Demand Promissory Note (Philippines)

A Demand Promissory Note in the Philippines documents a credit arrangement, recording how much is owed, when it falls due and the consequences of late payment.

Demand Promissory Notes are common in Philippine commercial and personal lending because they give the lender (payee) maximum flexibility: the lender can allow the note to remain outstanding for an indefinite period while interest accrues, and can call the entire balance due at any time by presenting the note to the maker and making a formal demand for payment. The prescriptive period for filing suit on a demand note runs from the time the demand is made, not from the date the note is executed, under Article 1144 of the Civil Code — giving the payee a fresh 10-year period after each formal demand.

The Bangko Sentral ng Pilipinas (BSP) supervised financial institutions — banks, thrift banks, rural banks, and cooperative banks — routinely use demand promissory notes for short-term commercial loans, overdraft facilities, and revolving credit lines, where the bank wants the flexibility to call the loan at any time based on changes in the borrower's financial condition or market conditions. BSP Circular No. 1048 (2019) on credit risk management requires banks to maintain demand notes in their credit documentation files as primary evidence of the loan obligation.

Private individuals and non-bank lenders also commonly use demand promissory notes for intercompany loans, shareholder loans to their own corporations under the Revised Corporation Code (RA 11232), and family loans where the repayment timing is deliberately left flexible. The Supreme Court in Dela Cruz v. Court of Appeals (G.R. No. 120554, December 5, 2000) held that a demand note does not become prescribed simply by the passage of time — the prescriptive period does not begin until an actual demand for payment is made and refused.

The legal framework governing the Demand Promissory Note (Philippines) in Philippines draws on several key statutes and regulatory bodies. Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Parties executing a Demand Promissory Note (Philippines) in Philippines should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Negotiable Instruments Law (Act No. 2031) sets the foundational requirements.

A Demand Promissory Note in the Philippines is needed when a lender wants maximum flexibility to call a loan at any time, without committing to a specific repayment schedule or maturity date.

A Demand Promissory Note is needed when a business lends money to a related company — a parent to a subsidiary or between affiliated corporations — and wants to maintain the right to demand repayment at any time depending on cash flow needs, without locking both parties into a fixed maturity date that may be inconvenient.

A Demand Promissory Note is needed when a shareholder advances funds to their own corporation under the Revised Corporation Code (RA 11232) and the parties want to classify the advance as debt (not equity) for corporate accounting and BIR tax purposes, but want the flexibility to demand repayment when the corporation has sufficient cash flow.

A Demand Promissory Note is needed when a lender extends a line of credit — allowing the borrower to draw down funds as needed up to a credit limit — where the outstanding balance changes constantly and a fixed maturity date would be impractical. Banks use demand promissory notes for revolving credit facilities and overdraft arrangements.

A Demand Promissory Note is needed when a private lender lends to a borrower whose financial situation is uncertain, and the lender wants to retain the right to accelerate repayment if the borrower's financial position deteriorates significantly, without being bound to wait until a fixed maturity date that may be years away.

A Demand Promissory Note is needed when a family member lends money to another family member on an informal basis — expecting repayment when convenient — but wants documentary evidence of the debt to prevent it from being treated as a gift under Article 725 of the Civil Code or as part of the lender's estate at death.

A valid Demand Promissory Note in the Philippines must contain the following elements under Act No. 2031 (Negotiable Instruments Law) and the Civil Code.

Demand Payment Clause: An express statement that the note is payable on demand — 'On demand, I/We promise to pay' or 'Payable on demand.' Under Section 7(b) of Act No. 2031, instruments with no time expressed are payable on demand, but an express demand clause removes all ambiguity and prevents the maker from arguing that a fixed but unstated maturity was intended.

Principal Amount: The sum certain in Philippine pesos (PHP ₱), stated in both figures and words to prevent alteration. The principal amount determines the filing fees if the note is sued upon, and the interest computation base.

Interest Rate: The agreed interest rate per annum. Under BSP Circular No. 799 (2013), parties may agree on any rate. For demand notes, interest typically accrues from the date of the note until the date of full payment. State whether interest is simple or compounded, and the frequency of compounding if applicable.

Maker and Payee Identification: Full legal names, addresses, and Tax Identification Numbers (TINs) of both the maker (borrower) and payee (lender). For corporate makers, include the SEC registration number and the name and title of the signing officer.

Demand Mechanics: How the payee makes a valid demand — in writing, delivered personally or by registered mail, to the maker's address stated in the note. Philippine courts require proof that a demand was actually made and received before ordering payment, as the prescriptive period under Article 1144 of the Civil Code (10 years for written contracts) begins running from the time of demand.

Default Interest and Penalty: The higher interest rate (penalty rate) applicable after a demand for payment has been made and payment has not been received within the stated grace period. Philippine courts enforce penalty clauses under Article 1226 of the Civil Code as liquidated damages, subject to the court's power of equitable reduction under Article 1229.

Attorney's Fees: A stipulation for attorney's fees — typically 25% of the outstanding balance — for collection. Philippine courts enforce contractual attorney's fees provisions in promissory notes under Article 2208(1) of the Civil Code as costs of collection.

Additional compliance elements for a Demand Promissory Note (Philippines) used in Philippines include: Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Forms-legal.com provides this template as a starting point for Philippines-compliant documentation.