1. Session 6 Legal Action 1. Local Court 2. Small Claims Court

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. Most microfinance loans will most likely qualify as SMALL CLAIMS CASES

8. 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.

9. 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)

10. 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 11 th -20 claims500 Pesos per claim 21 st – 30 th claims600 pesos per claim 31 st -40 th claims700 pesos per claim 41 st -50 th claims800 pesos per claim The maximum filing fee for any claim by frequent filer is P20,000

11. 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

12. Borrower- Bank Action on Court-mandated Agreement Borrower Action Bank Option Borrower pays loan in fullBank 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

13. 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 defendant’s property/ies listed in the court inventory.

14. 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.

15. 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

16. Questions?