Personal Property Security Act (R.A. 11057) 4.

A lessee of goods;

Creation of Security Perfection of Security

Scope: All transactions of any form that secure an obligation with movable Interest Interest
collateral Execution of a security Creation + mode of
XPNs: agreement perfection under Sec. 12
• Interests in aircrafts – subject to RA No. 9497, or the "Civil Aviation
Authority Act of 2008”
Perfection of a Security Interest
• Interests in ships – subject to PD No. 1521, or the "Ship Mortgage
Decree of 1978” 1. Creation (execution of a security agreement)
2. Mode of perfection
SECURITY INTEREST
a. Registration of a notice with the Registry;
a property right in collateral that secures payment or other performance of an
b. Possession of the collateral by the secured creditor; and
obligation, regardless of whether the parties have denominated it as a security
c. Control of investment property and deposit account.
interest, and regardless of the type of asset, the status of the grantor or
secured creditor, or the nature of the secured obligation; including the right of Registration of a notice with
a buyer of accounts receivable and a lessor under an operating lease for not the Registry;
less than one (1) year Possession of the collateral Tangible Investment Property or
by the secured creditor; and assets Deposit Account
How is a security interest created? A security interest shall be created by a Control of investment
security agreement. [Sec. 5 (a)] property and deposit
account.
A security agreement may provide for the creation of a security interest in a
future property, but the security interest in that property is created only when
the grantor acquires rights in it or the power to encumber it. PERFECTION BY REGISTRATION:
Notice is registered in the Registry.
Security Agreement
must be contained in a written contract signed by the parties. It may consist Registry
of one or more writings that, taken together, establish the intent of the parties The centralized and nationwide electronic registry established in the Land
to create a security interest. Registration Authority (LRA) where notice of a security interest and a lien in
personal property may be registered;
It shall likewise provide for the language to be used in agreements and notices.
The grantor shall be given the option to have the agreement and notices in It provides electronic means for registration and searching of notices.
Filipino. • Information contained in a registered notice shall be considered as a
public record.
Grantor
• The electronic records of the Registry shall be the official records
1. The person who grants a security interest m collateral to secure its
• Any person may search notices registered in the Registry.
own obligation or that of another person;
2. A buyer or other transferee of a collateral that acquires its right subject What is registered? NOTICE – initial, amendment, termination
to a security interest;
3. A transferor in an outright transfer of an accounts receivable; or For each registered notice, the Registry shall:
1. Assign a unique registration number;
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CREDTRANS – Atty. Jess Lopez
 2. Create a record that bears: o Termination notice
• the number assigned to the initial notice o Electronic searches of the Registry records
• date and time of registration
Sufficiency of Initial Notice (Sec. 28) [G-CAPS]
3. The Registry shall provide a copy of the electronic record of the notice,
1. If it identifies the grantor by an identification number, as further
including the registration number and the date and time of registration
prescribed in the regulations;
to the person who submitted it.
2. If it identifies the secured creditor or an agent of the secured creditor
4. Maintain the record for public inspection.
by name;
• Notices are indexed by ID number of grantor and, for notices
3. If it provides an address for the grantor and secured creditor or its
containing a serial number of a motor vehicle, by serial
agent
number.
4. If it describes the collateral;
• The Registry shall maintain records of lapsed notices for a
• Considered sufficient, whether specific or general, if it
period of ten (10) years after the lapse.
reasonably identifies the collateral (Sec. 7)
The duties of the Registry shall be merely administrative in nature. By • “all personal property," "all equipment," "all inventory," or "all
registering a notice or refusing to register a notice, the Registry does not personal property within a generic category”
determine the sufficiency, correctness, authenticity, or validity of any • Shall be entered in English
information contained in the notice. 5. If the prescribed fee has been tendered, or an arrangement has been
made for payment of fees by other means.
The Registry shall communicate the following information to any person who
requests it: If complied with all above, should not be rejected.
If Registry rejects, it shall promptly communicate the (1) fact of and (2) reason
1. Whether there are in the Registry any unlapsed notices that indicate for its rejection to the person who submitted the notice.
the grantor's identification number or vehicle serial number that
exactly matches the relevant criterion provided by the searcher; Each grantor must authorize the registration of an initial notice by signing a
2. The registration number, and the date and time of registration of each security agreement or otherwise in writing. (Sec. 27 (c))
notice; and A notice of lien may be registered by a lien holder without the consent of the
3. All of the information contained in each notice. person against whom the lien is sought to be enforced. (Sec. 27(e))

If requested, the Registry shall issue a certified report of the results of a search What if the security agreement is not yet concluded? Can registration still take
that is an official record of the Registry and shall be admissible into evidence place? YES, but once security agreement is concluded, the date of registration
in judicial proceedings without extrinsic evidence of its authenticity. shall be reckoned from the date the notice was registered.

FEES (Sec. 38) Can one notice cover more than 1 security agreement? Yes. (Sec. 29)
• The following transactions are to be charged fees as set by regulation
Effectiveness of Notice (Sec. 30)
issued by the DOF for the recovery of reasonable costs of establishing
Start date: Time discoverable on the records of the Registry
and operating the Registry:
End date:
o Initial notice
• When duration of the term indicated in the notice expires UNLESS, a
o Amendment notice (included by implication)
continuation notice is registered within 6 months before expiration of
o requesting a certified search report
the effective period of notice.
• No fees for:
• Effectivity of termination notice
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NOT effective when: Procedure for matters that may be required by demand (those covered
• seriously misleading – does not provide the ID number of grantor by Sec. 39)
• notice may not be retrieved in a search of the Registry against correct 1. Grantor gives a written demand to secured creditor to amend or
ID number of grantor – ineffective as to grantor terminate the effectiveness of notice.
2. Upon receipt of the demand submitted under Section 39, the secured
Amendment Notice (Sec. 32) creditor must register, within fifteen (15) working days, an amendment
1. The notice should identify the initial notice by its registration number or termination notice (Sec. 40)
2. Provide new information: [Ga-Ca-CAR] • The secured creditor shall not charge any fee for compliance
a. Adds collateral that is not proceeds (must be authorized by with demand received under Sec. 39 (Sec. 43)
the grantor in writing) 3. If the secured creditor fails to comply with the demand within 15
b. Adds a grantor (must be authorized by the added grantor in working days after its receipt, the person giving the demand under
writing) Section 39 may ask the proper court to issue an order terminating or
c. The secured creditor has agreed to release part of the amending the notice as appropriate (Sec. 41)
collateral described in the notice because it includes an item 4. The court may, on application by the grantor, issue an order that the
or kind of property that is not a collateral under a security notice be terminated or amended in accordance with the demand
agreement between the secured creditor and the grantor (Sec. (Sec. 42)
39)1
• order shall be conclusive and binding on the LRA
d. Secured creditor assigns a perfected security interest (Sec.
• Secured creditor who disagrees with the order of the court
16)
may appeal the order
e. Continuation Notice (Sec. 33)
5. The court may make any other order it deems proper for the purpose
• A & B above effective as to the added collateral or grantor from date of giving effect to an order under subsection (a) of this section.
of its (amended notice’s) registration 6. The LRA shall amend or terminate a notice in accordance with a court
• Amendment notice effective only as to each secured creditor who order made under subsection (a) of this section as soon as reasonably
authorizes it. practicable after receiving the order.
Termination Notice (Sec. 34) PERFECTION BY POSSESSION
1. Identifies initial notice by its registration number Possession, whether actual or constructive, of the tangible asset either by the
2. Identifies each secured creditor who authorizes the registration of the secured creditor or a depositary acting for the secured creditor.
termination notice
1. Reasons for termination: (Sec. 39) 2 [PEN] PERFECTION BY CONTROL
a. All the obligations under the security agreement to which the
Security interest in deposit account or investment property may be perfected
registration relates have been performed and there is no
by control through:
commitment to make future advances
b. No security agreement exists between the parties • The creation of the security interest in favor of the deposit-taking
c. The security interest is extinguished in accordance with this institution or the intermediary;
Act • The conclusion of a control agreement; or

1 2
May be demanded by grantor in writing May be demanded by grantor in writing
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 • For an investment property that is an electronic security not held with Rule: Banks/deposit taking institution/intermediary cannot be compelled to
an intermediary, the notation of the security interest in the books enter into control agreement
maintained by or on behalf of the issuer for the purpose of recording Rule: Banks/deposit taking institution/intermediary will not confirm or deny
the name of the holder of the securities. existence of control agreement involving grantor
XPN: Grantor requests
Control Agreement
A tripartite agreement in writing with the following details: Thus, secured creditor should ask grantor to waive bank secrecy so he can
inquire with bank.
Collateral Parties involved Content/Effect
Securities Grantor Secured Issuer or the issuer or the Rule on Continuity: A security interest shall continue in collateral
creditor intermediary intermediary agrees to notwithstanding sale, lease, license, exchange, or other disposition of the
follow instructions from collateral (Sec. 9) and shall extend to its identifiable or traceable proceeds
the secured creditor with (Sec. 8)
respect to the security, XPNs:
without further consent 1. Stipulation of the parties
from the grantor
2. Good faith purchaser // requirements: (Sec. 21)
Rights to Grantor Secured Deposit- the deposit-taking
a. Party obtained any movable property containing a security
deposit creditor taking institution agrees to
interest
account institution follow instructions from
the secured creditor with b. Such was taken in the ordinary course of business
respect to the payment c. Party was in good faith (no knowledge of security interest)
of funds credited to the
XPN to XPN (on good faith purchaser)
deposit account without
No such good faith shall exist if the security interest in the movable property
further consent from the
grantor was registered prior to his obtaining the property.
Commodity Grantor Secured Intermediary the commodity Security Interest will extend to proceeds even if fungible because even if it is
Contracts creditor intermediary will apply no longer identifiable, it’s still traceable. The law provides “identifiable OR
any value distributed on
traceable.”
account of the
commodity contract as RULE upon disposition of collateral, a security interest shall extend to
directed by the secured proceeds of the collateral without further act and be continuously perfected, if
creditor without further the proceeds are in the form of: [MANDa or DAMN] (Sec. 14)
consent by the
• Money
commodity customer or
grantor • Accounts receivable
• Negotiable instruments
• Deposit Accounts.
Nothing in this Act shall require a deposit-taking institution or an
intermediary to enter into a control agreement, even if the grantor so If the proceeds are in a form different from MANDa (or DAMN), security
requests. A deposit-taking institution or an intermediary that has entered interest must be perfected by:
into such an agreement shall not be required to confirm the existence of the • Registration/possession/control – depending on which is applicable
agreement to another person unless requested to do so by the grantor. to the relevant type of collateral
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 • within fifteen (15) days after the grantor receives such proceeds; Collateral Secured Means of Preferred Over
Creditor Perfection
Effect if NOT complied with: The security interest in such proceeds is VALID Deposit accounts Deposit Registration/ ALL
and BINDING between the parties (grantor and secured creditor) BUT shall taking Control/ (DTI also has
NOT be effective against third parties. institution Possession right to set-off)
(DTI)
A security interest shall remain perfected despite a change in the means for
Deposit Account or Anyone Control 1. Registration
achieving perfection: Provided, that there was no time when the security Investment except DTI 2. Control
interest was not perfected. Property or agreement
• In other words, must always be perfected intermediary later in time
• If falling under the preceding rule (wherein not MANDa upon Security Anyone Possession Registration
disposition) should comply with 15day perfection to remain perfected Certificates
Electronic Anyone Notation in books ALL
Rules when proceeds in the form of funds credited to a deposit account or securities NOT held by or on behalf of
money are commingled with other funds or money: (Sec. 8) by an intermediary issuer
1. The security interest shall extend to the commingled money or funds, Electronic Anyone Control 1. Registration
notwithstanding that the proceeds have ceased to be identifiable to securities NOT held 2. Control
the extent they remain traceable; by an intermediary agreement
2. The security interest in the commingled funds or money shall be later in time
limited to the amount of the proceeds immediately before they were Instruments and Anyone Possession Registration
commingled; and Negotiable
3. If at any time after the commingling, the balance credited to the Documents
deposit account or the amount of the commingled money is less than
the amount of the proceeds immediately before they were Goods (repairman Person who Possession ALL, until
or mechanic’s lien) provides payment
commingled, the security interest against the commingled funds or
services or thereof
money shall be limited to the lowest amount of the commingled funds
materials
or money between the time when the proceeds were commingled and with respect
the time the security interest in the proceeds is claimed. goods in the
ordinary
course of
business
PMSI – equipment Unpaid Registration of ALL
PRIORITY OF SECURITY INTEREST and its proceeds seller notice within 3
business days
GENERAL RULE: According to Date of Perfection after grantor
Special rules:3 receives
possession

3 As illustrated by JLo in class

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 Collateral Secured Means of Preferred Over ENFORCEMENT OF SECURITY INTEREST
Creditor Perfection
PMSI – consumer Unpaid Registration of ALL Right of Redemption (Sec. 45)
goods seller notice within 3 Any person who is entitled to receive a notification of disposition in
business days
accordance with this Chapter is entitled to redeem the collateral by paying or
after grantor
otherwise performing the secured obligation in full, including the reasonable
receives
possession cost of enforcement.
PMSI – Unpaid Registration/ ALL The right of redemption may be exercised, unless:
1. Livestock seller Possession/
1. The person entitled to redeem has, after the default, waived in writing
2. Inventory Control
the right to redeem;
3. Intellectual (whichever
2. The collateral is sold or otherwise disposed of, acquired or collected
property applicable)
+ by the secured creditor or until the conclusion of an agreement by the
Written secured creditor for that purpose; and
notification to 3. The secured creditor has retained the collateral.
holder of
NO period provided for the right of redemption.
conflicting
perfected security Right to Dispose of Collateral (Sec. 49)
interest before After default, a secured creditor may sell or otherwise dispose of the collateral,
grantor has
publicly or privately, in its present condition or following any commercially
possession (1&2)
reasonable preparation or processing.
or acquires rights
(3) The secured creditor may buy the collateral subject to the following conditions:
Livestock Persons Registration/ ALL except • If at a public disposition – no conditions
who provide Possession PMSI over
• Private disposition – collateral is of a kind that is customarily sold on
food or + livestock
medicine Written a recognized market OR the subject of widely distributed standard
notification to price quotations
holder of In disposing of collateral, the secured creditor shall act in a commercially
conflicting
reasonable manner (Sec. 50)
perfected security
interest before • A disposition is commercially reasonable if the secured creditor
grantor receives disposes of the collateral in conformity with commercial practices
possession of among dealers in that type of property.
food or medicine • A disposition is not commercially unreasonable (basically still
commercially reasonable) merely because a better price could have
been obtained by disposition at a different time or by a different
method from the time and method selected by the secured creditor.
• If a method of disposition of collateral has been approved in any legal
proceeding, it is conclusively commercially reasonable.

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Not later than ten (10) days before disposition of the collateral, the secured Rights of Buyer during Disposition: (Sec. 53)
creditor shall notify: (Sec. 51) • If a secured creditor sells the collateral under this Chapter, the buyer
1. The grantor (unless he waived) shall acquire the grantor's right in the asset free of the rights of any
2. Any other secured creditor or lien holder who, five (5) days before the secured creditor or lien holder.
date notification is sent to the grantor, held a security interest or lien • If a secured creditor leases or licenses the collateral under this
in the collateral that was perfected by registration; and Chapter, the lessee or licensee shall be entitled to the benefit of the
3. Any other person from whom the secured creditor received lease or license during its term.
notification of a claim of an interest in the collateral if the notification • If a secured creditor sells, leases or licenses the collateral not in
was received before the secured creditor gave notification of the compliance with this Chapter, the buyer, lessee or licensee of the
proposed disposition to the grantor (contemplates good faith) collateral shall acquire the rights or benefits described in subsections
(a) and (b) of this section: Provided, That it had no knowledge of a
Notification of Disposition must:
violation of this Chapter that materially prejudiced the rights of the
1. Identify grantor
grantor or another person.
2. Identify secured creditor
3. Describe collateral Expedited Repossession of the Collateral: (Sec. 47)
4. State the method of intended disposition • Possession without judicial process – allowed when:
5. State time and place of public disposition or the time after which other o Agreement so stipulates, and
disposition is to be made. o Possession can be taken without breach of peace
• If the collateral is a fixture, the secured creditor, if it has priority over
XPNs to notification requirement:
all owners and mortgagees, may remove the fixture from the real
1. Collateral is perishable
property to which it is affixed without judicial process
2. Collateral threatens to decline speedily in value
3. Collateral is a type customarily sold on a recognized market • Possession through court order
o Secured creditor should apply for an order granting
Application of Proceeds from Disposition: possession. Such application shall include (1) a statement by
1. The reasonable expenses of taking, holding, preparing for disposition, the secured creditor, under oath, verifying the existence of the
and disposing of the collateral, including reasonable attorneys' fees security agreement attached to the application and (2)
and legal expenses incurred by the secured creditor; identifying at least one event of default by the debtor under
2. The satisfaction of the obligation secured by the security interest of the security agreement
the enforcing secured creditor; and o The secured creditor shall provide the debtor, grantor, and, if
3. The satisfaction of obligations secured by any subordinate security the collateral is a fixture, any real estate mortgagee, a copy of
interest or lien in the collateral if a written demand and proof of the the application, including all supporting documents and
interest are received before distribution of the proceeds is completed. evidence for the order granting the secured creditor
4. The secured creditor shall account to the grantor for any surplus possession of the collateral
o An expedited hearing will be conducted by the court.
GR: Debtor is liable for any deficiency.
o The secured creditor is entitled to an order granting
XPN: when otherwise stipulated possession of the collateral upon the court finding that a
default has occurred under the security agreement and that
the secured creditor has a right to take possession of the
collateral
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Breach of Peace includes: 1. The debtor and the grantor;
• Entering the private residence of the grantor without permission 2. Any other secured creditor or lien holder who, five (5) days before the
• Resorting to physical violence or intimidation proposal is sent to the debtor and the grantor, perfected its security
• Bring accompanied by a law enforcement officer when taking interest or lien by registration; and
possession or confronting the grantor 3. Any other person with an interest in the collateral who has given a
written notification to the secured creditor before the proposal is sent
Recovery in Special Cases (Sec. 48) to the debtor and the grantor.
Upon default, the secured creditor may without judicial process:
RULE: The secured creditor may retain the collateral in the case of
1. Instruct the account debtor to make payment to the secured creditor
• For full satisfaction of the obligation, rule applies unless the secured
and apply such payment to the satisfaction of the obligation secured
creditor receives an objection in writing from any person entitled to
by the security interest after deducting the secured creditor's
receive such a proposal within twenty (20) days after the proposal is
reasonable collection expenses. On request of the account debtor, the
sent to that person
secured creditor shall provide evidence of its security interest to the
• For partial satisfaction of the obligation, rule applies only if the
account debtor when it delivers the instruction to the account debtor
secured creditor receives the affirmative consent of each addressee
2. In a negotiable document that is perfected by possession, proceed as
of the proposal in writing within twenty (20) days after the proposal is
to the negotiable document or goods covered by the negotiable
sent to that person
document;
3. In a deposit account maintained by the secured creditor, apply the Pactum commissorium is not legalized by the PPSA. It contemplates
balance of the deposit account to the obligation secured by the automatic appropriation which is not present here because the secured
deposit account; and creditor is required to send a proposal to the parties enumerated.
4. In other cases of security interest in a deposit account perfected by
control, instruct the deposit-taking institution to pay the balance of the TRANSITIONAL PROVISIONS
deposit account to the secured creditor's account.
Prior Interest
Right of Higher-Ranking Creditor to Take Over Enforcement: (Sec. 46) It means a security interest created or provided for by an agreement or other
Even if another secured creditor or a lien holder has commenced enforcement, transaction that was made or entered into before the effectivity of this Act and
a secured creditor whose security interest has priority over that of the that had not been terminated before the effectivity of this Act, but excludes a
enforcing secured creditor or lien holder shall be entitled to take over the security interest that is renewed or extended by a security agreement or other
enforcement process. This right may be invoked at any time before the transaction made or entered into on or after the effectivity of this Act;
collateral is sold or otherwise disposed of, or retained by the secured creditor Rules regarding prior interest: A prior interest remains effective between the
or until the conclusion of an agreement by the secured creditor for that parties notwithstanding its creation did not comply with the creation
purpose. It also includes the right to enforce such rights by any method requirements of this Act.
available to a secured creditor under this Act.
Creation of prior interest shall be determined by prior law.
Retention of Collateral (Sec. 54) Perfection – A prior interest remains effective between the parties
After default, the secured creditor may propose to the debtor and grantor to notwithstanding its creation did not comply with the creation requirements of
take all or part of the collateral in total or partial satisfaction of the secured this Act.
obligation, and shall send a proposal to:

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RULE: A prior interest that was perfected under prior law continues to be Other Provisions
perfected under this Act until the earlier of: Rules on Accounts Receivable: (Sec. 10)
1. The time the prior interest would cease to be perfected under prior A security interest in an account receivable shall be effective
law; and notwithstanding any agreement between the grantor and the account
2. The expiration of the transitional period – means the period from the debtor or any secured creditor limiting in any way the grantor's right to
date of effectivity of this Act until the date when the Registry has been create a security interest. Any stipulation limiting the grantor's right to
established and operational. create a security interest shall be void.
This is only applicable to accounts receivable arising from:
If perfection requirements of this Act are satisfied before the perfection of a 1. A contract for the supply or lease of goods or services other than
prior interest ceases in accordance with rule above, the prior interest continues financial services;
to be perfected under this Act from the time when it was perfected under the 2. A construction contract or a contract for the sale or lease of real
prior law. property; and
3. A contract for the sale, lease or license of intellectual property
If not, then the prior interest is perfected only from the time it is perfected
under this Act.
Written notifications and agreements include e-mails and other electronic
A written agreement between a grantor and a secured creditor creating a prior messages. Under the definition of terms, “Writing” includes electronic records.
interest is sufficient to constitute authorization by the grantor of the
The Act took effect on February 9, 2019. Implementation is conditioned upon
registration of a notice covering assets described in that agreement under this
Registry being established and operational.
Act.

Priority Repealing Clause

Determined by prior law if: The following laws, and all laws, decrees, orders, and issuances or portions
• The security interest and the rights of all competing claimant arose thereof, which are inconsistent with the provisions of this Act, are hereby
before the effectivity of this Act; repealed, amended, or modified accordingly:
• The priority status of these rights has not changed since the effectivity a) Sections 1 to 16 of Act No. 1508, otherwise known as "The Chattel
Mortgage Law";
of this Act.
b) Articles 2085-2123, 2127, 2140-2141, 2241, 2243, and 2246-2247
o It was perfected when this Act took effect, but ceased to be
of Republic Act No. 386, otherwise known as the "Civil Code of the
perfected; or Philippines";
o It was not perfected under prior law when this Act took effect, c) Section 13 of Republic Act No. 5980, as amended by Republic Act
and was only perfected under this Act. No. 8556, otherwise known as the "Financing Company Act of
1998";
Enforcement
d) Sections 114-116 of Presidential Decree No. 1529, otherwise
GR: If any step or action has been taken to enforce a prior interest before the known as the "Property Registration Decree";
effectivity of this Act, enforcement may continue under prior law or may e) Section 10 of Presidential Decree No. 1529, insofar as the provision
proceed under this Act. – There is an OPTION to enforce under either prior law thereof is inconsistent with this Act; and
or PPSA. f) Section 5 (e) of Republic Act No. 4136, otherwise known as the
XPN: If the step or action is a proceeding before a court before the effectivity "Land Transportation and Traffic Code
of this Act, prior law will apply.

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