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, 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• 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 ActionBorrower Action Bank OptionBank OptionBorrower 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 ActionBorrower Action Bank OptionBank Option

Borrower does not abide by agreement

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?