Session 6 Legal Action 1. Local Court 2. Small Claims Court Is Legal Action the only option now? • You have verified that the borrower can pay but refuses to pay. • You have done all efforts to collect. • Still, the borrower refuses to badge! • GO AHEAD AND FILE A CASE…BUT BEFORE YOU DO, LET US REVIEW A FEW THINGS. In a Legal Action the loan documents are key 1. Ensure that the borrower has received all three (3) demand letters. 2. Loan documents should have complete information & signed by all parties. 3. PN should indicate the amount borrowed, rate of interest, penalty charge, if any, and signatures of principal borower, co-borrowers or co-makers. 4. Having complete documentation can insure a successful legal action and recovery. Filing a Court Case In a court case, the principal borrower, comakers become co-defendants Tips to filers: – Court decisions have usually considered “excessive” interest rates that are higher than 12% p.a. and penalty rates are often waived. – Before deciding on filing a case, try attracting delinquent clients to pay with a full waiver of penalty. This avoid the expense and time for litigation. Regular or Small Claims Court? For a claim over P100,000: File complaint with the Local Court. For a claim of P100,000 or less: File the complaint with the Small Claims Court. Small Claims Court • Definition Are first level courts that hear and decide small claims. ( Metropolitan Trial Courts,Municipal Trial Courts in Cities, Municipal Trial Courts and Municipal Circuit Trial Courts. • Small Claims Cases - Civil Cases involving money claims not exceeding P100,000, excluding interests and costs. Most microfinance loans will most likely qualify as SMALL CLAIMS CASES In a Small Claims Court …. 1. Decision- rendered on the same day of hearing and is final and unappealable. 2. Appearance of Attorney- not allowed during the court proceedings. 3. Role of Judge- to ascertain the factual matters at issue and to elicit the evidence and render a decision- all in one hearing. 4. Execution- if decision is in favor of the plaintiff, execution shall issue upon motion. Lower Fees for Small Claims Cases 1. Fees- P2,000 docket and legal fees. • Additional Filing fees for frequent filers- plaintiff who have more than 10 claims within a calendar year. ( See illustration) Example • Frank’s Bank is a corporation serving many small businesses in Muntinlupa City. During calendar 2010, Frank’s Bank filed 50 small claims within the Court of Muntinlupa. Additional Filing Fees 11th-20 claims 500 Pesos per claim 21st – 30th claims 600 pesos per claim 31st-40th claims 700 pesos per claim 41st-50th claims 800 pesos per claim The maximum filing fee for any claim by frequent filer is P20,000 Where Cases can be filed 3 Options a. Place of the bank’s head office b. Place of branch office where loan transaction originated c. Place of residence of the defendant Borrower- Bank Action on Court-mandated Agreement Borrower Action Borrower pays loan in full Bank Option Bank closes account. NOTE: NO RELOANS to borrowers brought to court. Borrower surrenders item/s specified in Court inventory of recoverable assets Keep visiting client/remind about loan payment Have borrower sign Authority to Sell, then sell item/s Borrower-Bank Action on Court-mandated Agreement Borrower Action Borrower does not abide by agreement Bank Option Request Regular Court to issue 2nd (up to the 3rd) summons. For Small Claims case, where a decision is final and executory, Bank should file a Motion for Execution of Judgment on the basis of which Court will issue a Writ of Execution. This allows sheriff to take possession of defendant’s property/ies listed in the court inventory. What if…You failed to recover anything? Anong gagawin? • Write off the account, if you have not already done so. • Well, “when you have lemons, make lemonade.” Reflect well on the lessons and learn from it: – How you can improve the bank’s screening process; – How you can improve the approval system: – How you can improve the monitoring of accounts, loan collection and follow up. – How much loss the bank incur. Session Handouts • “Handbook on the Rule of Procedures for Small Claims Cases,” published under the USAID-supported Rule of Law Project of the Supreme Court • Flow Chart of Procedures for Small Claims Cases • MABS “A Quick Guide for Banks and Their Representatives,” October 2011 • Set of forms for Small Claims Case Questions?