Letter to Attorney:

Dear Attorney,

I hope this letter finds you well. I am writing to inquire whether your law firm can assist in drafting and sending a letter of demand to collect an outstanding debt from a customer based in the Philippines. The request comes from a Malaysia-based company, and the goal is to send a formal letter to demand payment of the uncollected debts, with the primary intention of assessing the customer’s response before pursuing any further legal action.

Could you kindly provide guidance on the legal process for issuing such a letter of demand on behalf of a foreign company? I would appreciate it if you could also advise on the specific requirements for making such a demand under Philippine law, including any potential legal consequences or remedies available should the customer fail to respond or settle the debt.

Thank you for your time and expertise on this matter. I look forward to your advice.

Sincerely,
A Concerned Stakeholder

Legal Process for Issuing a Letter of Demand for Uncollected Debts in the Philippines on Behalf of a Foreign Company

In the Philippines, a letter of demand is a formal legal document used to request payment for an outstanding debt. When sent by a foreign company, such as a Malaysia-based entity, to a debtor in the Philippines, it serves as an initial step in the debt recovery process. The objective of the letter is to prompt the debtor to fulfill their financial obligations without the need for litigation, though it can also serve as a prelude to further legal action if the debtor fails to comply.

The process of issuing a letter of demand and the subsequent steps that may follow are governed by key provisions of Philippine law, including the Civil Code and procedural rules for debt collection. Below is a comprehensive discussion of the legal principles, steps, and considerations involved in issuing a letter of demand in the Philippines on behalf of a foreign company.

Issuing a Letter of Demand: Legal Considerations

1. Authority of Foreign Companies to Issue a Demand

A foreign company, such as one based in Malaysia, has the right to enforce its contractual and financial claims in the Philippines, subject to compliance with Philippine laws. Under the Foreign Investments Act (RA 7042) and other relevant legal frameworks, foreign companies can engage in business transactions, enter into contracts, and take legal action to protect their financial interests in the Philippines.

While a foreign company can directly issue a letter of demand, it is often more effective and strategically advantageous to have the letter issued through a Philippine law firm. This not only signals the seriousness of the claim but also ensures that the letter is drafted in accordance with local legal standards, increasing the likelihood of a favorable response.

2. Purpose of a Letter of Demand

A letter of demand serves multiple purposes, including:

Notification: It formally informs the debtor of their overdue obligation and demands payment.
Initiating Negotiation: The letter opens the door for dialogue and negotiation, allowing the debtor an opportunity to resolve the matter amicably.
Evidence of Attempted Settlement: If the issue escalates to legal proceedings, the letter of demand serves as evidence that the creditor made a good-faith effort to settle the matter outside of court.
Legal Protection: Under Philippine law, certain claims, such as those related to breach of contract, can be barred if not pursued within specific prescriptive periods. The letter of demand helps establish that the creditor acted within the relevant timeframe, preserving their right to sue.

3. Essential Components of the Letter of Demand

To ensure that the letter of demand is legally sound and persuasive, it should contain the following key elements:

Identification of the Parties: The letter must clearly state the names of the creditor (the Malaysia-based company) and the debtor (the Philippine-based customer).
Details of the Debt: A detailed account of the outstanding debt, including the amount owed, the original due date, and any relevant invoice numbers or contract references, should be provided.
Basis of the Debt: The letter should explain the contractual or legal basis for the debt, referencing the specific agreement or transaction that gave rise to the obligation.
Demand for Payment: The core of the letter is the demand for payment, including a specific amount and a reasonable deadline by which payment should be made (e.g., within 10 or 15 days of receipt of the letter).
Consequences of Non-Payment: The letter should clearly state the potential consequences of non-payment, including the possibility of legal action to recover the debt and associated costs.
Method of Payment: Provide instructions on how the debtor can settle the debt, including payment methods and contact details for further discussion or clarification.

4. Service of the Letter

In most cases, a letter of demand can be sent to the debtor via registered mail, ensuring proof of service. Alternatively, the letter may be hand-delivered, and an acknowledgment receipt can be requested. Proof of delivery will be important if the case escalates to litigation, as it demonstrates that the debtor was properly notified of the outstanding obligation.

Legal Remedies for Non-Payment After Issuing a Letter of Demand

If the debtor fails to respond to the letter of demand or refuses to settle the debt, several legal remedies are available to the foreign creditor under Philippine law. These remedies range from filing a civil suit to pursuing alternative methods of debt recovery, depending on the circumstances.

1. Filing a Civil Action for Collection of Sum of Money

The primary legal remedy for non-payment of a debt is to file a civil action for the collection of a sum of money. Under Rule 2 of the Rules of Court, a creditor may file a complaint before the appropriate court, seeking a judgment ordering the debtor to pay the outstanding amount, along with interest, damages, and attorney’s fees, if applicable.

The creditor must file the case in a court that has jurisdiction over the subject matter. For instance, if the amount in dispute exceeds a certain threshold, the case will be filed with the Regional Trial Court (RTC). However, if the amount falls below that threshold, it may be filed with the appropriate Metropolitan or Municipal Trial Court.

The court will review the complaint and, after proper service of summons and proceedings, may issue a decision ordering the debtor to pay the debt. In the event that the debtor still refuses to comply with the court’s decision, the creditor can move for the execution of the judgment, which may involve garnishment of the debtor’s assets or bank accounts.

2. Alternative Dispute Resolution (ADR)

In some cases, the creditor and debtor may agree to resolve the dispute through alternative dispute resolution (ADR) methods, such as mediation or arbitration. These methods are often faster and less expensive than litigation, making them attractive options for both parties. Additionally, if the original contract contains an ADR clause, the parties may be required to exhaust ADR mechanisms before pursuing litigation.

Under the Alternative Dispute Resolution Act of 2004 (RA 9285), the Philippines promotes the use of ADR to settle disputes, including those arising from commercial transactions. If arbitration is chosen, the resulting award is generally enforceable in Philippine courts, provided that it meets the requirements set forth in the law.

3. Filing a Petition for Extrajudicial Foreclosure (if secured by collateral)

In cases where the debt is secured by collateral (e.g., a mortgage), the creditor may pursue an extrajudicial foreclosure of the mortgaged property. This is an efficient means of recovering the debt without going through the full judicial process. The requirements and procedures for extrajudicial foreclosure are governed by the Real Estate Mortgage Law (Act No. 3135) and related jurisprudence.

4. Negotiated Settlement and Payment Plans

Before escalating the matter to litigation or other legal remedies, it may be possible to negotiate a settlement agreement with the debtor. This could involve agreeing on a revised payment schedule, a partial payment, or other terms that are acceptable to both parties.

Negotiated settlements are often faster and less costly than litigation, and they preserve the business relationship between the parties. In some cases, a settlement may be achieved after the issuance of the letter of demand, as it signals the creditor’s intention to pursue legal action if the debt remains unpaid.

Prescription Periods for Debt Collection

It is important to note that actions for the collection of debts are subject to prescription periods under the Civil Code of the Philippines. Generally, actions based on a written contract must be filed within ten (10) years from the time the cause of action accrues, while actions based on an oral contract must be filed within six (6) years. These periods ensure that creditors act promptly in enforcing their claims, and failure to file a claim within the prescriptive period may result in the debt becoming unenforceable.

Practical Considerations for Foreign Creditors

Foreign companies seeking to collect debts from Philippine-based customers should be aware of the following practical considerations:

Legal Representation: It is highly recommended that foreign companies engage a Philippine law firm to handle the debt collection process. A local lawyer will be familiar with the procedural requirements, court jurisdiction, and applicable laws, ensuring that the demand and subsequent legal actions are properly pursued.
Costs and Fees: Creditors should be prepared for the potential costs involved in litigation or ADR, including court fees, attorney’s fees, and other related expenses. In some cases, these costs can be recovered from the debtor if the court issues a favorable ruling.
Enforcement of Foreign Judgments: If the foreign company has already obtained a judgment in its home country, it may seek to enforce that judgment in the Philippines under the principle of comity of nations. However, this will require a separate legal action to recognize and enforce

the foreign judgment in Philippine courts.

Conclusion

Issuing a letter of demand for uncollected debts is an essential first step in the debt recovery process for a foreign company seeking to enforce its financial claims against a debtor in the Philippines. A well-drafted letter of demand can prompt payment, initiate negotiations, or lay the groundwork for future legal action. Should the debtor fail to respond or settle the debt, several legal remedies, including civil litigation and alternative dispute resolution, are available to the creditor under Philippine law. Engaging the services of a Philippine law firm ensures that the letter of demand is legally sound and that any subsequent legal action is properly handled within the framework of local laws.