REPUBLIC ACT NO. 11057 (Personal Property Security Act) Annotations/Comments by Alberto F. Serrano AN ACT STRENGTHENING THE SECURED TRANSACTIONS LEGAL FRAMEWORK IN THE PHILIPPINES, WHICH SHALL PROVIDE FOR THE CREATION, PERFECTION, DETERMINATION OF PRIORITY, ESTABLISHMENT OF A CENTRALIZED NOTICE REGISTRY, AND ENFORCEMENT OF SECURITY INTERESTS IN PERSONAL PROPERTY. AND FOR OTHER PURPOSES Outline of subjects/topics: 1. CHAPTER 1 - Definitions and. (Scope 2. CHAPTER 2 - Creation of. ‘Security Interest 3. CHAPTER 3 - Perfection of. ‘Security Interest 4. CHAPTER 4 - Priority of. ‘Security Interest 5. CHAPTER 5 Registration - Registry 6. CHAPTER 6 - Enforcement of Security Interest and Secured Creditor's Rights 7. CHAPTER 7 - Transitional Provisions &. CHAPTER 8 - Congressional Oversight and Miscellaneous Provisions Section |. Title. - This Act shall be known as the “Personal Property Security Act", ~ It is the policy of the State to promote reasing access to least cost credit, particularly for enterprises (MSMEs), by establishing a unified and modern legal framework for securing obligations with personal property. R1- ‘Sec. 3. Definition of Terms. - As used in this Act, the following terms shall mean:(2) Commodity contract - a commodity futures contract, an option on a commodity futures contract, a commodity option, or another contract if the contract or option been designated as a con Commodities futures are agreements to buy or sell a raw material at a Spertfe date in the future at a particular price. The contract is for a set anon The jitee main areas of commodities are: a) food, b) energy, avd 3) metals. The most popular food futures are meat, wheat, and sugar Afutures contract is a legal agreement to buy or sell a particular Fra noully or asset at a predetermined price at a specified time in the future. The buyer of a futures contract is taking on the obligation to buy the underlying asset when the futures contract expires. The market where these commodities futures are sold are known as Commodities Futures Exchange. (2) With respect to securities, means an agreement in writing amang the issuer or the intermediary, the grantor and the secured creditor, according to which the issuer or the Intermediary agrees to follow instructions from the secured creditor with respect to the security, without further consent from the grantor; (2) With respect to rights to deposit account, means an Saremont in writing among the deposit-taking institution, tive Greditor with respect to the payment of funds credited ts ore deposit account without further consent from the grantor; (B) With respect to commodity contracts, means an agreement in waiting among the grantor, secured creditor, and intermediary according to which the commodity intermediary will apply any3 Hipp dobnn sooner rnenoaidonaonncornmocoonanndepnoa nae Eree Lomment; Control Agreement - An agreement that requires a party in Possession of a security to comply with instructions from the secured party without further consent from the holder of the security. (©) 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) Alesse of goods; HEHEHE Eon Eon eaed a dor bbckon oe ononoo an aoenee reamed Comment: Intermediated securities - securities are “intermediated”, that is they are held indirectly through a chain of one or more intermediaries. In this way, global custodians and securities brokers hold and trade huge volumes of Securities on behalf of their customers. At the same time, computerised records have largely replaced paper share and stock certificates. Non-intermediated securities are stocks, shares and other investment securities held directly by the investors such as certificate of stocks, Intermediary is a broker or a person employed to negotiate a matter between two parties and who for that reason is considered as the mandatary (agent) of both parties. A bank can act as an intermediary for the sale by the government of treasury bills or a stock broker for the sale of listed shares of stocks. (e) Notice - a statement of information that is registered in the Registry felating to a security interest or lien. The term includes an | notice, amendment notice, and termi notice;(f) Proceeds - any property received upon sale, lease or other disposition of collateral, or whatever is collected on or distributed with respect to collateral, claims arising out of the loss or damage to the collateral, as welll as a right to insurance payment or other compensation for loss or damage of the collateral; (g) Purchase money security interest - a security interest in goods taken by the seller to secure the price or by a person who gives value to enable the grantor to acquire the goods to the extent that the credit is used for that Purpose; TERROR EO DOI DEERE REDE ESSE EGE IESE IO OSE OEE Comment: Purchase Money Security Interest (PMS!) is asecurity interest or claim on property that enables a lender who provides financing for the acquisition of goods or equipment to obtain priority ranking ahead of other secured creditors. A security interest granted by a buyer of goods to the seller thereof that secures the deferred payment of the purchase price would generally be a PMSI, as would a security interest granted by a buyer to a lender that advances funds to the buyer to enable the buyer to buy goods from a seller to secure such advances. Purchase-Money Security Interest (PMSI). The most important type of security interest that is perfected immediately upon attachment is what is known as a purchase-money security interest (PMSI) in consumer goods. A PMSI generally involves either: (1) a debtor buying an item on credit from a seller where the seller will be the secured party; or (2) a debtor using a loan from a bank directly to buy an item from a seller, where the bank will be the secured party. When the debtor in one of these circumstances is buying consumer goods, the secured party (seller or bank) does not need to file a financing statement in order to perfect the security interest. Note, however, that, while it may not be necessary to file a financing statement, not all security interests in PMSIs in consumer goods are perfected upon attachment. For example, some statutes governing certificates of title, such as for cars, require that a security interest be indicated on the certificate in order for the interest to be perfected. Finally, be aware that the UCC states that perfection occurs automatically upon attachment for about a dozen other relatively unusual types of collateral. Having covered the main ways to perfect a security interest, it is important to note that there may be situations where a secured party with a perfected security interest would still have that interest subordinated to some other party. However, in most cases, perfecting a security interest provides very substantial protection of that interest. (h) Registry - the centralized and nationwide electronic registry established in the Land Registration Authority (LRA) where notice of a security interest and a lien in personal property may be registered;(@ Secured creditor — a person that has a security interest. For the purposes of registration ard 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; () Security interest - a property right in collateral that secures payment or ‘other performance of an obligation, regardless of whether the parties have denominated it as a security 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 a buyer of accounts receivable and a lessor under an operating lease for not less than one (1) year; and (ic) Writing - for the purpose of this Act includes electronic records. mjHrb rnb aesraoirlaosdo nono nHoniandonbiiciuckaucaoeociocene Comment: A security interest is a legal right granted by a debtor to a creditor over the debtor's property (usually referred to as the collateral) which enables the creditor to have recourse to the property if the debtor defaults in making payment or otherwise performing the secured obligations, ‘Sec, 4. Scope of the Act. - This Act shall apply 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". CHAPTER 2 - Creation of Security Interest ‘Sec. 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. Ther arora ramon RSE ES ROSE EH ESO HEARS UES OO HOSO HEHE EDO Comment: 1. Creation of security interest in personal property -A security interest is created by a security agreement, under which the debtor grants a security interest in the debtor's property as collateral for a loan or other obligation. The security interest may mean a right attached to the specific movable property to ensure the payment of an obligation. 3) a. 2. Three ways a security interest is attached or perfected- 5) ola Asecurity interest in many types of collateral, including “negotiable documents, goods, instruments, money, or tangible chattel paper,” may be perfected by the secured party possessing the collateral. However, so-called “intangible” collateral, such as accounts receivable, cannot be perfected by possession. However, the documentary evidence of the intangible collateral may be perfected by possession. 3. Security interest on a car title - The term “security interest" means an interest (including an interest established by a conditional sales contract, ‘mortgage, equipment trust, or other lien or title retention contract, or lease) in a motor vehicle when the interest secures payment or performance of an obligation 4, Difference between a security interest and a lien - In the U.S, the term "security interest” is often used interchangeably with “lien”. However, the term “lien” is more often associated with the collateral of real property than with of personal property. A security interest is typically granted by a “security agreement”. A lien is a right of a secured creditor to forcibly take the secured property if the debt is not paid, usually the financed property itself. A lien is also defined as a charge on a specific property consisting in the right to have said property alienated for the payment to the creditor. 5. Perfection of security interest - Security interest in an asset (mortgaged as a collateral) protected from claims of other parties. A lien is perfected by registering it with appropriate statutory authority so that itis made legally enforceable and any subsequent claim on that asset is given a junior status. Also called Perfected lien. A security interest is an enforceable claim or lien which gives a creditor the right fo repossess all or part of a property secured as collateral for a loan. A Perfected security interest is any secured interest in an asset that cannot be claimed by any other party. 6. Ways a security interest is attached or perfected - A security interest in many types of collateral, including “negotiable documents, goods, instruments, money, or tangible chattel paper,” may be ap eeperfected or attached by the secured party possessing the collateral. However, so-called “intangible” collateral, such as accounts receivable, cannot be perfected by possession. 7. Requirement for an enforceable security interest - In order for a security interest to be enforceable against the debtor and third parties, the requirements are: 1) Value must be provided in exchange for the collateral; 2) the debtor must have rights in the collateral or the ability to convey rights in the collateral to a secured party; 3) the debtor “authenticates” a security agreement. “Authenticates” means the grantor has signed the document creating the security interest. 8. Is a guarantee a security interest? A guarantee can be provided by an individual, a company or another type of corporate entity. A guarantee is one of the simplest security documents. It basically states the conditions under which the guarantor will be required to take over the borrower's repayment obligations upon default. It is NOT a security interest since no collateral is involved. 10. Is a security interest an ownership interest? No. A security interest is an enforceable claim or lien which gives a creditor the right to repossess all or part of a property secured as collateral for a loan in order to dispose of the same and the proceeds applied to the secured obligation. A perfected security interest is any secured interest in an asset that cannot be claimed by any other party. - 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. ‘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. Sea o rE ORO OOS GORE ESSERE OEE DEEPER EEE SEE Comment: Characteristics of securit Le ene See erea, Accessory- because it cannot exist without a valid principal obligation. b. Formal — because registration in registry is necessary in order to bind third persons. ¢. Unilateral contract- because only the creditor is obliged to perform by discharging the lien upon the fulfillment of the principal obligation. Securities are tradable financial asset of any kind. Securities are broadly categorized into: + debt securities (e.g., banknotes, bonds and debentures) . equity securities (e.g., common stocks) + derivatives (e.g., forwards, futures, options, and swaps) The company or other entity issuing the security is called the issuer. A country's regulatory structure determines what qualifies as a security. For example, private investment pools may have some features of securities, but they may not be registered or regulated as such if they meet various restrictions. Securities may be represented by a certificate or, more typically, "non- certificated’, that is in electronic (dematerialized) or “book entry’ only form. Certificates may be bearer, meaning they entitle the holder fo rights under the security merely by holding the security, or registered, meaning they entitle the holder to rights only if he or she appears on a security register maintained by the issuer or an intermediary. They include shares of corporate stock or mutual funds, bonds issued by corporations or governmental agencies, stock options or other options, limited partnership units, and various other formal investment instruments that are negotiable and fungible. Debentures have a more specific purpose than bonds. While both can be used to raise capital, debentures are typically issued to raise short-term capital for upcoming expenses or to pay for expansions. Sometimes called revenue bonds (because they may be expected to be paid for out of the proceeds of a new business project), debentures are never asset-backed, which means that they are not secured by any collateral. Debentures are backed solely by the full faith and credit of the issuer. Like bonds, debentures can be purchased through a broker. A Security agreement. For purposes of attachment, the debtor must “authenticate” a security agreement. In other words, the debtor must ‘sign the agreement. (The UCC uses the term “authenticate” to include the possibility of electronic signatures.) A security agreement normally will contain a clear ‘statement that the debtor is granting the secured party a security interest in specified goods. The agreement also must provide a description of the collateral. Section 9-108 of the UCC indicates generally that a description of collateral is sufficient “if it reasonably identifies what is described.” The same section then | igoes on to provide a half-dozen different possibilities for a reasonable identification, such a “specific listing,” a “category,” or a “quantity.” While the description of collateral in a security agreement may not need to be finely detailed, the UCC prohibits descriptions of collateral that are “supergeneric,” Such as “all the debtor's assets” or “all the debtor's personal property.” The UCC recognizes that some security agreements are quite complex, and, therefore, has various special rules regarding certain possible agreement terms. To take just one example, a security agreement may include a clause that the collateral is to include property that the debtor acquires after the agreement is, signed. For the most part, the UCC allows parties to use “after-acquired property” as collateral; however, the UCC does not allow after-acquired consumer goods to ‘serve as collateral. The three requirements of: giving value, debtor rights in the collateral, and an authenticated security agreement apply to the most common types of collateral, such as equipment, inventory and even payments due under a contract. However, for certain less common types of collateral, the requirements relating to an authenticated security agreement may vary. Sec. 7. Description of Collateral A description of collateral shall be considered sufficient, whether it is specific or general, if it reasonabl identifies the collate: A description such as “all personal property", “al equipment”, “all inventory”, or “all personal property within a generic category” of the grantor shall be sufficient. TBO n ESOC EEE C OBC o EEOC EEO BETES SOHO Comment: A secured transaction is a Joan or purchase that is secured by collateral. It involves a borrower or buyer, who are called the debfor, and a lender or seller, legally called the credifor, more specifically known as a secured party. The common secured transactions include a bank loaning a business money so the business can buy inventory, or a company selling a business equipment on credit. Under these transactions, the business is the debtor, the bank or the selling company is the creditor, and, most likely, the inventory or equipment will be at least part of the collateral. Under Article 9 of the Uniform Commercial Code (UCC), a creditor to becomes a secured party, i.e., a party with a legal right to take possession of collateral in the event of the debtor's failure to pay—the creditor must take special steps. These special steps are known as atfachment of a security interest. Besides, in order for a secured party to more fully ensure its legal rights in the event that other parties are asserting an interest in the same collateral, the secured party must take additional steps. These additional steps are known as perfecting a security interest. | | | pee10 interest A creditor has a security interest in collateral, and becomes a secured party, if and when a security interest “attaches.” Under the UCC, a security interest generally does not attach unless three basic requirements are met. In simplest form, the requirements are that: 1. value be given for the security interest or valuable consideration 2. the debtor has rights in the collateral (or power to transfer the collateral to a secured party); and 3. the debtor “authenticates” a security agreement. Valuable consideration. A secured transaction is a contract between the debtor and the secured party. Like most contracts, there must be an exchange of consideration between the parties. In other words, there must be an exchange of value. In the case of secured transactions, the value given by the secured party is usually obvious. For example, a bank gives value to a debtor when, in Conjunction with a security agreement, it loans money to the debtor to buy inventory. Similarly, a seller gives value to a debtor when, in conjunction with a security agreement, it sells equipment to the debtor. Debtor's rights in collateral. A business may have rights in collateral either by owning the collateral prior to the secured transaction or by purchasing the collateral as part of a secured transaction. When a business already owns certain property, it should be clear that the business has rights in that property, and can use it as collateral. In other cases, a business will buy items (materials, inventory, machinery and so on) on credit and want to use those same items as collateral. In such cases, the business will sign a conditional sales contract, which is also considered a security agreement, and which, under UCC sales rules, will give the business the necessary rights in the purchased items to use them as collateral. ‘extend to its identifiable or (b) Where proceeds in the form of funds credited to a deposit account or money are commingled with other funds or money: (1) The security interest shall extend to the commingled money or funds, notwithstanding that the proceeds have ceased to be identifiable to the extent they remain traceable; (2) The security interest in the commingled funds or money shall be limited to the amount of the proceeds immediately before they were commingled; and (3) If at any time after the commingling, the balance credited to the deposit account or the amount of the commingled money is less than the amount of the proceeds immediately before they were commingled, the security interest 40u against the commingled funds or money shall be limited to the lowest amount of the commingled funds or money between the time when the proceeds were commingled and the time the security interest in the proceeds is claimed. ‘Sec, 9. Continuity of Security Interest, - A security interest shall continue in collateral notwithstanding sale, lease, license, exchange, or other disposition of the collateral, except as otherwise provided in Section 21 of this Act, or agreed upon by the parties. (a) A. security interest in an account receivable shall be effective notwithstanding any 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. (b) Nothing in this section shall affect any obligation or liabil for breach of the agreement in subsection (a). of the grantor (©) Any stipulation limiting the grantor’s right to create a security interest shall be void. (d) This section shall apply only to accounts receivable arising from: (4) A contract for the supply or lease of goods or services other than financial services; (2) A construction contract or a contract for the sale or lease of real property; and (3) A contract for the sale, lease or license of intellectual property. FAECES OED OES EE Comment: Right to Proceeds and Commingled Funds and Money. (@) A security interest in personal property shall extend to its identifiable or traceable proceeds. (b) Where proceeds in the form of funds credited to a deposit account or money are commingled with other funds or money: (1) The security interest shall extend to the commingled money or funds, notwithstanding that the proceeds have ceased to be identifiable to the extent they remain traceable; (2) The security interest in the commingled funds or money shall be limited to the amount of the proceeds immediately before they were commingled; and (3) If at any time after the commingling, the balance credited to the deposit account or the amount of the commingled money is less than the amount of the proceeds immediately before they were commingled, the security interest against | soc12 the commingled funds or money shall be limited to the lowest amount of the commingled funds or money between the time when the proceeds were commingled and the time the security interest in the proceeds’is claimed. Continuing Security Interest. - A security interest shall continue in collateral notwithstanding sale, lease, license, exchange, or other disposition of the collateral, except as otherwise provided in Section 21 of this Act, or agreed upon by the parties. Sec. 21, Transferee Exceptions, - Ary party who obtains, n the ordinary couse of business, any movable property containing a securty Interest shal take the séme free of such security Interest provided he was in good feth. No such good faith shall exist if the security Interest in the ‘movable property wes registered prior te his obtaining the property, Contractual Limitation on the Creation of a Security Interest. (2) A security interest in an account receivable shall be effective notwithstanding any 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. (b) Nothing in this section shall affect any obligation or liability of the grantor for breach of the agreement in subsection (a). (C) Any stipulation limiting the grantor's right to create a security interest shall be void. (d) This section shall apply only to accounts receivable arising from: (1) A contract for the supply or lease of goods or services other than financial services; (2) A construction contract or a contract for the sale or lease of real property; and (3) A contract for the sale, lease or license of intellectual property. : ity 1 Per ic it eI (a) A security interest shall be Perfected when it has been created and the ‘secured creditor has taken one of the actions in accordance with Section 12. (b) On perfection, a security interest becomes effective against third parties. ‘Sec. 12, Means of Perfection, - A security interest may be perfected by: (2) Registration of a notice with the Registry; (b) Possession of the collateral by the secured creditor; and , (€) Controt of investment property and deposit account. A security interest in any tangible asset may be perfected by registration or possession. A security interest in investment property and deposit account may be perfected by registration or control. | |B Sec. 13, Perfection by Control. — (@) A security interest in a deposit account or investment property may be perfected by control through: (4) The creation of the security interest in favor of the deposit-taking institution or the intermediary; (2) The conclusion of a control agreement; or (3) For an investment property that is an electronic security not held with an intermediary, the notation of the security interest in the books maintained by or on behalf of the issuer for the purpose of recording the name of the holder of the securities. (b) Nothing in this Act shall require a deposit-taking institution or an intermediary to enter into a control agreement, even if the grantor so requests. A deposit-taking institution or an intermediary that has entered into such an agreement shall not be required to confirm the existence of the agreement to another person unless requested to do so by the grantor. |, a security interest shall extend to proceeds Of the collateral without further act and be continuously perfected, if the proceeds are in the form of money, accounts receivable, negotiable instruments or deposit accounts, (b) Upon disposition of the collateral, if the proceeds are in a form different from money, accounts receivable, negotiable instruments or deposit accounts, the security interest in such proceeds must be perfected by one of the means applicable to the relevant type of collateral within fifteen (15) days after the grantor receives such proceeds; otherwise, the security interest in such proceeds shall not be effective against third parties. Sec. 15, Change in Means of Perfection. - A security interest shalt remain perfected despite a change in the means for achieving perfection: Provided, ‘That there was no time when the security interest was not perfected. 16. it_ of Securit ~ If a secured creditor assigns a Perfected security interest, an amendment notice may be registered to reflect the assignment. JHE B HOES SSE per onronnonnannonnonnionnonGo io obuao ok coaonaacR Comment: 1. Concept of Perfection of Security Interest - A secured party perfects a security interest in order to help assure that no other party, such as another creditor or a bankruptcy trustee, will be able to claim the same collateral in the event that the debtor becomes insolvent. By perfecting4 its security interest, a secured party seeks to gain priority over other parties regarding the collateral The precise details of how to perfect a security interest depend in part on the local jurisdiction where the collateral is located. However, generally speaking, the primary waye fora secured party {o porfect &saounty intrest are + by filing a financing pa ern ith the appropriate public office + by possessing the collateral + by “controlling” the collateral; or + itfs done automatically upon attachment of the security interest. Of these four listed items, the first-filing a security agreement is by far the most common and ve to understand. Belewott) Security poaaaee pee interests for most types of collateral are usually perfected by fling a ‘document known simply as a financing statement. The purpose of the financing statement, which is filed with a public office such as the ‘Secretary of State, is to put other people on notice of the secured party’s security interest in the collateral. The UCC specifies what must be contained in a financing statement: + the name of the debtor + the name of the secured party; and + an indication of the collateral. With respect to the first item, it is important that the name of the debtor be sufficiently specific and accurate, because security agreements are filed under the debtor's name. If the name on the agreement is erroneous, the agreement will fail to provide adequate notice to others, and will not succeed in perfecting the security interest. Section 9-503 of the UCC provides various, more specific tules regarding the sufficiency of a debtor's name on a financing statement. For example, if the debtor is a “registered organization,” which might mean a corporation or limited liability company organized under a particular law, then the name on the financing statement must match the name of the debtor as registered with the SEC. Possession. A security interest in many types of collateral, including “negotiable documents, goods, instruments, money, or tangible chattel paper,” may be perfected by the secured party possessing the collateral. However, so-called “intangible” collateral, such as accounts receivable, cannot be perfected by possession. While “possession” is not directly defined, it includes possession not only by the secured party but also by an agent of the secured party.15 f Control of Collateral. The UCC states that, “A security interest in investment property, deposit accounts, letter-of-credit rights, or electronic chattel paper may be perfected by control of the collateral . . . ." The meaning of “contro!” can vary depending on which type of collateral is involved. For example, a secured party may have control of a deposit account if the bank, the debtor and the secured party have all agreed that the secured party may handle the funds in that account “without further consent by the debtor.” As another example, a secured party has. control over investment property, such as securities (shares of stock or the like), if the property is delivered to the secured party, and, if necessary, “endorsed” (Signed) to the secured party. Perfection of Security Interest. — (@) A security interest shall be perfected when it has been created and the Secured creditor has taken one of the actions in accordance with Section 12. (b) On perfection, a security interest becomes effective against third parties. Sec. 12, Means of Perfection. - A security interest may be perfected by: (a) Registration of a notice with the Registry; (b) Possession of the collateral by the secured creditor; and * (c) Control of investment property and deposit account. A security interest in any tangible asset may be perfected by registration or possession. A security interest in investment property and deposit account may be perfected by registration or control. Perfection by Control. — (a) A security interest in a deposit account or investment property may be perfected by control through: (1) The creation of the security interest in favor of the deposit-taking institution or the intermediary; (2) The conclusion of a control agreement; or (3) For an investment property that is an electronic security not held with ‘an intermediary, the notation of the security interest in the books maintained by or on behalf of the issuer for the purpose of recording the name of the holder of the securities. (b) Nothing in this Act shall require a deposit-taking institution or an intermediary to enter into a control agreement, even if the grantor so requests. A deposit- taking institution or an intermediary that has entered into such an agreement shall not be required to confirm the existence of the agreement to another person unless requested to do so by the grantor.16 Perfectio is. — (@) Upon disposition of collateral, a security interest shall extend to proceeds of the collateral without further act and be continuously perfected, if the proceeds are in the form of money, accounts receivable, negotiable instruments or deposit accounts. (b) Upon disposition of the collateral, if the proceeds are in a form different from money, accounts receivable, negotiable instruments or deposit accounts, the security interest in such proceeds must be perfected by one of the means applicable to the relevant type of collateral within fifteen (15) days afier the grantor receives such proceeds; otherwise, the security interest in such proceeds shall not be effective against third parties. Change in Means of Perfection. - A security interest shall remain perfected despite a change in the means for achieving perfection: Provided, That there was no time when the security interest was not perfected, Assignment of Security Interest. - If a secured creditor assigns a perfected security interest, an amendment notice may be registered to reflect the assignment. CHAPTER 4 - Securit Rules. — The priority of security interests and liens in the ‘same collateral shall be determined according to time of registration of a notice or perfection by other means, without regard to the order of creation of the security interests and liens. ‘Sec. 18. Priority for Perfection by Control. - (a) A security interest in a deposit account with respect to which the secured creditor is the deposit-taking institution or the intermediary shall have priority over a competing security interest perfected by any method. (b) A security interest in a deposit account or investment property that is Perfected by a control agreement shall have priority over a competing security interest except a security interest of the deposit-taking institution or the intermediary. (c) The order of priority among competing security interests in a deposit account or investment property that were perfected by the conclusion of control agreements shall be determined on the basis of the time of conclusion of the control agreements. (d) Any rights to set-off that the deposit-taking institution may have against a grantor’s right to payment of funds credited to a deposit account shall have priority over a security interest in the deposit account. K i 1 ee7 (e) A security interest in a security certificate perfected by the secured creditor's possession of the certificate shall have priority over a competing security interest perfected by registration of a notice in the Registry. (f) A security interest in electronic securities not held with an intermediary perfected by a notation of the security interests in the books maintained for ‘that purpose by or on behalf of the issuer shall have priority over a security interest in the same securities perfected by any other method. (g) A security interest in electronic securities not held with an intermediary perfected by the conclusion of a control agreement shall have priority over a security interest in the same securities perfected by registration of a notice in the Registry. (h) The order of priority among competing security interests in electronic securities not held with an intermediary perfected by the conclusion of control agreements is determined on the basis of the time of conclusion of the control agreements. ‘Sec. 19, Priority for Instruments and Negotiable Documents. - A security interest in an instrument or negotiable document that is perfected by possession of the instrument or the negotiable document shall have priority Over a security interest in the instrument or negotiable document that is perfected by registration of a notice in the Registry. ‘Sec. 20. Priority and Right of Retention by Operation of Law. — A person who provides services or materials with respect to the goods, in the ordinary course of business, and retains possession of the goods shall have priority over a perfected security interest in the goods until payment thereof. Sec. 21, Transferee Exceptions. - Any party who obtains, in the ordinary course of business, any movable property containing a security interest shall take the same free of such security interest provided he was in good faith. No such good faith shall exist if the security interest in the movable property was registered prior to his obtaining the property. ’s_Insolvency on the Priori Secur Interest, - Subject to the applicable insolvency law, a security interest perfected prior to the commencement of insolvency proceedings in respect of the grantor shall remain perfected and retain the priority it had before the commencement of the insolvency proceedings. ‘Sec. 23. Purchase Money Security Interest. — (2) A purchase money security interest in equipment and its proceeds shall have priority over a conflicting security interest, if a notice relating to the purchase money security interest is registered within three (3) business days after the grantor receives possession of the equipment. (b) A purchase money security interest in consumer goods that is perfected by registration of notice not later than three (3) business days after the18 grantor obtains possession of the consumer goods shall have priority over a conflicting security interest. (©) A purchase money security interest in inventory, intellectual property or livestock shall have priority over a conflicting perfected security interest in the same inventory, intellectual property or livestock if: (1) The purchase money security interest is perfected when the grantor receives possession of the inventory or livestock, or acquires rights to intellectual property; and (2) Before the grantor receives possession of the inventory or livestock, or acquires rights in intellectual property, the purchase money secured creditor gives written notification to the holder of the conflicting perfected security interest in the same types of inventory, livestock, or intellectual property. The notification sent to the holder of the conflicting security interest may cover multiple transactions between the purchase money secured creditor and the grantor without the need to identify each transaction. (a) The purchase money security interest in equipment or consumer goods perfected timely in accordance with subsections (a) and (b), shall have priority over the rights of a buyer, lessee, or Hen holder which arise between delivery of the equipment or consumer goods to the grantor and the time the notice is registered. Sec. 24, Livestock. - A perfected security interest in livestock securing an obligation incurred to enable the grantor to obtain food or medicine for the livestock shall have priority over any other security interest in the livestock, except for a perfected purchase money security interest in the livestock, if the secured creditor providing credit for food or medicine gives written notification to the holder of the conflicting perfected security interest in the same livestock before the grantor receives possession of the food or medicine, ‘Sec, 25, Fixtures, Accessions, and Commingled Goods. - A perfected security interest in a movable property which has become a fixture, or has undergone accession or commingling shall continue provided the movable property involved can still be reasonably traced. In determining ownership over fixtures, accessions, and commingled goods, the provisions of Book II of Republic Act No. 386 or the "Civil Code of the Philippines” shall apply. SHEERS HEBER HOE Ooo ERO OOO OEE oO Ee OETA Comment: of Security interest and Priority Rules. — The priority of security interests and liens in the same collateral shall be determined according to time of registration of a notice or perfection by other means, without regard to the order of creation of the security interests and liens. IS19 2. Priority for Perfection by Control. - (@) A security interest in a deposit account with respect to which the secured creditor is the deposit-taking institution or the intermediary shall have priority over a competing security interest perfected by any method. (©) A security interest in a deposit account or investment property that is perfected by a control agreement shall have priority over a competing security interest except a security interest of the deposit-taking institution or the intermediary. (©) The order of priority among competing security interests in a deposit account or investment property that were perfected by the conclusion of control agreements shall be determined on the basis of the time of conclusion of the control agreements. (d) Any rights to set-off that the deposit-taking institution may have against a grantor’s right to payment of funds credited to a deposit account shall have priority over a security interest in the deposit account. (e) A security interest in a security certificate perfected by the secured creditor's possession of the certificate shall have priority over a competing security interest perfected by registration of a notice in the Regist ( A secutity interest in electronic securities not held with an intermediary perfected by a notation of the security interests in the books maintained for that purpose by or on behalf of the issuer shall have priority over a security interest in the same securities perfected by any other method. (g) A security interest in electronic securities not held with an intermediary perfected by the conclusion of a control agreement shall have priority over a security interest in the same securities perfected by registration of a notice in the Registry. (h) The order of priority among competing security interests in electronic securities not held with an intermediary perfected by the conclusion of control agreements is determined on the basis of the time of conclusion of the control agreements. 3. Priority for instruments and Negotiable Documents. — A security interest in an instrument or negotiable document that is perfected by possession of the instrument or the negotiable document shall have priority over a security interest in the instrument or negotiable document that is perfected by registration of a notice in the Registry. 4. ity and Right of Retention by Operation of Law. — A person who provides services or materials with respect to the goods, in the ordinary course of business, and retains possession of the goods shall have priority over a perfected security interest in the goods until payment thereof. 5. Transferee Exceptions. - Any party who obtains, in the ordinary course of business, any movable property containing a security interest shall take the same free of such security interest provided he was in good faith. No such 19 eee20 good faith shall exist if the security interest in the movable property was registered prior to his obtaining the property. 6. Effect of the Grantor's Insolvency on the Priority of a Security Interest. - ‘Subject to the applicable insolvency law, a security interest perfected prior to the commencement of insolvency proceedings in respect of the grantor shall remain perfected and retain the priority it had before the commencement of the insolvency proceedings. LP ise Money Secut terest. — (2) A purchase money security interest in equipment and its proceeds shall have priority over a conflicting security interest, if a notice relating to the Purchase money security interest is registered within three (3) business days after the grantor receives possession of the equipment. (b) A purchase money security interest in consumer goods that is perfected by registration of notice not later than three (3) business days after the grantor obtains possession of the consumer goods shall have priority over a conflicting security interest. (©) A purchase money security interest in inventory, intellectual property or livestock shall have priority over a conflicting perfected security interest in the same inventory, intellectual property or livestock if: (1) The purchase money security interest is perfected when the grantor receives possession of the inventory or livestock, or acquires rights to intellectual property; and 2) Before the grantor receives possession of the inventory or livestock, or acquires rights in intellectual property, the purchase money secured creditor gives written notification to the holder of the conflicting perfected security interest in the same types of inventory, livestock, or intellectual property. The notification sent to the holder of the conflicting security interest may cover multiple transactions between the purchase money secured creditor and the grantor without the need to identify each transaction. (d) The purchase money security interest in equipment or consumer goods Perfected timely in accordance with subsections (a) and (b), shall have priority over the rights of a buyer, lessee, or Hen holder which arise between delivery of the equipment or consumer goods to the grantor and the time the notice is registered. 8. Security interest in livestock. - A perfected security interest in livestock ‘securing an obligation incurred to enable the grantor to obtain food or medicine for the livestock shall have priority over any other security interest in the livestock, except for a perfected purchase money security interest in the livestock, if the secured creditor providing credit for food or medicine gives mw | i i | |21 written notification to the holder of the conflicting perfected security interest in the same livestock before the grantor receives possession of the food or medicine. A perfected security interest in a movable property which has become a fixture, or has undergone accession or commingling shall continue provided the movable Property involved can still be reasonably traced. In determining ownership over fixtures, accessions, and commingled goods, the provisions of Book Il of Republic Act No. 386 or the "Civil Code of the Philippines" shall apply. CHAI istration - Regist Sec. 26. Establishment of Electronic Registry. — (a) The Registry shall be established in and administered by the LRA. (b) The Registry shall provide electronic means for registration and searching of notices. ‘Sec. 27. Public Record. ~ (a) Information contained in a registered notice shall be considered as a public record. (b) Any person may search notices registered in the Registry. (c) The electronic records of the Registry shall be the official records. Sec. 28. Sufficiency of Notice. — (a) An initial notice of security interest shall not be rejected: (4) If it identifies the grantor by an identification number, as further prescribed in the regulations; (2) If it identifies the secured creditor or an agent of the secured creditor by name; (3) If it provides an address for the grantor and secured creditor or its agent; (4) If it describes the collateral; and (5) If the prescribed fee has been tendered, or an arrangement has been made for payment of fees by other means. (b) If the Registry rejects to register a notice, it shall promptly communicate the fact of and reason for its rejection to the person who submitted the notice. (c) Each grantor must authorize the registration of an initial notice by signing a security agreement or otherwise in writing. (d) A notice may be registered before a security agreement is concluded. Once a security agreement is concluded, the date of registration of the notice shall be reckoned from the date the notice was registered.2 (e) A notice of lien may be registered by a lien holder without the consent of the person against whom the lien is sought to be enforced. (f) Description of the collateral in a notice shall be entered in English. Secut Under Mi Agreements, - The registration of a notice may relate to security interests created by the grantor under one (1) or more than one security agreement. Sec. 30. Effectiveness of Notice.- (2) A notice shalll be effective at the time it is discoverable on the records of the Registry. (b) A notice shall be effective for the duration of the term indicated in the notice unless a continuation notice is registered before the term lapses. (©) A notice substantially complying with the requirements of this Chapter ‘shall be effective unless it is seriously misleading. (qd) A notice that may not be retrieved in a search of the Registry against the correct identifier of the grantor shall be ineffective with respect to that grantor. Sec. 31, Seriously Misleading Notice. - A notice that does not provide the identification number of the grantor shall be seriously misleading. Sec. 32, Amendment of Notice. — {a) A notice may be amended by the registration of an amendment notice that: (A) Identifies the initial notice by its registration number; and (2) Provides the new information. (b) An amendment notice that adds collateral that is not proceeds must be authorized by the grantor in writing. {c) An amendment notice that adds a grantor must be authorized by the added grantor in writing. (d) An amendment notice shall be effective only as to each secured creditor who authorizes it, {e) An amendment notice that adds collateral or a grantor shall be effective as to the added collateral or grantor from the date of its registration. Contin of Notice, — (a) The period of effectiveness of a notice may be continued by registering an amendment notice that identifies the initial notice by its registration number.23 (b) Continuation of notice may be registered only within six (6) months before the expiration of the effective period of the notice. Sec. 34. Termination of Effectiveness of a Notice. (a) The effectiveness of a notice may be terminated by registering a termination notice that: (A) Identifies the initial notice by its registration number; and (2) Identifies each secured creditor who authorizes the registration of the termination notice. (b) A termination notice terminates effectiveness of the notice as to cach authorizing secured creditor, Sec. 35. Registry Duties. (a) For each registered notice, the Registry shall: (4) Assign a unique registration number; (2) Create a record that bears the number assigned to the initial notice and the date and time of registration; and (3) Maintain the record for public inspection. (b) The Registry shall index notices by the identification number of the grantor and, for notices containing a serial number of a motor vehicle, by serial number. (c) The Registry shall provide a copy of the electronic record of the notice, including the registration number and the date and time of registration to the Person who submitted it. (d) The Registry shall maintain the capability to retrieve a record by the identification number of the grantor, and by serial number of a motor vehicle. (e) The Registry shall maintain records of lapsed notices for a period of ten (10) years after the lapse. (A) The duties of the Registry shall be merely administrative in nature. By registering a notice or refusing to register a notice, the Registry does not determine the sufficiency, correctness, authenticity, or validity of any information contained in the notice. rch of Rs Cortific - (@) The Registry shall communicate the following information to any person who requests it: (1) Whether there are in the Registry any unlapsed notices that indicate the grantor's identification number or vehicle serial number24 that exactly matches the relevant criterion provided by the searcher; (2) The registration number, and the date and time of registration of each notice; and * (3) All of the information contained in each notice. (b) If requested, the Registry shalll issue a certified report of the results of ‘@ search that is an official record of the Registry and shall be admissible into evidence in judicial proceedings without extrinsic ‘evidence of its authenticity. ‘Sec. 37. Disclosure of Information, — (@) The secured creditor must provide to the grantor at its request: (A) The current amount of the unpaid secured obligation; and (2) A list of assets currently subject to a security interest, (b) The secured creditor may require payment of a fee for each request made by the grantor in subsection (a) in this section, but the grantor is entitled to a reply without charge once every six (6) months. (c) A security interest in a deposit account shall not: (1) Affect the rights and obligations of the deposit-taking institution without its consent; or (2) Require the deposit-taking institution to provide any information about the deposit account to third parties. Fees lation. (a) The fees for registering a notice and for requesting a certified search report shall be set by regulation issued by the DOF for the recovery of reasonable costs of establishing and operating the Registry. (b) The fee structure or any change thereof under subsection (a) shall further consider that the same shall not be burdensome to either lender or grantor. (c) There shalll be no fee for electronic searches of the Registry records or for the registration of termination notices. (d) The Registry may charge fees for services not mentioned above. 39. Wh Gra Notice, - A grantor may give a written demand to the secured amend or terminate the effectiveness of the notice if: (a) All the obligations under the security agreement to which the registration relates have been Performed and there is no commitment to make future advances; (b) The secured creditor has agreed to release part of the collateral described in the notice; 16 (c) The collateral described in the notice includes an item or kind of Property that is not a collateral under a security agreement between the secured creditor and the grantor; (d) No security agreement exists between the parties; or (e) The security interest is' extinguished in accordance with this Act. 2 |25 Sec. 40. Matters That May be Required by Demand, - Upon receipt of the demand submitted under Section 39, the secured creditor must register, within fifteen (15) working days, an amendment or termination notice: (a) ‘Terminating the registration in a case within subsections (a), (d) or (e) of Section 39; (b) Amending the registration to release some property that is no longer collateral in a case within subsection (c) of Section 39 ot that was never collateral under a security agreement between the secured creditor and the grantor in a case within subsection (c) of Section 39. joncompliance with Demand. - If the secured creditor fails to comply with the demand within fifteen (15) working days after its receipt, the person giving the demand under Section 39 may ask the proper court to issue an order terminating or amending the notice as appropriate. r jendmen' nati rs - (a) The ‘court may, on application by the grantor, issue an order that the notice be terminated or amended in accordance with the demand, which order shall be conclusive and binding on the LRA: Provided, That the secured creditor who disagrees with the order of the court may appeal the order. (b) The court may make any other order it deems proper for the purpose of giving effect to an order under subsection (a) of this section. (c) The LRA shall amend or terminate a notice in accordance with a court order made under subsection (a) of this section as soon as reasonably practicable after receiving the order. ‘Sec. 43. No Fee for Compliance of Demand. - A secured creditor shall not charge any fee for compliance with a demand received under Section 39. Sec. 44, When Regi: mand Registration and Search Constitutes Interference with Privacy of Individual. - A person who submitted a notice for registration or carried out a search of the Registry with a frivolous, mahcious or criminal purpose or intent shall be subject to civil and criminal penalties according to the relevant laws. : f Security Interes! Sec. 45. Right of Redemption. - (a) Any person who is entitled to receive a notification of disposition in accordance with this Chapter is entitled to redeem the collateral by paying or otherwise performing the secured obligation in full, including the reasonable cost of enforcement. (b) The right of redemption may be exercised, unless: (1) The person entitled to redeem | | | | i i26 has not, after the default, waived in writing the right to redeem; (2) The collateral is sold or otherwise disposed of, acquired or collected by the secured creditor or until the conclusion of an agreement by the secured creditor for that purpose; and (3) The secured creditor has retained the collateral. 46. Right of king Secured Creditor to Take Ov Semen ~ (a) Even if another secured creditor or a lien holder has commenced enforcement, a seemed creditor whose security interest has priority over that of the enforcing secured creditor or lien holder shall be entitled to take over the enforcement process. (b) The right referred to in subsection (a) of this section may be invoked at any time before the collateral is sold or otherwise disposed of, or retained by the secured creditor or until the conclusion of an agreement by the secured creditor for that purpose. (c) The right of the higher-ranking secured creditor to take over the enforcement process shall include the right to enforce the rights by any method available to a secured creditor under this Act. ‘Sec. 47, Expedited Repossession of the Collateral. - (a) The secured creditor may take possession of the collateral without judicial process if the security agreement so stipulates: Provided, That possession can be taken without a breach of the peace. (b) If the collateral is a fixture, the secured creditor, if it has priority over all owners and mortgagees, may remove the fixture from the real property to which it is affixed without judicial process. The secured creditor shall exercise due care in removing the fixture. (c) If, upon default, the secured creditor cannot take possession of collateral without breach of the peace, the secured creditor may proceed as follows: (1) The secured creditor shail be entitled to an expedited hearing upon application for an order granting the secured creditor possession of the collateral. Such application shall include a statement by the secured creditor, under oath, verifying the existence of the security agreement attached to the application and identifying at least one event of default by the debtor under the security agreement; (2) The secured creditor shall provide the debtor, grantor, and, if the collateral is a fixture, any real estate mortgagee, ‘a copy of the application, including all supporting documents and evidence for the order granting the secured creditor possession of the collateral; and (3) The secured creditor is entitled to an order granting 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. The court may direct the grantor to take such action as the court deems necessary and appropriate so that the secured creditor may take Possession of the collateral: Provided, That breach of the peace shall include entering the private residence of the grantor without permission, resorting to physical violence or intimidation, or being accompanied by a law enforcement officer when taking possession or confronting the grantor. Sec, 48. Recovery in Special Cases. — Upon default, the secured creditor may without judicial process: (a) Instruct the account debtor to make payment to Ww27 the secured creditor, and apply such payment to the satisfaction of the obligation secured by the security interest after deducting the secured creditor's reasonable collection expenses. On request of the account debtor, the secured creditor shall provide evidence of its security interest to the account debtor when it delivers the instruction to the account ‘debtor; d:) Ina negotiable document that is perfected by possession, proceed as to the negotiable document or goods covered by the negotiable document; (c) In a deposit account maintained by the secured creditor, apply the balance of the deposit account to the obligation secured by the deposit account; and (d) In other cases of security interest in a deposit account perfected by control, instruct the deposit-taking institution to pay the balance of the deposit account to the secured creditor's account. SBS ORO DO SED EOB EE orn baal HoSncoiol Hac ob nico Eo EE EDEE Comment: 1. Remedies of secured creditor under Sec. 47: Expedited Repossession of the Collateral. The secured creditor may avail of this remedy of expedited repossession under the following conditions: 1) For tangible personal property - The secured creditor may take Possession of the collateral without judicial process if : a) by stipulation in the security agreement, and b) that possession can be taken without a breach of the peace. ‘The breach of the peace shall include entering the private residence of the grantor without permission, resorting to physical violence or intimidation, or being accompanied by a law enforcement officer when taking possession or confronting the grantor. 2) If the collateral is a fixture, the secured creditor, if it has priority over all owners and mortgagees, may remove the fixture from the real property to which itis affixed without judicial process. The secured creditor shall exercise due care in removing the fixture. 3) If, upon default, the secured creditor cannot take possession of collateral without breach of the peace, the secured creditor may proceed, as follows: (a) The secured creditor shall be entitled to an expedited hearing upon application for an order granting the secured creditor possession of the collateral Such application shall include a statement by the secured creditor, under oath, verifying the existence of the security agreement attached to the application and identifying at least one event of default by the debtor under the security agreement;28 (b) The secured creditor shall provide the debtor, grantor, and, if the collateral is a fixture, any real estate mortgagee, @ copy of the application, including all supporting documents and evidence for the order granting the secured creditor possession of the collateral; and (©) The secured creditor is entitled to an order granting 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. The court may direct the grantor to take such action as the court deems necessary and appropriate so that the secured creditor may take possession of the collateral: Provided, That breach of the peace shall include entering the private residence of the grantor without permission, resorting to physical violence or intimidation, or being accompanied by a law enforcement officer when taking possession or confronting the grantor. Possession by the secured creditor is required because ownership of the personal property must be transferred to the buyer at the public or private sale. Transfer of ownership over the personal property is done through tradition or actual delivery so that the secured creditor must have possession of the personal property when it is to be sold in order to effect delivery of the collateral. 2. Recovery in Special Cases (Sec. 48). Done thru instruction by the Secured Creditor without judicial process - Upon default, the secured creditor may without judicial process: (a) Instruct the account debtor te make payment to the secured creditor, and apply such payment to the satisfaction of the obligation secured by the security interest after deducting the secured creditor's reasonable collection expenses. On request of the account debtor, the secured creditor shall provide evidence of its ‘security interest to the account debtor when it delivers the instruction to the account debtor; br) In a negotiable document that is perfected by possession, proceed as to the negotiable document or goods covered by the negotiable document. This refers to bearer document of title negotiated by mere delivery. (©) In a deposit account maintained by the secured creditor, apply the balance of the deposit account to the obligation secured by the deposit account; and (@ In other cases of security interest in a deposit account perfected by control, instruct the deposit-taking institution to pay the balance of the deposit account to the secured creditor's account. Sec. 49. Right to Dispose of Collateral. - (a) After default, a secured creditor may sell or otherwise dispose of the collateral, publicly or privately, in its29 Present condition or following any commercially reasonable preparation or Processing. (b) The secured creditor may buy the collateral at any public disposition, or at a private disposition but only if the collateral is of a that is customarily sold on a recognized market or the subject of widely distributed standard price quotations. Sec. 50. Commercial Reasonableness Required. - (a) In disposing of collateral, the secured creditor shall act in a commercially reasonable manner. (b) A disposition is commercially reasonable if the secured creditor disposes of the collateral in conformity with commercial practices among dealers in that type of property. (c) A disposition is not commercially unreasonable 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. (d) If a method of disposition of collateral has been approved in any legal proceeding, it is conclusively commercially reasonable, Sec. 51. Notification of Disposition. — (a) Not later than ten (10) days before disposition of the collateral, the secured creditor shall notify; (1) The grantor; (2) Any other secured creditor or lien holder who, five (5) days before the date notification is sent to the grantor, held a security interest or lien in the collateral that was perfected by registration; and (3) Any other person from whom the secured creditor received notification of a claim of an interest in the collateral if the notificaticn was received before the secured creditor gave notification of the proposed disposition to the grantor. (b) The grantor may waive the right to be notified. (c) A notification of disposition is sufficient if it identifies the grantor and the secured creditor; describes the collateral; states the method of intended disposition; and states the time and place of a Public disposition or the time after which other disposition is to be made. (d) ‘The requirement to send a notification under this section shall not apply if the collateral is perishable or threatens to decline speedily in value or Is of a type customarily sold on a recognized market. ‘Sec. 52. Application of Proceeds. — (a) The proceeds of disposition shall be applied in the following order: (A) The reasonable expenses of taking, holding, preparing for disposition, and disposing of the collateral, including reasonable attorneys’ Se and legal expenses incurred by the secured creditor; (2) The satisfaction of the obligation secured by the security interest of the enforcing secured creditor; and (3) The satisfaction of obligations secured by any subordinate security interest or lien in the collateral if a written demand and proof of the interest are received before distribution of the proceeds is completed. (b) The secured creditor shall account to the grantor for any surplus, and, unless otherwise agreed, the debtor is liable for any deficiency.30 ‘Sec. 53. Rights of Buyers and Other Third Parties. - (a) If a secured credi ‘sells the collateral under this Chapter, the buyer shall acquire the grantor's right in the asset free of the rights of any secured creditor or lien holder. (b) If a secured creditor leases or licenses the collateral under this Chapter, the lessee or licensee shall be entitled to the benefit of the lease or license during its term. (c) If a secured creditor sells, leases or licenses the collateral not in ‘compliance with this Chapter, the buyer, lessee or licensee of the collateral shall, acquire the rights or benefits described in subsections (a) and (b) of this section: Provided, That it had no knowledge of a violation of this Chapter ‘that materially prejudiced the rights of the grantor or another person. Sec. 54, Retention of Collateral by Secured Creditor. - (a) After default, the secured creditor may propose to the debtor and grantor to take all or part of the collateral in total or partial satisfaction of the secured obligation, and shall send a proposal to: (1) The debtor and the grantor; (2) Any other secured creditor or lien holder who, five (5) days before the proposal is sent to the debtor and the grantor, perfected its security interest or lien by registration; and (3) Any other person with an interest in the collateral wh has given a written notification to the secured creditor before the proposal is sent to the debtor and the grantor. (b) The secured creditor may retain the collateral in the case of: (1) A proposal for the acquisition of the collateral in full satisfaction of the secured obligation, unless the secured creditor receives an objection in writing from any person entitled to receive such a proposal within twenty (20) days after the proposal is sent to that person; or (2) A Proposal for the acquisition of the collateral in partial satisfaction of the secured obligation, only if the secured creditor receives the affirmative consent of each addressee of the proposal in writing within twenty (20) days after the proposal is sent to that person. Jp HBSS aS Cor oncEcne ENE repmonosent obo biinibicmee cece Comment: 4. Disposal of Collateral Requirements: (a) After default, a secured creditor may sell or otherwise dispose of the collateral, publicly or privately, in its present condition or following any ‘commercially reasonable preparation or processing, (b) The secured creditor may buy the collateral at any public disposition, or at a private disposition but only if the collateral is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations. 2. Commercial Reasonableness Required. - In disposing of collateral, the ‘secured creditor shalll act in a commercially reasonable manner. 76 |31 A disposition is commercially reasonable if the secured creditor disposes of the collateral in accordance with commercial practices among dealers in that type of property. A disposition is not commercially unreasonable 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, itis conclusively commercially reasonable. The mode of disposition may be by court decision or order. 3, Notification of Disposition or procedure of disposition. — (@) Not later than ten (10) days before disposition of the collateral, the secured creditor shall notify the following (1) The grantor; (2) Any other secured creditor or lien holder who, five (5) days before the date Notification is sent to the grantor, held a security interest or lien in the collateral that was perfected by registration; and (3) Any other person from whom the secured creditor received notification of a claim of an interest in the collateral if the notification was received before the secured creditor gave notification of the proposed disposition to the grantor. 4. Waiver of Notice. The grantor may waive the right to be notified. 5. Sufficiency of notification - A notification of disposition is sufficient if it identifies the grantor and the secured creditor; describes the collateral; states the method of intended disposition; and states the time and place of a public disposition or the time after which other disposition is to be made. 6. Exception to notification requirement - (d) The requirement to send a Notification under this section shall not apply if the collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. 7. Application of Proceeds of disposition. — (a) The proceeds of disposition shall be applied in the following order: (1) The reasonable expenses of taking, holding, preparing for disposition, and disposing of the collateral, including reasonable attomeys' fees and legal expenses incurred by the secured creditor; (2) Payment or satisfaction of the obligation secured by the security interest of the enforcing secured creditor, and 4q 32 (3) Payment or satisfaction of obligations secured by any subordinate sécurity interest or lien in the collateral if a written demand and proof of the interest are received before distribution of the proceeds is completed. (b) The secured creditor shall account to the grantor for any surplus. (c) unless otherwise agreed, the debtor is liable for any deficiency. 8. Rights of Buyers and Other Third Parties. - (a) If a secured creditor sells the collateral under this Chapter, the buyer shall acquire the grantor's right in the asset free of the rights of any secured creditor or lien holder. (b) If a secured creditor leases or licenses the collateral under this Chapter, the lessee or licensee shall be entitled to the benefit of the lease or license during its term. (c) If a secured creditor sells, leases or licenses the collateral not in compliance with this Chapter, the buyer, lessee or licensee of the collateral shall, acquire the fights or benefits described in subsections (a) and (b) of this section: Provided, That it had no knowledge of a violation of this Chapter that materially prejudiced the rights of the grantor or another person. 9. Retention of Collateral by Secured Creditor. - (a) After default, the secured creditor may propose to the debtor and grantor to take all or part of the collateral in total or partial satisfaction of the secured obligation, and shall send a proposal to: (1) The debtor and the grantor; (2) Any other secured creditor or lien holder who, five (5) days before the proposal is sent to the debtor and the grantor, perfected its security interest or lien by registration; and (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 to the debtor and the grantor. (b) The secured creditor may retain the collateral in the case of: (1) A proposal for the acquisition of the collateral in full satisfaction of the secured obligation, unless the secured creditor receives an objection in writing from any person entitled to receive such a proposal within twenty (20) days after the proposal is sent to that person; or (2) A proposal for the acquisition of the collateral in partial satisfaction of the secured obligation, only if the secured creditor receives the affirmative consent of each addressee of the proposal in writing within twenty (20) days after the proposal is sent to that person. i33 CHAPTER 7 - Transitional Provisions Sec. 55. Interpretation of Transitional Provisions. - For this Chapter, unless the context otherwise requires: (a) Existing secured creditor - means a secured creditor with a prior security interest; (b) Prior law — means any law that existed or in force before the effectivity of this Act; (c) Prior interest means a security interest created or provided for by an agreement or other transaction that was made or entered into before the effectivity of this Act and that had not been terminated before the effectivity of this Act, but excludes a security interest that is renewed or extended by a security agreement or other transaction made or entered into on or after the effectivity of this Act; and (d) Transitional period - means the period from the date of effectivity of this Act until the date when the Registry has been established and operational. Sec. 56. Creation of Prior Interest. - (a) Creation of prior interest shall be determined by prior law. 23 (b) A prior interest remains effective between the Parties notwithstanding its creation did not comply with the creation Fequirements of this Act. Comment: 4. Meaning of priority in interest — It is the right held by a secured creditor to be preferred in the payment of his claim above others, ie., to be paid first or ahead of the others, out of the proceeds of the sale or disposal of movable collateral of the grantor or debtor. 2. Nature and effect of prior interest — The priority interest creates an interest or lien in the movable or personal property or collateral as security for the obligation. It includes the right to be paid first or ahead of the others from the proceeds of the sale of the property. It is a preference in the payments from the disposal of the collateral. It is like a mortgage on property which creates lien where the whole property is sold to satisfy secured debt. 3. Existing secured creditor - means a secured creditor with a prior security interest under a contract of pledge or a chattel mortgage. Prior law — means any law that existed or in force before the effectivity of this Act such as a contract of pledge or a chattel mortgage. Prior interest means a security interest created or provided for by a contract or an agreement or other transaction that was made or entered into before the effectivity of this Act such as a pledge or a chattel mortgage and that had not been terminated before the effectivity of this Act. However, a prior interest excludes a security interest that is renewed or extended by a security34° agreement or other transaction made or entered into on or after the effectivity of this Act. Termination of the prior interest may be caused by the foreclosure sale of the collateral or by existence of the causes that extinguishes a contract or obligation. Sec. 57. Perfection of Prior Interest. — (a) A prior interest that was perfected under prior law continues to be perfected under this Act until the earlier of: (2) The time the prior interest would cease to be perfected under prior law; and (2) The expiration of the transitional period. (b) If the perfection requirements of this Act are satisfied before the perfection of a prior interest ceases in accordance with subsection (a) of this section, the prior interest continues to be perfected under this Act from the time when it was perfected under the prior law. (©) If the perfection requirements of this Act are not satisfied before the perfection of a prior interest ceases in accordance with subsection (a) of this section, the prior interest is perfected only from the time it is perfected under this Act. (d) A written agreement between a grantor and a secured creditor creating a prior interest is sufficient to constitute authorization by the grantor of the registration of a notice covering assets described in that agreement under this Act. (e) If a prior interest referred to in subsection (b) of this section was perfected by the registration of a notice under prior law, the time of registration under the prior law shall be the time to be used for purposes of applying the priority rules of this Act. Sec. 58. Priority of Prior Interest. — (@) The priority of a prior interest as against the rights of a competing claimant is determined by the prior law if: (1) The security interest and the rights of all competing claimant arose before the effectivity of this Act; and (2) The priority status of these rights has not changed since the effectivity of this Act (b) For purposes of subsection (a)(2) of this section, the priority status of a prior interest has changed only if: (1) It was perfected when this Act took effect, but ceased to be perfected; or (2) It was not perfected under prior law when this Act took effect, and was only perfected under this Act. 435 Sec. 59. Enforcement of Prior Interest. — (2) If any step or action has been taken to enforce a prior interest before the effectivity of this Act, enforcement may continue under prior law or may proceed under this Act. (b) Subject to subsection (a) of this section, prior law shall apply to a matter that is the subject of proceedings before a court before the effectivity of this Act, CHAPTER 8 - Congressional Oversight and Miscellaneous Provisions Sec. 60. Congressional Oversight and Periodic Review. - A Congressional Oversight Committee shall be created that will conduct a periodic review every five (5) years commencing from the effectivity of this Act. The Congressional Oversight Committee shall be composed of the Chairperson of the Senate Committee on Banks, Financial Institutions and Currencies, the Chairperson of the House of Representatives Committee on Banks and Financial Intermediaries, and representatives of other relevant congressional committees. Sec. 61, Interpretation. - 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. 62. Implementing Rules and Regulations. - Within six (6) months from the passage of this Act, the DOF in coordination with the Department of Justice, through the LRA, shall promulgate the necessary rules and regulations for the effective implementation of this Act. Sec. 63. Rules on Enforcement Procedure. - Subject to Section 47, the expedited hearing/proceedings shall be conducted in a summary manner consistent with the declared policies of this Act and in accordance with the ules of procedure that the Supreme Court may promulgate. Sec. 64. Sourcing of Funds. - The funds needed for the implementation of this Act shall be taken from the Special Account arising from revenues collected by the LRA under Section 111 of Presidential Decree No. 1529, without need for any further government approval. Sec. 65. Separability Clause. — Should any provision herein be declared unconstitutional, the same shall not affect the validity of the other provisions of this Act.36 Sec. 66. Repealing Clause. - The following laws, and all laws, decrees, orders, and issuances or portions thereof, which are inconsistent with the provisions of this Act, are hereby repealed, amended, or modified accordingly: (a) Sections 1 to 16 of Act No. 1508, otherwise known as "The Chattel Mortgage Law"; (b) Articles 2085-2123, 2127, 2140-2141, 2241, 2243, and 2246-2247 of Republic Act No. 386, otherwise known as the “Civil Code of the Philippines”: (c) Section 13 of Republic Act No. 5980, as amended by Republic Act No. 8556, otherwise known as the “Financing Company Act of 1998" (d) Sections 114-116 of Presidential Decree No. 1529, otherwise known as the "Property Registration Decree"; (e) Section 10 of Presidential Decree No. 1529, insofar as the provision thereof is inconsistent with this Act; and (f) Section 5(e) of Republic Act No. 4136, otherwise known as the "Land ‘Transportation and Traffic Code”. 26 Sec. 67. Effectivity. - This Act shall take effect fifteen (15) days after publication in at least two (2) newspapers of general circulation. Sec. 68. Implementation. - Notwithstanding the entry into force of this Act under Section 67, the implementation of the Act shall be conditioned upon the Registry being established and operational under Section 26.