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?