Three Debt Collection Paths in Taiwan, Compared

Payment Order, Promissory Note Ruling, or Lawsuit: Choosing the Right Debt Collection Path?

Is your company owed money, leaving you anxious and unsure where to start? Many business owners or legal counsel often face a dilemma when collecting debts: "Should I apply for a payment order, a promissory note ruling, or file a lawsuit directly?" In practice, these three methods each have their own advantages and disadvantages, and are suited for different situations. The wrong choice costs you the time and the money spent chasing it, and can leave the claim time-barred before you get anywhere. What separates the three routes is not difficulty but the assumptions each one makes — whether the debt is disputed, whether the other side signed a promissory note, and how much time you have left. Here is each in turn.

Payment Order: A Fast Track for Undisputed Small Claims?

A payment order, in simple terms, is a procedure where a creditor applies to the court for the court to "order" the debtor to pay the outstanding amount. Its biggest advantage is that the procedure is relatively simple, the cost is low — Article 77-19 of the Code of Civil Procedure sets the court fee for applying for a payment order at a flat NT$500, whatever the size of the claim — and under Article 512 of the Code of Civil Procedure the court rules on the application without questioning the debtor, so there is no oral-argument stage and the process takes far less time than a suit. If the debtor does not raise an objection within the statutory 20-day peremptory period after service, Article 521(1) of the Code of Civil Procedure makes the payment order an enforceable title, allowing the creditor to apply for compulsory enforcement.

Why Might It Fail?

The biggest risk with a payment order is that if the debtor raises an objection, the payment order loses effect to the extent objected to, and the matter converts into litigation or mediation. Many debtors, knowing they owe money, deliberately file objections to delay the process, forcing the creditor to pursue litigation. Payment orders also reach only "clear claims," meaning cases where the creditor-debtor relationship is unambiguous and undisputed. If the claim itself is contentious (e.g., the debtor claims issues with goods quality or inadequate service), rashly applying for a payment order may result in realizing it cannot resolve the issue after the debtor objects, wasting time.

How to Improve?

When signing contracts, try to minimize room for disputes. For instance, clearly and specifically define terms related to goods quality, acceptance standards, service scope, and payment conditions. For advance payments or installment payments, clearly state the penalty for late payment. For potential disputes, consider including "negotiation clauses" or "mediation clauses" in the contract as a second line of defense after a payment order fails. More strategically, if the debt amount is small and you are highly confident the debtor will not object, a payment order is indeed a quick option. However, if there is any doubt, or if the debt amount is significant, proceed with caution.

Sample clause The Buyer shall inspect the goods within seven days of receipt according to the specifications and acceptance standards set forth in this Agreement. If the Buyer has any questions regarding the quality of the goods, they shall notify the Seller in writing within the inspection period, stating the specific reasons. Failure to provide written objection within the time limit shall be deemed as acceptance.

Promissory Note Ruling: A Lifeline with a Promissory Note?

A promissory note is a negotiable instrument where the issuer promises to pay a certain amount unconditionally to the holder. Compared to a payment order, a promissory note ruling is an application by the creditor (holder) to the court, seeking a court ruling to confirm that the creditor can apply for compulsory enforcement based on this note. This procedure is faster than a payment order, and the court, in principle, does not conduct a substantive review but only a formal check to see if the promissory note meets the legal requirements (such as the date of issue, amount, unconditional payment promise, issuer's signature, etc.).

Why Might It Fail?

The key to a promissory note ruling lies in the "promissory note" itself. If the debtor has not issued a promissory note, a ruling is impossible. Even with a note, the debtor may still claim the note was forged or altered, or that it was issued based on another legal relationship (e.g., a loan or sale) which itself is disputed (e.g., the debtor claims the loan has been repaid, or the sales contract has been rescinded). In such cases, the court may deem the underlying debt relationship unclear and dismiss the application for a ruling. Alternatively, even if the ruling is granted, the debtor can still file an "objection to enforcement" during the compulsory enforcement proceedings, requesting a stay of execution, which may ultimately lead to litigation.

How to Improve?

When signing a contract, if deemed necessary, you can request the other party to issue a promissory note as collateral. However, remember that the validity of a promissory note is independent of the underlying legal relationship. This means that even if the sales contract has issues, the debtor must still pay the amount according to the note. To head off later argument, it is advisable to specify the purpose of the promissory note, either on the back of the note or in a separate agreement, such as "to guarantee payment for the sales contract (contract date, number)." This way, if the underlying sales contract is terminated for any reason, the court will have a clearer basis for review when the debtor claims the promissory note debt is invalid. Simultaneously, ensure all details on the promissory note are complete and accurate to avoid dismissal by the court due to formal defects.

Sample clause The Buyer agrees to issue one unconditional promissory note in the amount of New Taiwan Dollars [Amount] for the payment obligation under this Agreement, with an issue date of [Date], payable by the Buyer, and held by the Seller. This promissory note serves as collateral for the payment of the purchase price under this Agreement, and its scope and effect of collateral shall be governed by the provisions of this Agreement.

Lawsuit: The Most Comprehensive, Yet Most Time-Consuming and Laborious Final Resort

Filing a lawsuit is the most comprehensive way for a creditor to assert their rights and the most effective means to clarify the truth. Through the litigation process, the court will examine the evidence presented by both parties, conduct debates, and ultimately issue a judgment. Once the judgment becomes final and binding, the creditor can use it as a basis for enforcement and apply to the court for compulsory execution.

Why Might It Fail?

The disadvantages of litigation are obvious: it is time-consuming, expensive, and mentally draining. The litigation process can last for months or even years, during which time litigation fees, attorney fees, and significant effort are required to prepare evidence and attend court. Throughout the process, the debtor may use various tactics to delay the proceedings, such as applying for evidence preservation, summoning witnesses, or claiming the statute of limitations has expired. And where the creditor-debtor relationship is complex or the evidence thin, the final judgment may not be as expected. For example, if the court finds merit in the debtor's defense, the claim may be dismissed.

How to Improve?

When signing a contract, anticipate potential future disputes and minimize risks through contractual clauses. For instance, clearly define payment terms, acceptance standards, and liability for breach of contract. For overdue payments, stipulate high late interest rates or liquidated damages. According to Article 252 of the Civil Code, courts have the power to reduce liquidated damages that are manifestly unreasonable. Therefore, the stipulated liquidated damages should be commensurate with the actual potential losses to avoid being deemed excessive by the court and subsequently reduced.

If the disputed amount is large, or the creditor-debtor relationship is complex, filing a lawsuit is a more prudent choice. Before filing, consult with a lawyer to assess the probability of winning and consider applying for provisional attachment or injunctions to preserve your claim and prevent the debtor from absconding with assets.

Sample clause If the Buyer fails to pay the purchase price under this Agreement by the due date, the Buyer shall pay late interest at an annual rate of [Percentage]% from the due date until payment. If the delay exceeds [Number] days, the Seller shall be entitled to claim late interest and liquidated damages equivalent to [Percentage]% of the outstanding purchase price. The Seller also reserves the right to pursue the outstanding debt through relevant legal channels.

Five Questions That Pick the Route for You

• Is my claim clear and undisputed? (Yes → Consider Payment Order; No → Evaluate cautiously)
• Has the other party issued a promissory note? Are the note's details complete? (Yes → Consider Promissory Note Ruling; No → Rule out Promissory Note Ruling)
• Is the debt amount substantial? Is there a risk of asset dissipation? (Yes → Consider lawsuit and provisional attachment; No → Evaluate based on the first two points)
• Do I have sufficient time and resources for litigation? (No → Prioritize Payment Order or Promissory Note Ruling; Yes → Lawsuit is a more stable option)
• Are the payment terms and breach clauses in the contract clear and specific? (No → Review and revise the contract)

A Promissory Note Is Not a Shortcut to Payment

Many people mistakenly believe that if a debtor issues a promissory note, the holder is guaranteed to get their money quickly. However, in reality, a promissory note ruling merely grants the creditor an enforcement title. The debtor can still raise an objection to enforcement, claiming issues with the underlying legal relationship of the promissory note debt. Therefore, a promissory note is not a panacea; its validity is still influenced by the underlying legal relationship, although the procedure is faster.

FAQ

What happens if the debtor ignores a payment order?

If the debtor does not raise an objection within the statutory 20-day peremptory period after service, Article 521(1) of the Code of Civil Procedure makes the payment order an enforceable title, and the creditor can apply to the court for compulsory enforcement.

It is not, however, the same thing as a final judgment. Before the 2015 amendment, an unopposed payment order carried the same effect as a final judgment; since then it carries enforceability only, with no res judicata. Article 521(3) further provides that where the debtor sues for a declaration that the claim stated in the payment order does not exist, the court may, on the debtor's application, allow enforcement to be stayed against adequate and reliable security. Holding a payment order does not mean the debt is settled.

What can I do after a payment order is objected to?

Once the debtor lawfully objects within the statutory period, the payment order loses effect to the extent objected to. Under Article 519 of the Code of Civil Procedure, the creditor's application for the payment order is then deemed to be the filing of a suit or an application for mediation — no fresh action needs to be brought — and the summary-proceeding fee already paid counts towards the litigation or mediation fee. The creditor pays the balance, and the case proceeds to litigation or mediation, where the court adjudicates the substantive dispute between the parties.

After a promissory note ruling is granted, what else can the other party claim?

Even after a promissory note ruling is granted, the debtor can still file an "objection to enforcement" during the compulsory enforcement proceedings, claiming that the underlying legal relationship of the promissory note debt (e.g., sales contract, loan agreement) does not exist, has been extinguished, or has other grounds for defense. If the court finds the debtor's claim to be valid, it may order a stay of compulsory enforcement, ultimately requiring litigation to clarify the matter.

In what situations should I choose to file a lawsuit directly?

When the creditor-debtor relationship is complex, involves clear disputes (e.g., the other party claims defective goods, inadequate service, or has already paid as agreed), or when the debt amount is substantial and there is a concern that the debtor might dissipate assets, filing a lawsuit directly is a more prudent choice. Litigation allows the court to fully review the evidence and issue a judgment with definitive force.

How can I prevent the debtor from dissipating assets during the collection process?

Before or during litigation, if there is a reasonable belief that the debtor may conceal or transfer assets, you can apply to the court for "provisional attachment" or "provisional injunction." Provisional attachment is a temporary seizure of the debtor's assets to prevent their transfer, while a provisional injunction is a temporary measure, such as prohibiting the disposal of specific assets. These preservation procedures ensure that the creditor's rights are not jeopardized before the litigation concludes.

If the liquidated damages stipulated in the contract are too high, will the court deem them inapplicable?

According to Article 252 of the Civil Code, if the court finds the stipulated liquidated damages to be "manifestly unreasonable," it may, upon the debtor's application, reduce the damages to a reasonable amount. Therefore, when stipulating liquidated damages, consider the actual potential losses and avoid overly exaggerated figures to prevent them from being deemed excessive by the court and significantly reduced.