1.

Before the PPSA, which law principally governs the creation of a security interest
over movables?

Chattel Mortgage Law

Civil Code: Arts 2085-2123 (Pledge, Mortgage & Antichresis), 2127, 2140-2141
(Chattel Mortgage), 2241 & 2243 (Classification of Credits wrt to movable
property), 2246-2247 (Order of Preference of Credits wrt to movable property

Sec. 13, RA 5980 (Financing Company Act of 1998)

2. Upon which law was the PPSA patterned on?

UNCITRAL Model Law on Secured Transactions?

3. What is the policy behind the PPSA?

Section 2. Declaration of Policy. -It is the policy of the State to promote economic
activity by increasing access to least cost credit, particularly for micro, small, and
medium enterprises (MSMEs, farmers and fisherfolks), by establishing a unified
and modern legal framework for securing obligations with personal property.

4. How would you describe the framework of the PPSA? Why?

Unitary - includes most traditional forms of security such as mortgage, charge,

pledge, lien etc. The PPSA is not concerned with the form of the security but
rather the substance of the transaction.

Functional - treats all security transactions concerning personal property in the

same way

Comprehensive

5. What are the key benefits of the PPSA?

For the MSMEs and Farmers

• With the broad range of acceptable assets as collateral, it will result to increased
access to finance for MSMEs, Farmers and Fishers (to expand business or increase
productivity)
• With the centralized system, faster loan processing is anticipated with less time
spent by banks on due diligence
• Support growth of MSMEs - from a start up to a more sustainable business
• More options beyond 5-6 to access finance
 For the Financial Institutions (FIs)
• Enhanced risk management – through the centralized registry, there will be no
more blind side for the FIs)
• Lower transaction cost
• Expansion of Agri and MSME portfolio

For the Warehouse Industry

• Increased access to finance
• Opportunity to diversify operations
• Strengthen credibility and role in the value chain

For the Nation as a whole

• Increase productivity and more job creation through MSMEs, agriculture and
fishery sectors
• Help promote rural and value chain development toward increasing agricultural
and rural enterprise productivity
• Promote financial independence for every hardworking Filipino entrepreneur and
farmer
• Help increase the Philippines’ competitiveness and ease of doing business

6. What properties are covered and not covered by the PPSA?

Sec. 4. Applies to all transactions of any form that secure an obligation with
movable collateral, except interests in aircrafts subject to Republic Act No. 9497,
or the "Civil Aviation Authority Act of 2008", and interests in ships subject to
Presidential Decree No. 1521, or the "Ship Mortgage Decree of 1978".

7. How should the PPSA be interpreted?

Section 61. Interpretation, PPSA.— If there is conflict between a provision of this

Act and a provision of any other law, this Act shall govern unless the other law
specifically cites or amends the conflicting provisions of this law.

Sec. 1.03. Interpretation Clause, IRR – These Rules shall be liberally construed to
ensure the fulfillment of the policy objectives of the PPSA

8. What is a security agreement?

A security agreement is a document that provides a lender a security interest in a

specified asset or property that is pledged as collateral.
Section 5. Creation of a Security Interest.—
(a) A security interest shall be created by a security agreement,
 (b) 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.
Section 6. Security Agreement.— A security agreement must be contained in a
written contract signed by the parties. It may consist of one or more writings that,
taken together, establish the intent of the parties to create a security interest.
Parties to a security agreement:
(c) Grantor –
(1) The person who grants a security interest in collateral to secure its own
obligation or that of another person;
(2) A buyer or other transferee of a collateral that acquires its right subject to a
security interest;
(3) A transferor in an outright transfer of an accounts receivable; or
(4) A lessee of goods;
(i) Secured creditor – a person that has a security interest. For the purposes of
registration and priority only, it includes a buyer of account receivable and a lessor
of goods under an operating lease for not less than one (1) year;

9. What are the characteristics of a security agreement?

From chattel mortgage characteristics:

a. Consensual (subject to form)
No delivery is required in a chattel mortgage. However, mere consent does not yet
perfect the contract: formal requirements must still be fulfilled.
b. Unilateral
The main obligation is upon the mortgagee/creditor, who must free the property
from all encumbrances once the debt is paid.
c. Nominate
The Civil Code gives it a specific name.
d. Accessory
The chattel mortgage is constituted in order to secure a principal obligation.
e. Gratuitous or onerous
It is gratuitous if given by a third person who is not a party to the principal
obligation, and onerous if given by the debtor to the principal obligation.
f. Formal
must be contained in a written contract signed by the parties. It may consist of
one or more writings that, taken together, establish the intent of the parties to
create a security interest.

The security agreement 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 Filipino. The Department of Finance (DOF) shall prepare
model agreements in plain English and Filipino.
10. What are the essential requisites of a security agreement?

1. Consent (Civil Code, art. 1319)

2. Object
 Tangible and intangible movable assets (PPSA, sec. 4; IRR, sec. 2.03,
1.03[m], [kk])
 Present and future movable assets (PPSA, sec. 5[b]; IRR, sec. 1.05[k],
3.05[k])
o (b) 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.
 Movable assets where grantor has full or less than full ownership (PPSA,
sec. 5[a])
 Product and replacement (IRR, sec. 3.05 [aa], [c], [d])

3. Cause – liberality of debtor if gratuitous; fulfilment of principal obligation if

onerous

11. Is delivery of the collateral required for a security agreement?

NO?

12. Who has the legal capacity to enter into a security agreement?
13. What is the object of a security agreement? Can the security agreement cover
both movable and immovable property? YES (IP) Consumable and non-
consumable things? Fungible and non-fungible things? YES (extends to its
replacement) What are the general requirements with respect to the object of a
security agreement?
14. What is the cause or consideration in a security agreement? Is a security
agreement gratuitous or onerous?
15. Who are the parties to a security agreement?
16. Must the grantor be the owner of the collateral? Why or why not?
17. Should a security agreement be in a particular form (i.e., in writing)?
18. What content should a security agreement contain?
19. What are the rules on the description of the collateral in the security agreement?
20. What is a security interest?
21. What types of obligations can be secured by a security interest?
22. Does the security interest extend to fruits or proceeds of the collateral? What are
the rules on this matter?
23. As a rule, does the security interest continue in collateral notwithstanding sale,
lease, license, exchange, or other disposition of the collateral?
24. If there is an agreement between the grantor and the account debtor or any
secured creditor limiting in any way the grantor’s right to create a security
 interest, and the grantor creates such security interest, is the security interest
valid? Is this rule applicable to certain types of receivables only?
25. How is a security interest perfected? What is the consequence of the perfection
of the security interest?
26. What are the means of perfection of a security interest? To which types of
movables does each means of perfection apply to?
27. What is a control agreement?
28. What are proceeds? Does the security interest extend to proceeds?
29. Will a security interest remain perfected despite a change in the means for
achieving perfection?