Personal Property Security Act a legal claim or charge on property, either real or
Atty. Timoteo Aquino personal, as a collateral or security for the payment of
General Concepts
1. Secured and Unsecured Obligations
a. Remedies if the obligation is secured
b. Reason for security
GR: In obligations, in case of breach or nonperformance,
the principal remedy is specific performance
Eg. In a loan, the obligation of the debtor is to pay the full
amount. In case of non-payment, the remedy is specific
performance that is to pay the amount borrowed.
Specific performance takes time. You have to make a
demand letter first, if unheeded go to court, sometimes
barangay conciliation first.
It is not a simple proceeding.
What is the alternative?
Resort to securities. Accessory contracts that secure the
performance of the obligation.
-for a better chance to recover.
1. real and personal security
personal security- the faithful performance of the
obligation is secured by the personal commitment of the
another who is called the guarantor or surety.
Guarantor- liability is subsidiary, benefit of excussion
Surety- solidary liability
Standby letters of credit- solidary liability
*you still have to sue. (acme shoe v. CA- issue on the
coverage of the chattel mortgage)
real security- the fulfillment of the obligation is secured
by an encumbrance of property upon the essential
condition that if the principal obligation becomes due
and the debtor defaults, then the property encumbered
can be alienated for the payment of the obligation, but
that should the obligation be duly paid, then the contract
is automatically extinguished proceeding from the
accessory character of the agreement.
 The property security can be sold. The proceeds
can be used to pay for the total amount of the
loan.
2. lien and encumbrance
encumbrance- burden upon land, depreciative of its
value, such as a lien, easement, or servitude, which,
though adverse to the interest of the landowner, does not
conflict with his conveyance of the land in fee. The ff are
considered encumbrances: a claim, lien, charge, or
liability attached to and binding real property; eg. a
mortgage, judgment lien, lease, security interest,
easement or right of way, accrued and unpaid taxes.
 There can be an encumbrance on personal
property.
Lien is a charge on property usually for the payment of
some debt or obligation. A lien is a qualified right or a
proprietary interst, which may be exercised over the
property of another. It is a right which the law gives to
have a debt satisfied out of a particular thing. It signifies
some debt or obligation.
 There is a specific property.
3. onerous and gratuitious
4. possessory and nonpossessory
- pledge
under PPSA, the security is not possessory. But it may be
perfected through delivery.
PPSA
Effectivity date: Feb 19, 2019
Transitional period: effectivity until the registry is
operational (established by the LRA, given a period of
6mos)
Rationale: to create a framework for secured
transactions, to further improve MSMEs access to
financing by expanding the number of acceptable
collaterals and improving the existing legal and
regulatory framework for movable collaterals and
improving the existing legal and regulatory framework
for movable collaterals.
Repealed laws:
1. Sections 1-16 of the Chattel Mortgage Law
2. Articles 2085-2092 of the Civil code of the Philippines,
provisions common to pledge and mortgage* only
insofar as personal property is concerned. It is still
effective under rem.
3. Articles 2093-2123 and articles 2140-2141 of the civil
code o the Ph- Pledge and Chattel mortgage
4. Section 13 – registration of a finance lease,
5. Registration of Chattel mortgage
6. Encumbrance of motor vehicle
7. 2127 of the civil code of the Ph- REM, accessions and
improvements, rents and income are covered by the
mortgage. These could be considered personal under the
PPSA.
8. arts 2241, 2243, arts 2246, 2247 of the civil code on
concurrence and preference of debts
-no. 4 art. 2241, things pledged insofar as in the hands of
the creditor. *sir’s view: replace with the items under the
PPSA. It does not change the rules under 2241.
Implied repeal- all decrees and laws that are inconsistent
Art. 2085 provides for the enumeration of the essential
requisites of mortgage and pledge
The PPSA repealed this article although the principles
remain the same.
1. secures the fulfillment obligation
 An accessory contract cannot exist without a
principal contract
2. mor/por must be the absolute owner
3. the mortgagor or the pledger has the free disposal of
the thing or authorized by law for that purpose
eg. of not authorized by law- the owner of a homestead
land does not have free disposal of his property
*if what is involved is a real property, 2085 is still good
law.
 Grantor must have the legal right under the
PPSA
 The owner has legal right.
 The constitution of an encumbrance is an act of
dominion. Therefore, the person who can create
a lien over the property can only be the owner
or anyone duly authorized by him.
art. 2085- last paragraph- 3rd persons who are not
parties to the obligation may be mor or pors
- actually the same with PPSA section 3c.
art. 2086 a guaranty cannot exist without a valid
obligation. The same with PPSA.
Art. 2091, 2087- same principles.
The only difference is the procedure. It is simpler under
the PPSA because it allows private sale.
*pactum commisorium- art. 2088 automatic
appropriation by the creditor is not allowed.
- automatic appropriation is still not allowed.
Sec. 49 of the PPSA- after default, a secured creditor MAY
SELL… automatic appropriation is still not allowed.
Although, it is easier for the creditor to sell.
Remedies of the creditor after default:
*no automatic appropriation
1. Right of retention- sec. 54 PPSA, it is not pactum
commisorium. Under 54, the creditor will have to
propose to the debtor to retain the collateral in partial or
full satisfaction of the debt.
- In case of full satisfaction of the debt- the
creditor may retain the item if the debtor does
not object within 20 days.
- In case of partial satisfaction- the debtor must
have to expressly agree and affirmative consent
of those with interest in the debt
2. Right of recovery- sec. 48 PPSA, the bank creditor is
given the express authority to apply the balance of the
account to the account.
- Not a new rule, SC treated it as a special pledge,
Victoria Chu v. CA
- The same with receivables, negotiable
documents, deposit account perfected by control
– the depositing institution will be instructed to
pay the balance
Art. 2089- supposed to be repealed, principle of
Indivisibility. A REM may secure a series of loans. All of
the loans must be paid inorder for the REM to be
released.
- Still applicable under the PPSA, sec. 39.
Effect on existing chattel mortgage and pledge
Sec. 57 Perfection of prior interest
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 the prior law; and
2. The expiration of the transitional period.
It’s actually easy to transition.
Creation and perfection during the transitional period
(Feb. 2019)
1. all interests created during the transitional period
governed by the PPSA, priority interest is also
determined under the PPSA
2. registration of the security agreement with the LRA in
accordance with Sec. 4 of the Chattel mortgage law
3. a written agreement between a grantor and a secured
creating a prior interest is sufficient. S
Security interest
Sec. 3j 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.
 So long as there is a principal obligation,
whether pure or conditional, it can be secured
 It is a property right. once you have a security
interest, you have a direct relation with the thing
and enforceable against the whole world.
 Substance rather than the name.
 The security agreement can be part of the
principal agreement.
 Only personal properties are acceptable
Parties
1. Grantor
a) The one who conveys the property to secure his
own obligation or that of another person
b) A buyer or other transferee of a collateral that
acquires its right subject to a security interest
 The security can be transferred; it is in the
nature of a lien. A lien follows the property to
which it relates
c) A transferor in an outright transfer of an
accounts receivable or
d) Lessee of goods
2. Secured Creditor- a person who has a security interest.
It includes
a) Buyer of accounts
b) Lessor of goods under an operating lease for not
less than one year
Continuity of interest
Sec. 9. A security interest shall continue in collateral
notwithstanding sale, lease, license, exchange, or other
disposition of the collateral, except as otherwise
provided in Section 21 of this Act, or agreed upon by the
parties.
Problem: the security agreement entered into under the
PPSA contains the ff stipulation: the security interest
hereby created secures all present and future obligations
of the grantor to the secured creditor. Is the stipulation
valid?
Chattel mortgage: not valid. The obligations must be
specified.
PPSA: valid. Sec. 39. Future obligations can be secured
under the PPSA. The problem under the chattel mortgage
law is no longer a problem under the PPSA since there is
no requirement of an affidavit of good faith.
GR: the grantor can ask for the termination of the
registration upon payment
E: when thing also secures future obligations
Properties
 Tangible or intangible properties
 Securities and commodity contracts- investment
property
 Lease of goods including financial leases and
operating leases for a period of not less than 1yr
 Future properties – 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. IRR: It can be stipulated that the security
interest in tangible assets extends to its
replacement.
o Unlike in a chattel mortgage which
requires a specific description in
affidavit of good faith
 Deposit in a deposit taking institutions- covered
by the right of recovery
o SECTION 3.10. Rights to Payment of
Funds Credited to a Bank Account. — A
security interest in a right to payment
of funds credited to a bank account is
effective notwithstanding an agreement
between the grantor and the deposit-
taking institution limiting in any way
the grantor's right to create a security
interest.
o Security interest of the bank prevails
 Receivables 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.
 Negotiable instruments independent of the
receivable- 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.
 Livestock- 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.
 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.
o What is the effect of estoppel? A
building was treated as personal
property in a security agreement shall
be treated as personal. But this cannot
affect third persons. Only the parties
are estopped.
 Does not apply to vessels and airplanes.
Stages in the life of a security interest
1. Creation of security interest;
 A security interest can be created but there is no
priority interest or you are lower in the ranks.
 How- by a 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. (Sec. 6) It may be part
of a loan agreement
 Only two provisions are in the sample
The GRANTOR agrees to create a security interest over
the movable property described below, in favor of the
SECURED CREDITOR, to secure its obligation to pay
(amount) under (description of the agreement from
which the obligation arises, including the date the
agreement was entered into)
The security interest covered under this Agreement shall
cover the movable property described below:
 The collateral must be identified. “All
equipment” “all inventory”
2. Perfection of security interest; and
 Creation and perfection matters for enforcement
and security interest.
 On perfection, a security interest becomes
effective against third parties
 In other words, at the point of creation, there is
no real lien yet.
  Does not talk about the perfection of the
contract per se. It talks about the perfection of
the security interest, at this point, it is binding
against the whole world.
 You can only perfect once a security interest is
created. (sec. 11)
 How can you perfect? Sec. 12
a) Registration of a notice with the registry
b) Possession of the collateral by the secured
creditor
c) Control of investment property and deposit
account
 Execution of a control agreement
summary
Tangible assets Intangible assets
Registration Registration
Possession Control Agreement
Registration- notification of the LRA
Delivery- whether actual or constructive
 Transfer of possession either to the
secured creditor or to someone in
behalf of the creditor
 Grantor cannot possess the collateral
 Constitutum possessorium not allowed
Control agreement- three parties
3. Enforcement of security interest
The law allows private and public disposition.
Sec. 50. Commercial Reasonableness Required. —
(a) In disposing of collateral, the secured creditor shall
act in a commercially reasonable manner.
(b) A disposition is commercially reasonable if the
secured creditor disposes of the collateral in conformity
with commercial practices among dealers in that type of
property.
(c) A disposition is not commercially unreasonable
merely because a better price could have been obtained
by disposition at a different time or by a different
method from the time and method selected by the
secured creditor.
(d) If a method of disposition of collateral has been
approved in any legal proceeding, it is conclusively
commercially reasonable.
Right to redemption- performance of the obligation in
full
PPSA- equity of redemption
- notice to all interested parties
no more right to redemption
after the sale or after retention
debtor is still liable for the deficiency
Priority Rules
SECTION 46. Right of Higher-Ranking Secured Creditor
to Take Over Enforcement. —
(a) Even if another secured creditor or alien 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.
*First in time as to perfection, stronger in right
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.
Sec. 47- expedited repossession
- no longer replevin, just an application. No longer an
original case.