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 CASEBUT
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, co-
makers 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
Franks Bank is a corporation serving many small
businesses in Muntinlupa City. During calendar 2010,
Franks Bank filed 50 small claims within the Court of
Muntinlupa.

Additional Filing Fees
11
th
-20 claims 500 Pesos per claim
21
st
30
th
claims 600 pesos per claim
31
st
-40
th
claims 700 pesos per claim
41
st
-50
th
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 banks 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 Bank Option
Borrower pays loan in full 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 Bank Option
Borrower does not
abide by agreement
Request Regular Court to issue 2
nd
(up to
the 3
rd
) 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 defendants property/ies
listed in the court inventory.
What ifYou 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 banks 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?