PERSONAL PROPERTY
b. Control agreement – an agreement in writing between the
SECURITY ACT
REPUBLIC ACT No. 11057
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), by establishing a unified and modern legal
framework for securing obligations with personal property.
Unified and Modern
Unified, in the sense that the Chattel Mortgage and Pledge are no longer
separate. Modern, in the sense that these repeals laws enacted from
1950-1960.
Security
PPSA encourages credits to be granted in small businesses since
creditors would want some form of security. With the PPSA, it was
intended to facilitate speedy application for credits with security. Before
the approval of the PPSA, the Philippines had Pledge and Chattel
Mortgage, in connection to personal properties, but with the PPSA, there
would no longer be any distinction between the two.
Take note that PPSA covers all kinds of movable properties. In fact,
commodities are included, wherein they are not specifically covered with
the pledge or chattel mortgages but there are specific provisions under
PPSA referring to commodities.
CHAPTER 1
DEFINITIONS AND SCOPE
Section 3. Definition of Terms
a. Commodity Contract – a commodity futures contract, an
option on a commodity futures contract, a commodity
option, or another contract if the contract or option is:
(1) Traded on or subject to the rules of a board of trade
that has been designated as a contract market for
such a contract; or
(2) Traded on a foreign commodity board of trade,
exchange, or market, and is carried on the books of a
commodity intermediary for a commodity customer.
At present, this is not common in the Philippines. But this provision is
essentially forward-looking. These commodity contracts involved, for
example, goods that are traded. They are similar to stock exchange,
wherein stocks are used for securities. In commodity contracts, they
exchange commodities (or goods) like rice or goods.
In the book of De Leon, it appears that there is a SEC Regulation which
suspends in the meantime the commodity training. But if the suspension
is lifted, commodities considered under the law can be used as securities
for an obligation.
ATTY. SARONA: I will not dwell more on that since it is still
uncommon here in the country.
Under the PPSA, there is what we call a control agreement.
grantor and the secured creditor which perfects the
security interests over intangible asset (IRR)
(1) With respect to securities, means an agreement in writing among
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 agreement
in writing among the deposit-taking institution, the grantor and the
secured creditor, according to which the deposit-taking institution
agrees to follow instructions from the secured creditor with respect
to the payment of funds credited to the deposit account without
further consent from the grantor;
(3) With respect to commodity contracts, means an agreement in
writing among the grantor, secured creditor, and intermediary,
according to which the commodity intermediary will apply any value
distributed on account of the commodity contract as directed by the
secured creditor without further consent by the commodity customer
or grantor;
Notice here the terms grantor and secured creditor. These terms will be
common as we go along the PPSA provisions. When it comes to movable
properties, there is no longer a pledgor or mortgagor or a pledgee or
mortgagee. These has been replaced with more general terms – grantor
(pledger/mortgagor) and secured creditor (pledgee/mortgagee).
The purposes of control agreements are as follows:
(1) To bind third persons; and
(2) To establish a priority as to the secured creditor that has
entered into a control agreement.
Subjects of Control Agreements
(1) Securities
It can cover securities, which refer to shares of stocks, investments,
derivatives to be further discussed in Laws on Business
Organization and Corporation Law.
Parties Involved
• Issuer – the originator, maker, debtor, or creator of the
security
• Intermediary – a person such as a depositary or a clearing
corporation
(2) Deposit Account
In other words, it refers to accounts in the bank – savings, current,
time-deposit.
Parties Involved
• Deposit-taking institution – otherwise simply known as the
BANK
(3) Commodity Contracts
This covers goods as security for the obligation.
 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;
Again, the grantor now is used for the term mortgagor and pledgor.
Generally, it refers to the person who grants a security interest in
collateral to secure its own obligation or that of another person.
However, aside from that, this time, a grantor may refer to a buyer or a
transferee of a collateral that acquires its right subject to a security
interest. It can also be a purchaser if there is an outright transfer of an
accounts receivable (so it is the assignee). A person can also be a grantor
if he/she is a lessee of the goods.
With regard to a grantor, it is the same with Article 2085. The grantor
may be the debtor himself, or a third person who is not a principal
debtor. He just needs to give his consent that his personal property will
secure the obligation of the principal debtor.
d. Non-intermediated securities – securities other than
securities credited to a securities account and rights in
securities resulting from the credit of securities to a
securities account;
e. Notice – a statement of information that is registered in
the Registry relating to a security interest or lien. The term
includes an initial notice., amendment notice, and
termination notice;
Letter D’s definition might be confusing because terms are repeated. But
essentially, non-inter mediated securities are those who DO NOT
DEAL with securities or shares that go through, for example, stock
exchange. In other words, it is not offered in public. He/She does not
go through an intermediary. Compare that to intermediated securities,
these are the ones that go through an intermediary, such as a broker
or a dealer, before it can be sold or transferred to other persons.
Non-inter mediated securities are held directly by the securities owner.
Again, because there is no middleman or intermediary.
Take note the term notice in Letter E. This is also consistently used in the
law.
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 well as a right to
insurance payment or other compensation for loss or
damage of the collateral;
In PPSA, it is allowed to sell the security in interest in case there is default
on the part of the debtor.
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;
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;
ILLUSTRATION (G): X purchased pigs for X’s piggery. Animal is
considered a movable property. In order to borrow money or obtain
loan, a security interest can be created over the pigs that X will purchase.
The collateral are the pigs themselves, which is the reason why X entered
in to a contract of loan.
Letter H is not yet established in the present. So, look here in the registry
if there is already a security interest over the personal properties of the
debtor.
As mentioned, PPSA no longer contemplates a creditor-mortgagee or
creditor-pledgee but rather, what it has is a secured creditor.
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;
What is an operating lease? It is an agreement by which the owner of
the property temporarily grants the use of his property to another who
undertakes to pay the rent thereof. Operating lease must be
distinguished from a finance lease where the latter is a lease of a
movable property to finance the obligation of the owner of the property
being leased.
j. 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;
Essentially, a security interest is a property right in a movable or
personal property which is the collateral to secure the performance of a
principal obligation.
k. Writing – for the purpose of this Act includes electronic
records.
This is actually the same with the e-Commerce Act.
IRR Rule II
Scope of Application
Section 2.03. Security Interest in Personal Property – A security
interest may be created over all forms of tangible or intangible asset
or personal property as defined by the Civil Code, including but not
limited to:
(a) Rights arising from contracts, including but not limited to:
(a) Securities
(b) Commodity contracts
(c) Lease of goods including financial leases and
operating leases for a period of not less than one (1)
year.
(b) Equipment
 (c) Inventory
(d) Deposit accounts
(e) Negotiable instruments
(f) Negotiable documents of title
(g) Consumer goods
(h) Intellectual property
(i) Livestock
(j) Fixtures, accessions, and commingles goods, or
(k) Future property or after-acquired assets
Provided, that a security interest can only be created on the asset
over which the grantor has a legal right.
It is already expressly stated in PPSA that security interest can cover
future property or after-acquired assets. Notice the difference with
pledge and chattel mortgage. Again, in pledge and chattel mortgage, it
does not cover future property or after-acquired assets but only property
existing at the time the obligation was entered into.
Section 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".
Section 4 is placed generally. In other words, Section 4 states that when
it comes to personal property of aircraft and ships, what would
apply is the Chattel Mortgage Law. In order to bind third persons, the
mortgage must be registered with the Coast Guard.
For airplanes, there is no specific rule here. Thus, what would still apply
is Chattel Mortgage. But later on, it is possible that perfection and
priority over the mortgage airplane shall be made based on the
registration provided with the Civil Aviation Act of 2009.
Take note of the exceptions of ships and airplanes in PPSA.
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.
With the creation of this security interest, it is effective or binding
between the parties.
A security agreement must be in writing. It can also be created by an
operating lease for not less than 1 year or an account receivable.
Who are the parties to a security agreement? Grantor and the secured
creditor. They can be natural or juridical persons. The grantor maybe
separate and distinct from the principal debtor.
This security agreement is still a consensual contract. It will still require
the three essential elements of contract – consent, object, and
consideration. Upon the creation of it, the parties will be bound by the
said security agreement.
Moreover, this security agreement is an accessory contract since it has
the same intention as pledge and mortgage. It only acts as a security
for a principal obligation. In other words, if there is no principal
obligation the security agreement will not be enforced.
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.
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.
IRR: Rule III
CREATION OF SECURITY INTEREST
Creation of a Security Interest
Section 3.01. Creation of Security Interest – A security interest shall
be created by a security agreement or the lease of an operating lease
for not less than one (1) year. A security agreement is likewise created
by the sale of an account receivable, unless otherwise stipulated by
all the parties in the document of sale.
Section 3.02. Continuity of Security Interest – A security interest
created under the PPSA shall continue in the collateral
notwithstanding sale, lease, license, exchange, or other disposition of
the collateral, except as otherwise provided in these Rules, or as
agreed upon by the parties.
Form of the Security Agreement
Section 3.03. Form of Security Agreement – A security agreement
must be contained in a written contract signed by the parties. It must
identify the collateral and the secured obligation. 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 an agreement and notices in Filipino. The Department of
Finance (DOF) shall prepare model security agreements in plain
English and Filipino provided in Annex “A” of these Rules.
Section 3.04. Description of Collateral – A description of collateral
in the security agreement and/or in registration notices shall be
considered sufficient if it reasonably identifies the collateral. A
specific description of the collateral shall not be required in
constituting the security interest. A description such as “all personal
property,” “all equipment,” “all inventory,” or “all personal property
within a generic category” of the grantor shall be sufficient.
Asset-Specific Rules
Section 3.05. Security Interests Over Future Property.
a) A security agreement may provide for the creation of a
security interest in that property is created only when the
grantor acquires rights in it or the power to encumber it.
b) A security agreement may provide that a security interest
in a tangible asset that is transformed into a product
extends to the product. A security interests that extends to
a product is limited to the value of the encumbered asset
immediately before it became part of the product.
c) A security agreement may provide that a security interest
in a tangible asset extends to its replacement. A security
interest that extends to a replacement is limited to the
 value of the encumbered asset immediately before it was
replaced.
ILLUSTRATION OF PARAGRAPH B: If the subject of the security
interest were the raw materials and subsequently, these were used to
make a finished product, the finished product is still considered as
security interest.
ILLUSTRATION OF PARAGRAPH C: If the security interest covers future
property, e.g., finished product, the security interest may extend to the
replacement. However, it must be provided in the security agreement.
Note: If Chattel Mortgage Law has Reasonable Description Rule, the
PPSA has ANY AND ALL. In a sense, PPSA is broader than CML.
CHAPTER 2
CREATION OF SECURITY INTEREST
Section 7. Description of Collateral.
A description of collateral shall be considered sufficient, whether it is
specific or general, if it reasonably identifies the collateral. A
description such as "all personal property", "all equipment", "all
inventory", or "all personal property within a generic category" of the
grantor shall be sufficient.
The grantor may indicate in the contract “all my personal property will
act as a security interest for all my obligation in favor of the secured
creditor.”
As to the form, under Section 6, there is nothing indicated with regard
thereto. It does not require that it should be notarized. However, in the
sample forms, it indicates NOTARIZED.
Section 8. Right to Proceeds and Commingled Funds and Money.
(a) 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 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.
If the funds credited to a deposit account or money are commingled
with other funds or money, SECURITY INTEREST WILL BE EXTENDED.
PARAGRAPH B1: If the goods are sold, the proceeds will become part
of the security interest.
LOWEST INTERMEDIATE BALANCE RULE
ILLUSTRATION (Sec. 8, Par. B3): The grantor executed a security
agreement involving this car in favor of the secured debtor. With the
execution of the security agreement, the grantor is still the owner (since
there is no transfer of ownership). What if the grantor will sell the same
car covered by the security interest to the buyer covered by 1M?
The grantor will deposit the 1M in his bank account, which as an amount
of, 2M. So, his balance is 3M in total at the time when he deposited the
amount. If the grantor will now withdraw 2.5M, only 500k will be left.
Apply the lowest intermediate balance rule, which assumes to the extent
possible that withdrawals from the commingled mass are not proceeds
of the encumbered property. So, as the secured creditor, the extent of
your security interest is up to 500k, which is lowest of the amount of the
commingled funds between the time the proceeds were deposited and
the time the security creditor had a claim on the proceeds.
Section 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 as agreed upon by
the parties.
Similar to pledge and mortgage, even if a security interest is created, the
grantor still remains as the owner of the personal property. So, he
can still execute acts of ownership, such as selling, leasing, exchanging,
and disposing of the same, but it would be important on the part of the
secured creditor to have the security interest perfected to bind third
parties. It is because if the personal property is sold to others, which
constitutes a valid contract of sale, but between the purchaser and the
secured creditor, who will have a better right?
It would depend on if the secured creditor registered or had his security
interest to bind third parties.
Section 10. Contractual Limitation on the Creation of a Security
Interest.
(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
liability of the grantor for breach of the agreement in
subsection (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. That means it would be valid and binding with
parties as long as it is created in accordance with the law and binding as
against third persons if it is perfected in accordance with the PPSA,
notwithstanding the agreement between grantor and debtor or secured
creditor.
Nothing in this section shall affect any obligation or liability of the
grantor for breach of the agreement in subsection (a).
Any stipulation limiting the grantors right to create a security interest
shall be void.
General Rule: A contractual limitation on the creation of the security
interest is valid. But such stipulation is void if it is with respect to the
receivables.
Any stipulation limiting the grantor's right to create a security interest
shall be void. As to accounts receivable arising from supply or list of
goods, construction contract, or contract for sale, lease or license of the
Intellectual Property - such stipulation is void.
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.
Under this provision, there are three means of perfecting a security
interest and to what mode of perfection is applicable would depend
on the kind of movable property that is involved.
Take a look at the IRR as well.
Under the IRR, means of perfection is discussed specifically with regard
to tangible assets, intangible assets and intermediated securities or
deposit accounts.
As discussed earlier, one of the modes is registration and that is
applicable to tangible assets.

General Rule: It is valid.

Exception: It will limit the accounts receivable involving the Contract for
Supplies or List of Goods, Construction Contract for the sale, lease of the
Intellectual Property.

EMPHASIZED: There is/are difference/s in the action and perfection in

the PPSA, Creation between parties; Perfection, as to third person.

As discussed, the creation and perfection of a security interest are two

different concepts and should be distinguished from the concepts
under Obligation and Contracts in connection to creation and perfection
TANGIBLE ASSETS
of a contract.
A security interest in tangible assets may be perfected by either
registration of a notice as defined under these Rules with the Registry;
CREATION PERFECTION
provided, that a security that is not registered remains valid between the
Such security interest is created Such security interest in the
parties. Provided further, they executed or created a security agreement.
and becomes bending security agreement will be
BETWEEN THE PARTIES binding AS AGAINST THIRD
themselves (grantor and PARTIES Registration refers to the process of filing a notice with the registry. This
secured creditor) is considered as a primary means of perfecting a security interest
because such registration is available for ALL types of personal
property and it allows the grantor to retain possession of the movables
CHAPTER 3 or the collaterals.
PERFECTION OF SECURITY INTEREST
With regard to tangible assets, there may be perfection by possession.
Section 11. Perfection of Security Interest – If tangible, it may be actual or constructive possession of the tangible
(a) A security interest shall be perfected when it has been created and asset either by the secured creditor or a depositary acting for the secured
the secured creditor has taken one of the actions in accordance with creditor. Provided, that the debtor or the grantor cannot possess the
Section 12. collateral on behalf of the secured creditor for purposes of perfecting
(b) On perfection, a security interest becomes effective against third and maintaining the security interest over such collateral.
parties.
Here, possession results to perfection of a security interest but mere
The creation of a security interest is effective upon the parties to the possession of such asset does NOT necessarily create a security
security agreement while perfection of the security interest makes it interest. For it to be binding, there must be a security agreement
effective as against third persons. because the creation of the security agreement or the execution of that
security agreement will give rise to the creation of the security interest
How is it perfected? Section 12. before possession as a means of perfection can take place.

Section 12. Means of Perfection – NOTE: CREATION OF A SECURITY INTEREST FIRST.

(a) Registration of a notice with the Registry;
(b) Possession of the collateral by the secured creditor; In order again for the security to be binding upon the parties, they must
and
first execute a security agreement. Perfection of a security interest can
(c) Control of investment property and deposit account.
be achieved through possession by the secured creditor of the
movable property, to which registration of the notice may be done as an INTANGIBLE ASSETS
addition, but it is NOT required for purposes of perfection. Only one
of these will already be sufficient for the perfection of security interest.

ILLUSTRATION: If the secured creditor acquires possession of the

movable property, which is the collateral, that is enough—that is already
equivalent to perfection but it may also be registered. However again, it
is not required that both shall be present or satisfied.
Intangible assets are assets which do not have physical existence but
NOTE: A security interest may EITHER be perfected by registration they are considered as personal property.
or possession. Resort to either modes is ENOUGH for purposes of
perfection. It can be perfected either by:
1. Registration – this is the primary means since it is applicable
Rationale: This is based on two assumptions. A person who lends a to all kinds of collateral or movable property. Provided, that
creditor certain kind of collateral will look at the collateral and inspect they executed a security agreement; or
it before he will lend money to the debtor or the grantor. Looking at 2. Conclusion of a control agreement – for purposes of
the collateral in the possession of a third person or third party will determining the time of perfection of a security interest,
already alert the searcher or the proposed or supposed secured executed under oath, and shall indicate the date and time of
creditor to the possible existence of a security interest. Such its execution.
possession by the creditor under this possession gives NOTICE Note: Possession cannot be applied to intangible assets.
THEORY. Registration to this effect will only become redundant.
INTERMEDIATED SECURITIES OR DEPOSIT ACCOUNTS
If, however, the person prefers possession to perfect the security
interest, he/she may still have it registered. But the security interest is
already perfected by the possession. The registration is just an
additional process at the person’s option.

The requirement of possession refers to the holding of a thing or the

enjoyment of the thing. Under the book of De Leon, the concept of
possession in PPSA should refer to actual, not constructive, possession
by the secured creditor. However, in the IRR, it is very clear that it can be
either ACTUAL or CONSTRUCTIVE. Even the possibility of perfecting the
security interest by registration, there is no need to relax the concept of
possession to facilitate that possessory rights.

The IRR is clear. It may either be ACTUAL or CONSTRUCTIVE. What is

important is that, when it comes to possession, there is a REAL
RELINQUISHMENT by the grantor of the basic custody over the
collateral. That is why it is mentioned therein that the debtor or the Section 13. Perfection by Control —
grantor cannot possess the collateral on behalf of the secured creditor (a) A security interest in a deposit account or investment property
for purposes of perfecting and maintaining the security interest over may be perfected by control through:
(1) The creation of the security interest in favor of the
such collateral.
deposit-taking institution or the intermediary;
(2) The conclusion of a control agreement; or
It is also important to note that it is not required that the possession
(3) For an investment property that is an electronic
must be in the hands of the secured creditor himself. The law
security not held with an intermediary, the notation of
recognizes that the third party may take possession on behalf of the the security interest in the books maintained by or on
secured creditor. This is a possible scenario because it may happen that behalf of the issuer for the purpose of recording the
the secured creditor has no sufficient means to protect the personal name of the holder of the securities.
property itself. If he is not confident that he can keep the thing secured
in this possession – like jewelry, he can choose a depositary for the (b) Nothing in this Act shall require a deposit-taking institution or
safekeeping of such collateral or if he has a problem with the storage, an intermediary to enter into a control agreement, even if the
he can deposit it for safekeeping with a warehouseman, which would grantor so requests. A deposit-taking institution or an
still be equivalent to possession as a perfection of a security interest. 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.
When we talk about tangible assets, it can be registration of the notice
or possession which gives rise to the perfection of the security interest.
Section 4.04 regarding Perfection of Intermediated Securities or Deposit
Accounts is the one mentioned in Section 14. There is a creation of
security interest which is the equivalent of perfection by control when it
comes to deposit accounts or investment property.
When it comes to control as a means of perfecting security interest, it is It is possible to change from one mode of perfection to another.
applicable to intangible properties because control is the intangible’s
equivalent possession of tangible assets. ILLUSTRATION: Possession ➔ Registration ➔ Possession

With regard to an investment property, as seen in paragraph 3, if the NOTE: There must be no time when the security interest was perfected.
secured creditor is the deposit-taking institution, the mere creation of
the security agreement in favor of the deposit-taking institution is If there is a gap, this would be an issue in case there are several
already equivalent to perfection on such security interest. It is secured creditors. Thus, if another security interest is created and
automatically binding as against third persons. perfected during the gap and there is no perfected security interest
whether by registration, control or possession, then that other secured
If the secured creditor is a party other than the bank, the security interest creditor may have a priority over the property.
may be perfected through the conclusion of the control agreement.
Remember, a control agreement is an entered into by the grantor,
creditor, issuer, or intermediary. With regard to deposit accounts, the
secured creditor is the deposit-taking institution and for commodity
contracts, there is the commodity intermediary.

Section 14. Perfection in Proceeds —

(a) 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 after the Illustration in the Change in the Means of Perfection
grantor receives such proceeds; otherwise, the security interest
in such proceeds shall not be effective against third parties. Example 1: No Gap of Time from Grantor to Secured Creditor

Here, the grantor created a security interest over an equipment. If the
equipment is sold, the security interest extends to the proceeds.
There is NO NEED to perfect another security interest.
Under Paragraph A, the proceeds of the collateral when the latter is sold
are in the form of money, accounts, receivable, negotiable instruments,
or deposit accounts. The security interest automatically extends to such
proceeds (i.e., money, accounts, etc.).
However, if the equipment disposed in exchange for another machinery,
Paragraph B applies, wherein the security interest must be perfected by
one of the means applicable in the earlier section.
The grantor created a security interest on his car in favor of the secured
creditor. This was perfected by means of possession.
Now, the secured creditor decided to register the security interest in the
registry. He then returned to the grantor his car.
In this case, according to Section 15, the change in the means of
perfection of the security interest is valid. This is because there is no gap
of time between the change of the means of perfection from time
when the grantor made a security interest by giving possession of the
car to the secured creditor and to the time when the secured creditor
registered the car.

Take note of the timeline – 15 DAYS after the grantor receives such
proceeds. If the security interest was perfected by any of the modes
applicable, the extent of the security interests will be continuous.
If, however, the creditor fails to perfect the security interest during the
15-day period, the secured creditor may subsequently make its security
interest effective as against third parties beyond the 15-day period but
only from the time forward. In other words, it is not continuous.
If you fail to do so, it will not bind third parties until perfection. If there
is a gap, any subsequent creditor will be given priority.
Section 15. 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.
So, even if the grantor would create another security interest on the car
in favor to another or second secured creditor (despite the previous
registration of the first secured creditor's security interest), that new
security interest is valid because, again, there no gap of time.
Example 2: Gap of Time Exists from Grantor to Secured Creditor and
Another Secured Creditor
However, there is a difference if the secured creditor took possession of
the car as part of the security agreement. After a week, the secured
creditor returned the car to the grantor. The security interest here is no
longer perfected because possession of the car was returned to the
grantor.
Later on, the secured creditor perfected a security interest through
registration of his security interest over the car, despite the car was in
possession of the grantor. Subsequently, the grantor also created and
perfected a security interest on the car in favor of another secured
creditor.
In this case, the two secured creditors will have to settle their respective
claims because there is a gap of time made by the first creditor. He/She
was granted possession of the car but returned it and later on, he/she
perfected his security interest through registration.
At that point, the subsequent registration was not immediate from
the secured creditor's return of the possession of the car.
It talks about the extinguishment of the security interest itself. This is
connected with change in the means of perfection.
For example, back in Section 15 of the PPSA, when a secured creditor
returns possession to the grantor the thing subjected to a security
interest but immediately registers his security interest, a security interest
is still created.
However, again, if there is a gap between the time of the return of
possession and the registration of the security interest, the security
agreement is not binding against third persons.
Note, however, the security agreement (and the corresponding
obligations under it) still exist, the same way principal obligations still
exist even if the accessory contracts are terminated or extinguished.
Perfection in security agreements is always in connection to binding
third persons to the security agreement. Creation is what creates security
agreements under the PPSA.
Section 16. 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
PRIORITY OF SECURITY INTEREST
Section 17. 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.
PERFECTION BY PERFECTION BY OTHER
REGISTRATION MEANS
Priority is determined by ORDER Priority is determined by ORDER
OF REGISTRATION. OF PERFECTION.
Perfection by other means include:
• Possession (for movables)
• Control Agreement
• Creation of Security Interest for Intermediate Securities or
Intangible Assets
Priority refers to the right of a person in an encumbered asset in
preference to the right of a competing claimant. Under Section 17,
priority is determined according to:
(1) Time of registration; OR
(2) Perfection by other means.
This provision essentially means that if all security interests were
perfected by registration, priority is determined by the order of
registrations.
If the different security interests were constituted on the same
collateral/movable and were perfected but the perfection did not
involve registration, priority is determined by order of perfection.
What is the effect on a secured creditor’s priority if he was first to
constitute a security interest yet belatedly registered it? Even if
perfection is required to bind third parties in a security agreement, a
secured creditor (although not required by the PPSA to register his
security interest for the security agreement's validity/creation) who
created his security interest first but did not perfect his security
interest by registration stands to lose more than some other secured
creditor who created his security interest earlier and perfected it by
registration.
Transcriber's Note: This is very similar to land titles. The first to register his
title to the Land Registration Authority or the registration court has a
stronger right compared to a person who did not register, even if he/she
bought the property first and paid for its full purchase price.
Distinction PPSA's Section 17 and New Civil Code's Pledge vis-a-vis
Multiple Creditors on a Movable Property
Take note that the rules as to concurrence and preference of credit has
been amended in terms of movable properties by the PPSA.
In pledge, it is impossible to have multiple creditors on the same
movable property because for a valid pledge, there has to be a delivery.
With respect to chattel mortgage, there can be several creditors
because possession is never surrendered to the creditor.
Under the PPSA, it is possible to have several secured creditors over the
same collateral/movable property. Hence, it is important to determine
who will be prioritized over the security interest created.
Hence, the PPSA allows the creation of multiple security interests
over the same movable property in order to utilize the full value of the
asset. This important because when it comes to movables, the security
interest may involve all or future personal properties of the grantor.
Whatever the mode of perfection, may it be possession or control,
the one who first perfected the security interest will be the priority.
When it comes to tangibles, the order of priority shall be as provided
under Section 20 as well as to the different kinds of personal property.
Section 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.
(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.
PARAGRAPH A: In other words, the banks will have preference.
Illustration: If a security interest over the deposit account is executed in
favor of the bank, the bank shall have a priority.
PARAGRAPH B: It means second priority.
PARAGRAPH C: When talking about priority of security interest, one has
to take note first the kind of movable property that is involved
because different rules will apply.
In concurrence and preference of credit, there is no distinction when
it comes to the type of property. With regard to preference of credit,
there is only one rule in the sense that if the movable property will be
sold, the proceeds will be applied in accordance with the rules on
preference.
On the other hand, in PPSA it will depend on the type of property. One
has to take note that if deposit account is involved as collateral, the
following are the priority:
1. Banks or Deposit taking Institution if that is the secured
creditor
2. Controlled agreements
3. Wherein they are perfected by conclusion of controlled
agreements, take a look at the time of the conclusion of
the controlled agreements.
PARAGRAPH D: One should remember that, under Obligations and
Contracts, offset compensation is used as a mode of extinguishing an
obligation.
Illustration: If the depositor acquired a loan from the bank and he has
an account in the same bank, and then when his loan became due and
demandable and the debtor fails to pay such loan, the bank can offset
the deposit account in the loan as a payment of the obligation.
The right to offset prevails over priority over the security interest. If
the other creditors will question why the bank offset the deposit account
for the loan of the debtor, the bank can invoke Section 18 (d) of PPSA.
PARAGRAPH E: It involves security certificate perfected by possession.
The secured creditor who is in possession thereof shall have a priority
over those security interests which perfected by a registration of notice
in the Registry.
PARAGRAPH F: It essentially involves the third kind of movable
property. Under perfection by control, the things involved are
intangible properties such as deposit accounts, security certificate, and
electronic securities.
PARAGRAPH G: Distinguish it from PARAGRAPH F.
SECTION 18 (f) SECTION 18 (g)
security interest in electronic security interest in electronic
securities not held with an securities not held with an
intermediary perfected by a intermediary perfected by the
notation conclusion of a control
agreement
Take note of the kind of property involved and how it was perfected.
Take note who among those perfected will have the priority.
Note: Memorize the priority rules when it comes to specific movable
properties.
Section 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.
In terms of negotiable instruments, those are mentioned in Civil Code
such as Bill of Lading, warehouse receipts, quedan, dock warrants. A
negotiable document of title is similar to those. They can be negotiated
either by delivery if it is a bearer instrument plus indorsement if it is an
order document of title.
If a person is in possession of the document and a security of interest
has been perfected in his/her favor, he/she will have a priority over the
other security interest that were perfected by registration. Section 19 is
specific to instruments and negotiable instruments.

As mentioned before, perfected purchase money is when you borrow
a money to buy a livestock and a security interest was created and
perfected. Thus, it is a priority.
Second priority is when the same livestock is used as a security and it
was perfected security interest, so that you would be able to borrow
money to buy food or medicine for that livestock.
PARAGRAPH C: Take note of the requirement for written
notification.
Section 20. Priority and Plight 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.
Under PPSA, the highest priority rule is provided under Section 20. This
may apply to a supplier of goods such as when he retains the goods
already ordered. This is because he provides services or materials with
respect to the goods in the ordinary course of business and he can
continue retain possession and has priority over such security interest
until he has paid.
The supplier provides these goods or services in the ordinary course
of business, he is unpaid and claims possession of the goods.
This also covers those who made repairs for safekeep or preserve the
personal property for transportation of goods and warehouseman’s
lien and hotel-keeper’s lien.
Remember the discussion on legal pledges created by operating of law
because this Section 20 would be applicable.
Illustration: When the drawing a person made is not paid, he/she may
retain the drawing. Also, when a person avails a board and lodging in a
hotel and he/she refuses to pay, the hotel has a right to retain his/her
belongings until he/she pays.
But remember that, in pledges created by law, there are instances
wherein a possessor in good faith needs to be reimbursed.
Note: It is not yet sure if the prior law is applicable in this case since it is
a new law.
The rule on priority is very essential when there are already several
creditors, and debtor, in this case the grantor, has already become
insolvent. Insolvent does not necessarily mean that the grantor does
not anymore assets to pay off the obligations. It is just that he has
assets but not sufficient to cover his obligations or his assets are not
liquid he cannot convert his assets as soon as his obligations matures.
With regard to the remaining assets, if they will be sold, who will
have a priority? The rules on priority will be applied in connection
with the IRR Chapter 4.
Section 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.
It is still recognized here the purchaser in good faith. If you obtained the
personal property in the course of business, without any knowledge of
the security interest created or perfected, you will have a better right
over the property.
In the creation or even perfection of the security interest, the
ownership is retained by the grantor. There is no transfer of ownership
in any of these circumstances and therefore, the grantor can choose to
sell the collateral or dispose it in any manner that he wants to.
If the grantor sells the collateral, it is perfected in accordance to the
PPSA and security interest shall extend to the proceed. However, if the
buyer is in bad faith, it will not extend to him. If you are the buyer, it
is important to make sure that you can take possession of the property
or recheck if it is registered. There is no such good faith will exist if the
security is registered prior to his obtaining the property. Similar to
the rules on registration of immovable property such registration is
considered constructive knowledge.
Section 22. 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.
This is mentioned in the Section 6.04(b) of the IRR of RA 11057. If the
security interest is perfected prior to the commencement of the
insolvency proceedings, it shall remain perfected and the priority it had
also remains.
Section 23. Purchase Money Security Interest —
(a) 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.
(c) 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 lien
holder which arise between delivery of the equipment or
consumer goods to the grantor and the time the notice is
registered.
PARAGRAPH A: EQUIPMENT
Purchase money is when you borrow money to purchase such movable
property and that movable property will act as the collateral in that
security interest.
The secured creditor in that purchase money security interest (person
who lends money to purchase the equipment) shall have a prioritize over
other security interest but the creditor, in that instance, must register
the security interest within 3 business days after the grantor
receives possession of the equipment. Otherwise, he/she will not
enjoy the granted for the under Section 23.
PARAGRAPH B: CONSUMER GOODS
If it involves consumer goods which are 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.
In the book of De Leon, Section 23 is referred as “super priority”
depending on the kind of movable property that is involved.
PARAGRAPH C: INVENTORY, INTELLECTUAL PROPERTY, OR
LIVESTOCK
The secured creditor shall have priority over a conflicting perfected
security interest in the same inventory, intellectual property or livestock
if:
(1) Perfected when the grantor receives possession of the
inventory or livestock, or acquires rights to intellectual
property;
(2) 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.
If the security interest involves inventory, with regard to priority for the
creditor who lend the money to purchase such inventory, the security
interest in his favor shall enjoy priority if:
1. There is perfection when the grantor receives
possession of the inventory; and
2. There is a requirement of notice.
The purchase money secured creditor gives written notification to the
holder of the conflicting perfected security interest in the same types of
inventory.
For intellectual property, same thing applies. Purchase money is
perfected when the grantor acquires right to the intellectual property
and the written notification mentioned under the second requirement
above.
PARAGRAPH D: EQUIPMENT OR CONSUMER GOODS PERFECTED
TIMELY IN ACCORDANCE WITH (a) AND (b)
This refers back to equipment or consumer goods perfected timely in
accordance with subsections (a) and (b). They shall have priority over
the rights of a buyer, lessee, or lien holder which arise between delivery
of the equipment or consumer goods to the grantor and the time the
notice is registered.
Hence, the secured creditor of a purchase money security interest is
still prioritized.
Section 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.
When it comes to livestock, the purchase money security interest is
still a priority but take note of the requirements for its perfection.
Second priority is the secured creditor in connection to credit for food
or medicine for that same livestock. Again, the additional requirement
here aside from perfection is the written notification to the holder of
the conflicting perfected security interest in the same livestock.

Section 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.
Note: Book II of the Civil Code is Property Law.
The fixture under this provision is movable. But recall under the Property
Law, if the fixture is bolted to the floor with the intention, it would be
considered as an immovable property.
The intention here of Section 25 is to avoid confusion that if it has
become a fixture or has undergone accession, it will still be considered
as a movable property as it can still be reasonably traced.
CHAPTER 5
REGISTRATION – REGISTRY
Section 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.
As the country is still in the transition period, this Electronic Registry
provided in the PPSA has not yet been established. Nevertheless, Section
26 provides that the Registry shall be established in and administered by
the LRA and shall provide electronic means for registration and
searching of notices.
The Registry here is intended to be centralized and nationwide where
notice of a security interest and a lien in personal property may be
registered. When it comes to registration of notice for purposes of
perfection, the intention here of the law is that the registration can be
made anytime. In fact, in a later discussion, it can be registered prior to
creation. In other words, advance registration is allowed.
Section 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.
Since the Registry is not yet established, there is still no mention on how
this will be done.
Will it be accessible by anybody at any time through a website link
or do we have to go the Registry of Deeds and request a search for
this personal property of this grantor on whether or not there are
other security interests created? Under Section 27, it states that any
person may search notices registered in the Registry. Hence, one can go
to the Registry of Deeds and ask for it to be searched.
But again, it is still not clear. Unless it is established, the people are still
in the blind.
Do we have to go and request a staff from the ROD to make the
search and then issue an official record? In relation to titles, one can
ask for a copy. But he/she has to go to the Registry of Deeds. It cannot
be done in the comfort of home.
This is a notice submitted to the ROD.
Section 28. Sufficiency of Notice —
(a) An initial notice of security interest shall not be rejected:
(1) 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.
(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.
Here, it appears that the duty of the ROD is still ministerial in nature. So
long as all are complied with, the notice of the security of interest should
be registered.
Section 28 does not state who submits the initial notice. If a person
goes to the ROD, does he/she fill up the forms or encode details
himself/herself, or can the information be inputted in a website which
can be considered as initial notice? These are the things worth looking
forward to once the Registry System is established.
PARAGRAPH B: It appears that one has to go through the Registry if
the system is not computerized. There is no way of knowing whether the
Registry refers to a system. What is important here is that the reason
for the rejection must be communicated to the one who submitted
the initial notice.
PARAGRAPH C: It can be deduced that there is really a need to go to
the ROD to present the authorization of the grantor.
PARAGRAPH D: In other words, the registration was first effected.
Perfection of the transaction was done first before the creation. Is
that allowed? YES.
But take note, the date of registration of the notice shall be reckoned
from the date the notice was registered. The parties may register even
without a security agreement. But the effect is that the date of the
perfection of the security interest retroacts to the date of registration of
notice, not the date of the conclusion of the security agreement.
Advanced registration is allowed. A pre-agreement registration is
allowed. The premise behind this is that it is not required to submit the
security agreement before submitting the initial notice.
PARAGRAPH E: Compare this to Paragraph C. A grantor must authorize
the registration of an initial notice, but the lien may be registered without
consent of the person against whom the lien is sought to be enforced.
It appears that (e) is the exception to the general rule in (c). The lien
can be registered even without the grantor’s permission. Again, there are
seemingly contradicting provisions (c and e). Maybe this is to be
amended in the IRR or in the rule or law itself.
Another possible interpretation: One may be able to register, but
without the authority of the grantor, such registration cannot be
effective. As to which interpretation is correct, the law is still silent.
PARAGRAPH F: The effect is that the advance registration will not
create and will not perfect the security right until the security interest
is created through the execution of a security agreement. The date of
the perfection of the security interest will retroact to the date of the
registration of the notice, not the date of the conclusion of the security
agreement.
NOTE: In the initial notice, it is not required to indicate the amount or
maximum account for which the security interest was secured. In other
words, the security creditor also has to take note of that. Maybe it is
better for the secured creditor to make an advance registration of the
security interest, even if the security agreement was not yet created
because of that reason that the amount is not required to be indicated,
because it would establish, generally, his/her priority over other secured
creditors.
Section 29. One Notice Sufficient for Security Interests Under
Multiple Security Agreements – The registration of a single notice
may relate to security interests created by the grantor under one (1)
or more than one security agreement.
One single notice is SUFFICIENT to several security agreements.
Section 30. Effectiveness of Notice —
(a) A notice shall 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.
(c) A notice substantially complying with the requirements of this
Chapter shall be effective unless it is seriously misleading.
(d) 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.
PARAGRAPH A: Essentially, if the security interest can be searched in
the Registry System, then, that is considered as effective at the time that
it is discoverable on the records of the registry.
PARAGRAPH B: The security interest therefore remains protected
during the term as stated in the notice and the perfection of that security
interest is continuous beyond the original term if a continuation notice
is registered before the initial term lapses.
The same principle should apply for the continuation of the perfected
security interest for a period beyond the initial term.
PARAGRAPH C: The notice is effective even if there are minor errors
and the only exception is if the notice itself is seriously misleading.
Illustration: The name of the creditor indicated is wrong or the property
mentioned therein is not that of the grantor. Take note of the phrase
seriously misleading.
PARAGRAPH D: The notice is ineffective if it cannot be searched in the
system as against the correct identifier of the grantor which is the
number assigned to the grantor. Therefore, it will be ineffective with
respect to the said grantor.
Section 31 is an example of a ground to determine a notice to be
seriously misleading.
Section 31. Seriously Misleading Notice –
A notice that does not provide the identification number of the
grantor shall be seriously misleading.
Section 32. Amendment of Notice —
(a) A notice may be amended by the registration of an amendment
notice that:
(1) 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.
Under Section 32, there is also an amendment notice. A person submits
a notice to the Registry to change what was provided in the initial notice.
The PPSA does NOT state who should submit the amendment
notice, although it is expected to be the secured creditor.
Could it be the grantor? Maybe, since there is no specific rule with
regards to the submission.
To be valid, the amendment notice may be filed by the secured
creditor alone, although, in the rules, it can be filed by the grantor.
While the law is silent, the rules also indicate that it can be filed by the
grantor.
It will be the secured creditor if the changes to the security interest can
be affected by the sole consent of the creditor and if it will be the
grantor, the changes to the security interest requires the grantor’s
consent as mentioned in Section 3, Paragraph C.
A secured creditor who files the amendment notice necessarily attests
that no other consent is necessary for the amendment to take place.
When talking about these amendment notice, it covers new
information, some changes of information previously given in the initial
notice, or corrections of some errors in the initial notice. It may include
post registration in the change of name and address of the grantor or
name and address of the creditor or an additional guarantor, an
additional collateral and description of the collateral, the buyer of
collateral as a new grantor, or even extension of period for effectiveness
of the notice. The PPSA prescribes no period for the registration of
an amendment.
Failure to register or make the necessary amendments for changes
should not necessarily impact the effectiveness of the notice unless
it is seriously misleading.
Section 33. Continuation 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.
(b) Continuation of notice may be registered only within six (6)
months before the expiration of the effective period of the
notice.
This applies to extend effectiveness of notice, wherein the amendment
notice must be registered six (6) months before the expiration and then
the amendment notice must identify the initial notice through the
registration number.
Section 34. Termination of Effectiveness of a Notice —
(a) The effectiveness of a notice may be terminated by registering
a termination notice that:
(1) 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
each authorizing secured creditor.
The effectiveness of a notice will be terminated even before expiration
of the term stated in the in the shell notice, provided he secures the
authority from each secured creditor.
Section 35. Registry Duties —
(a) For each registered notice, the Registry shall:
(1) 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.
(f) 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.
Section 36. Search of Registry Records and Certified Report —
(a) 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 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 shall issue a certified report of the
results of a search that is an official record of the Registry and
shall be admissible into evidence in judicial proceedings without
extrinsic evidence of its authenticity.
Section 37. Disclosure of Information —
(a) The secured creditor must provide to the grantor at its request:
(1) 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.
The grantor may request a secured creditor to provide the unpaid
amount of the secured obligation and the list of its assets subject to a
security interest. Again, the amount is not required at the time of
initial notice or submission of the initial notice. This section 37 is
subsequent to the filing of the initial notice.
The PPSA respects the rights and obligations of the bank as well as the
obligation of the bank to provide an information to be interpreted in
connection to bank secrecy.
Section 38. Fees Set by Regulation —
(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 shall 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.
 Section 39. When the Grantor May Demand Amendment or
Termination of Notice –
A grantor may give a written demand to the secured creditor to
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;
(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.
It is the grantor who demands from the secured creditor for the
amendment or termination of notice. It is essential to ensure that the
registered notice is cancelled or amended promptly. This cancellation
or amendment is not without limitation since the interest registered is
for and in behalf of the secured creditor.
Grounds for Amendment or Termination of Notice
To make the necessary cancellation or termination, he must give a
written demand if such change or termination involves the following
situations:
(1) When there is no commitment to make future advances;
(2) When the secured creditor has already agreed to release
part of the collateral described in the notice;
(3) When what has been described is NOT a collateral;
(4) When there is really no security agreement between the
parties in the first place; or
(5) When the security interest itself is extinguished, not
necessarily the principal obligation.
TERMINATION AMENDMENT
Grounds 1, 4, 5 Grounds 2 & 3
In connection to Section 39, there is Section 40, wherein the secured
creditor must register WITHIN 15 WORKING DAYS an amendment
or termination notice.
Section 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 or
that was never collateral under a security agreement between
the secured creditor and the grantor in a case within subsection
(c) of Section 39.
In other words, this is the compliance required on the part of the
security creditor upon demand by the grantor.
Section 41. Procedure for Noncompliance 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.
In other words, there is a judicial remedy granted by the law as the
recourse of the grantor. The court may also issue a compulsory
amendment or termination through a court order, in accordance with
the grantor’s demand.
Section 42. Compulsory Amendment or Termination by Court Order
—
(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) he 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.
In effect, it shall be conclusive and binding to the LRA.
Remedy of the Secured Creditor: File an appeal on the order.
The Court may also issue any other order it deems proper for the
amendment or termination of the notice.
Note: No more discussion on Sections 43 and 44.
Section 43. No Fee for Compliance of Demand –
A secured creditor shall not charge any fee for compliance with a
demand received under Section 39.
Section 44. When 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, malicious or criminal purpose
or intent shall be subject to civil and criminal penalties according to
the relevant laws.
CHAPTER 6
ENFORCEMENT OF SECURITY INTEREST SECURED CREDITOR’S
RIGHTS
Section 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 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.
When it comes to enforcement of the principal or secured obligation,
the secured creditor may not avail of these remedies provided under
the PPSA. He/She can file an action for collection of sum of money, to
enforce the principal obligation, or alternatively, if there is a security
interest created and perfected, he/she may avail of the remedies under
PPSA.
TWO WAYS OF ENFORCING THE SECURITY INTEREST OF THE
SECURED CREDITOR
1. Sale or disposition of the collateral to a public or private
sale; or
2. Retention by the creditor of the collateral in total or partial
satisfaction of the secured obligation.
Section 45 talks about redemption. In other words, before a sale or
retention takes place, the right to redeem is available to the grantor or
the debtor.
In redemption, the person is entitled to redeem the collateral by paying
or performing the secured obligation in full, including the reasonable
cost of enforcement.
Who are these persons entitled?
1. The grantor;
2. The debtor (since he has an interest in the obligation);
3. Any other secured creditor or lien holder, who 5 days before
the date of notification is sent to the grantor, held a security
interest or lien on the collateral that was perfected by the
registration; and
4. Any other person from whom the secured creditor receives
notification (Sec. 51).
Please do not confuse the term this right with the right of redemption in
REM. In Real Estate Mortgage, the right to redeem is after the property
has been sold in a public auction. But here, in Section 45, the right of
redemption is used and available prior to the sale.
It only applies in sales, not disposal, since if it applies to the latter, it
cannot anymore exercise this right of redemption.
If the grantor exercises the right to redeem under Section 45, he/she
cannot anymore waive the property for some reason as allowed in the
PPSA. The secured creditor has retained the collateral so the grantor has
nothing more to redeem.
In the book of De Leon, he stated that “the right to redeem may be
exercised if the person entitled to redeem has NOT, after default,
waived in writing the right to redeem.” Note that the word NOT in
this sentence is a TYPOGRAPHICAL ERROR since it appears that the
person entitled to redeem waives. In doing so, supposedly, he can no
longer exercise the right of redemption. The confusion arose here
probably because of the double negative.
Just remember that IF THE WAIVER TO THE RIGHT OF
REDEMPTION HAS BEEN EXECUTED BY THE PERSON ENTITLED,
HE/SHE CANNOT REDEEM ANYMORE.
In Section 45, it is clear that post-disposition redemption (or redemption
after sale) is not allowed. In chattel mortgage and even pledge, it is the
same – one cannot redeem because it was already sold in the public
auction.
Section 46. Right of Higher-Ranking Secured. Creditor to Take
Over Enforcement —
(a) Even if another secured creditor or a lien holder has commenced
enforcement, a secured 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.
Here, it is clear that the higher-ranking secured creditor can take over
the enforcement, even if it has already been stated by another secured
creditor. It can be invoked anytime before the collateral is sold, disposed,
or retained by the secured creditor or until a conclusion of an agreement
of the secured creditor for the purpose has been executed.
ILLUSTRATION
SECURED CREDITOR 1
DUE DECEMBER 31, 2022
GRANTOR
SC2
COMMENCES
SECURED CREDITOR 2 ENFORCEMENT
DUE DECEMBER 31, 2021 BUT SC1 MAY
TAKE OVER
Here, the grantor and the secured creditor (SC 1) created a security
agreement with a security interest over the backhoe due on December
31, 2022. Subsequently, on the same collateral, another security interest
was created over the same in favor of another secured creditor (SC 2)
due on December 31, 2021.
If SC 1 is preferred, meaning he has a priority or he is considered a
higher-ranking secured creditor, then, even if SC2 commences
enforcement of obligation over the collateral, SC 1 may take over such
enforcement, either through a public or private sale.
Under Section 47, the creditor is given the right to take possession of
the collateral.
Section 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 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;
 (2) The secured creditor shall provide the debtor, An instance where there may be breach of peace is going inside the
grantor, and, if the collateral is a fixture, any real house or premises because even if there is no fight, the person entered
estate mortgagee, a copy of the application, including without permission. However, if the grantor consents, there is no breach
all supporting documents and evidence for the order of peace. Just take note of the instances mentioned that constitute
granting the secured creditor possession of the breach of peace.
collateral; and
(3) The secured creditor is entitled to an order granting
Under the IRR, this expedited possession is mentioned under Section
possession of the collateral upon the court finding
7.02. Essentially, it is the same with Section 47 as it also emphasizes that
that a default has occurred under the security
the creditor can file an expedited hearing upon application.
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.
The right to repossess under Section 47, which does not automatically
PARAGRAPH A: The secured creditor may take possession of the
extinguish the obligation, may be in connection with the subsequent
collateral without judicial process if the security agreement so stipulates,
right of the creditor to dispose the collateral.
provided that possession can be taken without a breach of peace.

Section 48. Recovery in Special Cases —

By stipulation, upon default, the secured creditor may take possession.
Taking possession without judicial process is allowed if the security
agreement so stipulates. If it is not stipulated, the creditor cannot
repossess. Further, even if it is stipulated, it must be that it can be
possessed without a breach of peace.
PARAGRAPH B: Take note of this specific rule with regard to fixture.
If the collateral is a fixture and if the secured creditor has priority
over all owners and mortgagees, the secured creditor may remove the
fixture from the real property to which it was affixed without judicial
process.
PARAGRAPH C: This talks about the remedies of the secured creditor if
upon default he/she cannot take possession of the collateral without
breach of peace.
PARAGRAPH C1: The secured creditor may file a case in court, although
it is expedited in nature. In what sense? It is still unknown as it is not
actually practiced yet and no rules have been promulgated with regard
thereto.
Take note when there is breach of peace. If there is no breach of peace,
the secured creditor may take possession. However, if the secured
creditor needs to enter the premises of the grantor without permission
or that the former needs to be accompanied by police officers to
possess, it constitutes a breach of peace, which is not allowed under
Section 47(a).
Upon default, the secured creditor may without judicial process:
(a) Instruct the account debtor to 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;
(b) In a 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.
Essentially, under Section 48, the secured creditor is authorized to
obtain payment without judicial process or resulting to other
remedies in the PPSA, in connection to the specific collateral or movable
properties mentioned in in this provision.
This is mentioned under Section 7.05 of the IRR.

Take note of the conditions or requisites before the creditor can take
possession of the collateral.

Breach of peace necessarily means that recovery of possession cannot

be done by self-help. Possession by self-help is available if it is so
provided in the security agreement and provided further that it does not
constitute breach of peace.
 Section 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 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.

Here, the secured creditor is given a right to sell or otherwise dispose of

the collateral upon default of the creditor.

Section 7.06 expounds the meaning of this provision.

In addition, the right to dispose or sell by the secured creditor here is

without court assistance. In other words, no court action or
intervention is necessary. The nature of the sale can either be public of
private.

Take note that there are two ways for the secured creditor to enforce
the security interest – [1] sale and dispossession under Section 49 and
[2] retention under Section 54. In connection to dispossession and sale,
it should follow any commercially reasonable preparation or
processing.

Section 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 secerned 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.
Under this section, there is no express requirement that the sale must
be publicized and maybe in a private sale. But for a commercially
reasonable sale, there must be publication which is considered to be an
element of a commercially reasonable disposition. It ensures that the
advertising is sufficient to reach the proper audience provides sufficient
time following the advertising.
When the sale take place? The PPSA is silent.
Section 7.07 of the IRR only reiterated what was stated in Section 50, in
connection to commercial reasonableness.
Note: Other provisions are self-explanatory.
PARAGRAPH C
• Posting – done in the registry for the notice of sale.
Do not confuse this with the requirement of posting for REM
or Chattel Mortgage.
• Publication – It is one factor that could show that the sale
complied with the commercial reasonableness requirement.
PARAGRAPH D: Here, it appears that the sale or disposition is
applicable to the public scene. But recall Section 49, wherein it provided
that the sale or disposition can take place either privately or publicly. In
other words, this sale in Section 7.07 is still considered private in nature.
PARAGRAPH E: The secured creditor better take this into consideration
so that there would be lesser issues with the requirement of commercial
reasonableness.
PARAGRAPH F: There is a qualification for private disposition.

Note: Just take note of Section 50 in relation to the IRR and those
provided in Section 51.
Section 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 notification 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.
PARAGRAPH A, ITEM 3: Essentially, these persons are the ones who are
entitled to redeem. Thus, they need to be informed before disposition.
Aside from registration of sale and the notice of sales in the registry,
these persons mentioned should also be notified.
PARAGRAPH D: No need to comply with the notice when the goods are
perishable.
Under Section 51, it appears that the debtor is a person different from
the grantor. He is not required to be notified of the said disposition. The
debtor, however, can choose to redeem the property, being the party
interested in the obligation.
Section 52. Application of Proceeds —
(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 attorneys’ fees 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 hen 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.
It is different from pledge but similar to chattel mortgage upon
foreclosure. The debtor is liable for any deficiency unless otherwise
agreed and the grantor is entitled to the surplus.
Section 53. 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 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.
Under Section 53(a), if a secured creditor sells the collateral under
Chapter 6, the buyer in the said sale generally acquires the grantor’s right
in the asset free of the rights of any secured creditor or lien holder.
Under Section 53(c), the buyer or other transferee, lessee, or licensee
are affected by the enforcing creditor’s failure to comply with the
requirements under the law, if they have knowledge of the violation
which prejudiced the rights of the other parties.
Section 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 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.
This is the second mode of enforcing the security interest. The first
one is sale or disposition. The second is retention which takes place
after default.
Under Section 54(a), the secured creditor, after default, is entitled to
propose to the debtor and the grantor to take all or part of the collateral
in total or partial satisfaction of the obligation by sending a proposal.
Essentially, this can be considered as a dacion en pago because it involves
a property in lieu of a monetary obligation, and with that, this does not
constitute pactum commissorium.
While it is true that Article 2088, pactum commissorium, is considered
repealed with regard to movable properties, it does not mean that
pactum commissorium is already allowed. Under Section 54, there is no subsection (a) of this section, the prior interest is perfected only
automatic retention even after default of the debtor because the from the time it is perfected under this Act.
creditor here still has to propose to the debtor and the grantor that the (d) A written agreement between a grantor and a secured creditor
collateral shall be used to satisfy the obligation. creating a prior interest is sufficient to constitute authorization
by the grantor of the registration of a notice covering assets
In Section 54(b), what is provided is “within twenty (20) days after the described in that agreement under this Act.
(e) If a prior interest referred to in subsection (b) of this section was
proposal”, but the better interpretation would be “twenty (20) days
perfected by the registration of a notice under prior law, the
after receipt of the proposal.” Nonetheless, the said paragraph refers
time of registration under the prior law shall be the time to be
to full satisfaction. If the creditor received no objections within twenty
used for purposes of applying the priority rules of this Act.
(20) days after receipt of the proposal, then, the creditor already has the
right to retain, and his obligation is extinguished.
As previously mentioned, the country is still in the transitional period
(from February 2019 until the registration system has been established).
But if payment is partial, take note that a proposal does not take
effect unless there is an affirmative within twenty (20) days.
Again, perfection here refers to the requirements to bind third parties.

CHAPTER 7 The written agreement under paragraph D will answer the authority
TRANSITIONAL PROVISIONS
required to register the notice.
Section 55. Interpretation of Transitional Provisions —
For this Chapter, unless the context otherwise requires:
With regard to competing claimants, Section 8.04 of the IRR applies.
(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.

Section 56. Creation of Prior Interest —

(a) Creation of prior interest shall be determined by prior laws.
(b) A prior interest remains effective between the parties
notwithstanding its creation did not comply with the creation
requirements of this Act.

Creation of prior interest shall be determined by prior laws (Pledge

and Chattel Mortgage Laws).

A prior interest remains effective between the parties

notwithstanding non-compliance of its creation with the creation
requirements of PPSA, provided it complied with the requisites
provided by the Civil Code for pledge and chattel mortgage, in
connection to Chattel Mortgage Law Act 1508.

Section 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:
(1) 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.
(c) If the perfection requirements of this Act are not satisfied before Emphasized: Section 8.07 and 8.08
the perfection of a prior interest ceases in accordance with
Note: There is still no memo regarding this provision on registration.
Note: Section 58 to Section 67 were not included and discussed.

Section 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.

POSTSCRIPT FROM ATTY. SARONA: I think there is a lot to take in.

I will not dwell much on the rules on priority of prior interest. Also, I
will NOT include Chapter 7 and Chapter 8 of the PPSA and RULE VIII
of the IRR in the coverage of the exam. All the rest are included
especially with regard to:

• Creation of the security interest

• Perfection of the security interest
• Enforcement of the security interest

I will focus more on that. True, it is long but, on the other hand, there
is no jurisprudence yet regarding this law. So, I hope you understand
that even I have some issues or questions as to how it would reconcile
some of those issues that were addressed previously in the Civil Code
concerning pledge and chattel mortgage. But for now, I can only
surmise how it is interpreted but what is important for you at present
is to understand what the provisions mean as provided and stated in
the PPSA.

I hope I was able to establish your understanding of the PPSA,

understand the terms therein and the application of the provisions. I
hope you find time to understand these provisions.