquired assets or income could be at risk.
Damage to Credit Standing: While the Philippines currently does not have a fully unified credit scoring system akin to some other jurisdictions, financial institutions can share information with credit bureaus. A history of unpaid debts or defaulted promissory notes can make it more difficult for the debtor to access future credit lines, loans, or other financial services.
Negotiation Challenges: Once a promissory note is broken, the creditor may be less inclined to negotiate alternative payment arrangements. This can limit the debtor’s flexibility in future dealings.

5. Potential Benefits of a Promissory Note

Despite the risks, drafting a promissory note under the guidance of a qualified attorney can present several benefits:

Demonstration of Good Faith: By proactively presenting a promissory note, the debtor shows a willingness to recognize the debt and settle it at a later date, potentially encouraging the creditor to refrain from immediate legal action.
Structured Payment Plan: The promissory note can formalize a structured repayment scheme that both parties find acceptable, possibly reducing immediate financial pressure on the debtor.
Avoiding Immediate Enforcement: If the creditor accepts the promissory note and its terms, the debtor may gain valuable time to find employment, secure assets, or otherwise improve their financial standing before the due date.

6. Consumer Protection and Regulatory Environment

Credit card transactions and their collection processes are subject to oversight by the Bangko Sentral ng Pilipinas (BSP) and other regulatory agencies. While these entities focus primarily on ensuring fair lending practices, transparency, and ethical collection methods, they do not absolve debtors from paying what is legally owed. Nonetheless, the BSP has issued guidelines encouraging financial institutions to deal fairly with borrowers, especially in hardship situations.

The use of promissory notes does not fall under a specialized regulatory regime apart from the general law on obligations and contracts, as well as the negotiable instruments framework. Still, the interaction between debtor and creditor should respect consumer protection principles: no harassment, no unlawful threats, and no misleading representations.

7. The Role of Legal Counsel

Seeking legal counsel is advisable before drafting and presenting a promissory note. A lawyer familiar with Philippine law can help tailor the agreement to the specifics of the debtor’s situation, ensure compliance with legal requirements, and attempt to negotiate favorable terms. Moreover, consulting an attorney can prevent the debtor from inadvertently including terms that are disadvantageous or unenforceable.

Lawyers are also critical in guiding debtors through potential pitfalls:

Jurisdiction and Venue: Clarifying where disputes will be resolved in case of conflict can prevent future procedural hurdles.
Choice of Law Clause: While not typically an issue when both parties and the transaction are Philippine-based, ensuring that Philippine law governs can avoid ambiguity if there are cross-border elements.
Severability and Merger Clauses: These clauses can ensure that if one part of the note is found unenforceable, the rest remains valid, and that all prior understandings not contained in the note are superseded by the note’s terms.

8. Alternative Arrangements

Before finalizing a promissory note, debtors may wish to consider other alternatives:

Debt Restructuring Agreement: Instead of a simple promissory note, a more comprehensive restructuring agreement could be negotiated, possibly reducing interest, extending the payment period, or settling for a lesser amount.
Consumer Debt Counseling: There may be nonprofit organizations or financial counseling services that can offer guidance on managing credit card debts and negotiating with creditors.
Informal Extensions or Moratoriums: Some creditors may offer short-term payment holidays or reduced minimum payments without requiring a formal promissory note, especially in times of widespread financial difficulty (for example, during economic downturns or disasters).

9. Enforcement and Court Proceedings

If the debtor ultimately fails to pay even after executing a promissory note, the creditor’s remedy is to file a civil action for collection of sum of money. In such a scenario, the promissory note will likely be presented as documentary evidence. The Philippine Rules of Court govern the procedure for such civil cases. If the creditor obtains a favorable judgment, they can pursue enforcement measures like garnishment of bank accounts or attachment of personal property once assets become available.

It is important to note that imprisonment for mere non-payment of debt is not permitted under Philippine law, as this would violate the constitutional prohibition on imprisonment for nonpayment of a debt. Exceptions to this rule apply only where fraud or other criminal acts are involved. Thus, while the debtor cannot be jailed merely for failing to pay a credit card bill, the financial and legal repercussions can still be significant.

10. Prescription of Actions

The Civil Code also outlines prescription periods within which creditors must file a legal action to collect a debt. For written contracts, the prescriptive period is generally ten years. A promissory note, being essentially a written acknowledgment of debt, may reset the clock on prescription. Thus, by signing a new promissory note, the debtor might inadvertently extend the time during which the creditor can enforce the obligation. This can be a double-edged sword: it buys immediate time but also prolongs the period during which the debtor is at risk of legal action if they fail to comply.

11. Ethical and Practical Considerations

From a debtor’s perspective, honesty and transparency are crucial. If the promissory note’s terms are unrealistic and the debtor knows they will not be able to pay by the stated date, it might be more prudent to communicate openly with the creditor rather than entering into an agreement likely to be broken. Courts look unfavorably upon bad faith, and a pattern of making promises without intending to fulfill them could influence judicial perception should litigation arise.

For creditors, accepting a promissory note can reflect a willingness to work with a struggling debtor. It may reduce immediate collection costs and legal fees if it leads to eventual repayment. However, creditors must also weigh the risk of delay and potential inability to collect if the debtor’s financial situation does not improve.

12. Conclusion

A promissory note can serve as a strategic tool for debtors facing unpaid credit card bills who currently lack the means to pay. Under Philippine law, such a note is a legitimate contractual instrument that may help in rescheduling an obligation, demonstrating good faith, and potentially avoiding immediate legal action. Yet, it does not eliminate the underlying debt or the creditor’s right to seek enforcement if the debtor ultimately fails to fulfill the promise.

When drafting a promissory note, careful attention to clarity, enforceability, fairness, and legal compliance is paramount. It is advisable to seek guidance from a qualified attorney who can ensure that the note reflects the debtor’s true capacity to pay and does not inadvertently disadvantage them in the long run. At the same time, creditors must approach the arrangement reasonably and ethically, acknowledging that the ultimate goal is to facilitate repayment rather than merely prolonging the collection process.

Ultimately, a promissory note is neither a magic solution nor a guaranteed method of avoiding legal consequences. It is a stepping stone that can open channels of communication and potentially provide breathing room. With informed decisions, due diligence, and legal counsel, both debtors and creditors can navigate the complexities of credit card debt repayment in accordance with Philippine law.