SZID, JR

PERSONAL PROPERTY SECURITY ACT (PPSA)

PPSA Lecture
● Benefits of PPSA
o SC need not be given possession for SA to be valid
▪ I don’t know if you are familiar with requirements of pledge (pledge is a real
contract = not valid until there is delivery). Now wala nang ganito. It may or may
not be delivered for as long as SA is executed.
o Allows for constitution of a SI over future property without need of executing
supplemental agreement. As soon as grantor acquires rights over future property, they
are subject to SA without need of further act
● Security Interest
o 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;
o for as long as intention to create a security over a movable property, it is under PPSA.
The name does not determine if it is under PPSA as long as there is an intent to
create a SI under the PPSA
● Accounts Receivable
o Mr. Cruz owes you 5k/month. So that is your receivable. It is a contract for 1 year so you
have a receivable for 60k. if you constitute a SI over those receivables, it will be under
PPSA
o Why would you constitute a SI over those?
▪ Kunwari uutang ka sa bank.You will borrow 50k. Bank will ask you kung ano
assets mo. You will then say that you have receivables from Mr. Cruz. What you
do is you are creating SI over receivables. So now mapupunta receivables mo sa
bank – parang subrogating
● Operating Lease
o an agreement by which the owner temporarily grants the use of his property to another
who undertakes to pay rent therefor;
o “rent-to-own transaction”; seller has a SI over the car (lessor has interest over the car in
such that if you don’t pay the rent, he has certain rights 🡪 enforcement like foreclosure,
sale)
o I think the law uses operating lease but the IRR uses finance lease
● Objects of SI
o Securities, negotiable instruments, fixtures (attachments to real or immovable property),
commodity contract, negotiable documents of title (warehouse receipts), future proeprty,
consumer goods, livestock, intellectual property (copyright, patents, trademarks),
inventory, deposit accounts (pera sa bank),
o Uncertificated v. Certificated Securities
▪ Shares of stock –intangible
● called certificated shares of stock
▪ Under the Securities Regulations Code and Revised Corporation Code
● corporations are allowed to issue uncertificated shares of stock. In
which case, wala kayong matatanggap na shares of stock. They are also
called electronic shares or scriptless shares.
SZID, JR

▪ If the shares are represented by certificates of stock → tangible

o Intermediated v. Non-intermediated
▪ Non-intermediated: it is either in the possession of the corporation, the issuer or
stockholder
● If I am stockholder of San Miguel, it is issues me stock certificate, it is in
my possession
▪ Intermediated: it is in a securities account maintained by a third person or
“intermediary”
● BDO Online, BPI online – if you trade shares of stocks through these
channels, wala naman kayong matatanggap na stock certificates. They
are in the possession of an intermediary
● This is why they are called: “uncertificated intermediated” or “electronic
intermediated” or “scriptless intermediated”
● If it is in corporation/your possession: “non-electronic
non-intermediated”
● Except: chattel mortgage may still be constituted over vessels and aircrafts
o Chattel mortgage has been repealed over entirety.
o Vessel – Ship Mortgage Decree
o Aircrafts – Civil Aviation Authority Act
● Future property may be the object of SI over PPSA
o unlike REM, there is no need to execute a supplemental agreement in order for SI over
future property to be valid.

PPSA

(1) Creation; creation of a SA

o Execute a security agreement; OR
o Execute a sale of receivables; OR
o Execute an operating lease
(2) Perfection
o Doesn’t mean it is created, it is perfected
o Perfection means it is binding under third persons. Similar to REM, what makes it
binding is registration with RD
o In order for SI to be perfected, it has to be perfected first
(3) Enforcement; Debtor may or may not pay
o Pay in full – SI is extinguished
o Not in full – this is where priority rules becomes relevant (where enforcement becomes
relevant)

Who creates?

● Grantor
o May be borrower or third person
o May be natural or juridical
o May also be the buyer of collateral subject of SI
o May be transferor in sale of A/R
o May be a lessee
SZID, JR

How is a SI created?

● Creation of SA
● Execution of operating lease of at least 1 year
● Sale of accounts receivable

Form of SI

● It has to be in writing
● May be contained in 1 or more agreements provided there is INTENT to create SI over movables
● Does not have to be named SI
● IRR provides a form (I will not require you to memorize the form)

How should collateral be described

● In REM, it must be particularity. The same for pledge and CM

● In PPSA, a general description is sufficient

Problem: Anton constituted a SI over his Honda Civic in favor of Bert to secure loan of 800k.
Anton sold the car to Charlie for 800k. What happens to the SI of Bert? (Question 18; who would
have a better right between Bert and Charlie?)

● Bert’s SI extends to the proceeds (800k) which Anton received in exchange for the car
● Whoever purchase property subject to SI takes it free from any lien except if it was registered
● Who would have better right? Depends on whether property was registerd
o Registered: Bert
o Not registered: Charlie
o Even if Charlie would have a better right, Bert would still have SI over 800k

So the SI extended to the identifiable proceeds

Q: What if those proceeds are deposited in a bank?

A: The Sc would have SI over the deposit account

Q: What if the SI extends to the 800k proceeds deposited in an account with 1M?
A: To what amount does 800k extend? Only to 800k

Q: What if that account amount was reduced to 600 then 500 to 200 then went back up to 700?
A: According to the PPSA, if any time after commingling the balance credited to the deposit account is
less than the amount of proceeds immediately before commingling. the SI extends to the lowest amount
of the commingled funds or property between the time of commingling and the time the SI was
enforced.

Q: 800k deposited in SI in an account with funds already in 1M.

SZID, JR

A: SI covers only 800k. If it goes down to 700k and then to 500k, then SI is limited to the lowest amount
(which is 500k) even at the time of enforcement it became 650k.

Perfected SI also extends to fixtures (attachment to real property)

● You have a SI over wires and then those wires were not delivered. Instead the SA was registered
(so perfected na). If the wires were used to make lamps, then then SC continues to have SI over
those wires because they remain to be identifiable

SECTION 1.05. Definition of Terms . — As used in these Rules, the following terms shall mean:
(j) Fixtures — property attached to an immovable or a movable

SECTION 2.03. Security Interests 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:
(j) Fixtures, accessions, and commingled goods, or

SECTION 4.10. 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.

SI over a mass extends to the mass.

SECTION 3.07. Security Interest Over Tangible Assets Commingled in a Mass. —

(a) A security interest in a tangible asset that is commingled in a mass extends to the mass.
(b) A security interest that extends to a mass is limited to the same proportion of the mass as
the quantity of the encumbered asset bore to the quantity of the entire mass immediately
after the commingling.

● For Example (UN Guide Practice)

○ RCBC had SI over 100 liters of oil that were later commingled with 150 liters. RCBC only
had SI over 100. RCBC will continue to have SI over 100.
○ Problem always is what will happen if the entire mass is reduced to less than 100? If at
the onset the SI is ⅔, if the mass is reduced to less than 100, then the SI is computed
based on ⅔.
○ If the entire mass is reduced to 75, then RCBC continues to have SI over ⅔ (50/75 same
as 100/150)

A security agreement may provide that a security interest in a tangible asset that is transformed
into a product extends to the product or its replacement , etc.
● BDO has a SI in a gold bar with 10k and then those are made to make rings with 30k. So
transformed into a product. BDO still has to have SI over the rings to the extent of 10k.

Creation
SZID, JR

● How to create?
○ SA; or
○ purchase of receivables; or
○ finance/operating lease for more than 1 year

Perfection
(1) Has to be created first
(2) The parties must go through any modes
(a) Registration - tangible, intangible
(b) Possession - tangible
(c) Control agreement - intangible

● What is the effect of a perfected SI?

(1) Binds third parties
(2) If the object over which SI is sold, the purchaser takes the property free from SI only that
if it is not registered

● General Rules:
(1) tangible - possession or registration;
(2) intangible - registration or control agreement;
(3) investment property or deposit accounts - registration or control agreement

● Possession
○ May be actual or constructive
○ Can the grantor possess it on behalf of the SC? NO. The SC or depositary has to be
actual or constructive possession
● Registration
○ Notice effective from time it is discoverable from records of the Registry

Control Agreement

Control agreement — an agreement in writing between the grantor and the secured creditor which
perfects the security interests over intangible assets.
(1) With respect to intermediated securities, the control agreement is 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 a deposit account, the control agreement is 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, the control agreement is among the grantor, secured
creditor, and intermediary, according to which the commodity intermediary will apply any
SZID, JR

value distributed on account of the commodity contract as directed by the secured creditor
without further consent by the commodity customer or grantor.

● A tripartite agreement (grantor, SC and intermediary or the bank)

● Example: A owes me 1M secured by a SA over a deposit account in Metrobank. We do not have
to execute a CA but for my protection, it would be better. The CA will state that Metrobank
acknowledges that A has a deposit with them amounting to x. I have SI over it and in case of
default, Metrobank assures that it will follow any of my instructions regarding the deposit.
● It is not necessary for purposes for validity of SA but it is necessary for perfection

SI is extinguished
● when all secured obligations have been fulfilled and there are no more outstanding commitments
to extend loan to the grantor
● Notice of SI in the Registry may be terminated if SI is extinguished

ENFORCEMENT
● For the SC to realize the SI

Modes of Enforcement
● Under REM (modes of enforcement) → JF/EJF Foreclosure or Collection
● Under PPSA

(1) Expedited Repossession,

(2) Retention,
(3) Instruct Intermediary or the Bank to follow your instructions in case there is CA,
(4) you are the bank and grantor owes you something then you just apply funds in deposit
account to amount owing to you,
(5) if SI over Negotiable Instrument, then you proceed to the negotiable instrument (you
present negotiable instrument to the issuer or to the maker)

● Why do you need possession?

○ You will sell or retain the property
● For SC to acquire possession EJ:
(1) it is not only necessary that he must do without breach of the peace +
(2) EJ mode of possession must be stipulated in the SA. Without such, the SC may be able
to acquire possession only be judicial means (Parang REM na need ng SPA sa Mortgage
Agreement para EJF)

RIGHTS AND REMEDIES OF THE SECURED CREDITOR

1. Expedited repossession
● Upon default - may take possession extrajud
● Requisites:
(1) Stipulated that he has right
SZID, JR

(2) Without the breach of peace

● breach of the peace → violence, entering residence, intimidation,
SC has to be accompanied by law enforcement officer to enforce his
rights
● If collateral is a fixture attached to movable or immovable
○ SC has priority over the owner mortgagees and he can remove the fixture
from the real property if can be done extrajud + due care
● If cannot be taken without breach of peace → cannot take extrajud and should apply
for court order - and serve to interested parties (other creditors, grantors,
mortgagees)
○ Upon which, the SC will be entitled to an “Expedited hearing”
○ If found warranted and default occurred under the security agreement and
secured creditor has right to take possession of the property → court will now
grant order
2. Right of the higher ranking secured creditor to take over of the enforcement
● If the secured creditor has SI which has priority over another SC or lien holder even
if commenced enforcement or ongoing, then he can take over enforcement -
because HE HAS PRIORITY
● Right of priority
○ may be invoked at anytime before disposed in any manner; and
○ the SC can be used any method to enforce
3. Right of the secured creditor to retention of collateral
● After default of the grantor - SC may retain in full or partial satisfaction of secured
obligation by sending a proposal to:
(1) debtor, or
(2) grantor; and
(3) other secured creditor who has perfected security interest or lien through
registration 5 days before sending proposal to the debtor or grantor; and
(4) any other interested persons who gave written notice to secured creditor
before proposal is sent to the debtor or grantor
● The only way the of retention can be enforced is through sending of the proposal
○ Proposal - check IRR (to know if proposal is sufficient)
(a) State the amount to satisfy obligation
(b) Amount of obligation proposed to be satisfied (total or partial)
(c) Secured creditor proposes to acquire collateral described (total or
partial satisfaction)
(d) Date after which the SC can acquire the encumbered asset
● After this, the SC for can now retain (for full or partial satisfaction) but qualifications
○ Full satisfaction cannot be granted if there is written objection sent after 20
days after proposal is sent (not receipt)
■ objections has to be registered
○ Partial satisfaction - if able to acquire affirmative consent in writing of all the
addressees within 20 days from sending the proposal

4. Right to Dispose Collateral

● After the default: may send or dispose - private or public sale

○ Auction
○ Sale must be sold at the present state OR following commercially
reasonable preparation to make it more appealing to prospective buyers
SZID, JR

○ SC must act in a COMMERCIALLY REASONABLE MANNER. To know if SC

is acting as such:
(1) In conformity of the commercial practice among dealers in
the type of property; and
(2) Not commercially unreasonable even if a better price could
have been obtained at a different time or place than that
selected by SC
● SC is given Leeway: may select time, place method, manner (lease, sell, license,
individually or as a group) as long as the following requisites are met:
○ Has to be done in auction form (public or private)
○ Satisfy requirements of being commercially reasonable
○ Sale has to be done in Good Faith; Indicators of good faith
■ Entity presiding is an experienced dealer in that type of property
sold
■ Participating bidder do not engage in collusive practices - should be
free competition
■ Records of the auction → identify bidders and their submission
which must be documented in writing and maintained
■ Awarded to highest bidder → who must pay full price at the
conclusion of the auction
● If cannot pay at given time, the collateral will be awarded to
the next highest bidder who will be given chance to pay for
the second highest bidder
● Requirements:
(1) He must give notice within 10 days before disposition:
(a) Grantor
(b) Secured creditor who registered notice 5 days before notice is sent
to grantor
(c) Other secured creditors who able to send security interest before
secured interest sent notice of disposition to grantor
(2) Secured creditor must cause posting in the ROD in LRA of notice that
describes collateral and details of the sale → must be searchable and
publicly accessible
● Notice to grantor - may be waived by grantor
● SC is allowed to maximize awareness of the sales for ads (newspaper, TV, etc)
● Who is the entity allowed to conduct the auction?
(1) Government agencies whose regular practice/activities - public auction; OR
(2) Private entity (auction houses)

○ In either case, they will submit rules and regulations over the auction to the
Department of Finance
- If approved, the public auction, it will be conclusively presumed to
be reasonable
- Opinion of Atty. Javier: failure to send rules for approval will not
necessarily prevent auction - cause merely presumption so by
implication, the presumption will just not apply - check JURIS!

● At the auction - SC may buy at public or private disposition ONLY if customarily sold
in a recognizable market or widely distributed standard price quotation
SZID, JR

○ If method is approved in proceeding - conclusively presumed commercially

reasonable

● Application of proceeds if already sold → highest bidder who will pay full price at the
conclusion of the sale
(1) reasonable expenses for taking, holding, preservation of the thing,
attorney’s fees and other legal expenses
(2) satisfaction of principal obligation
(3) claims of subordinate SI
● only applied if written demand and proof of SI is received before
proceeds is distributed (completion of distribution). Otherwise,
(4) If there is an excess, grantor is entitled to receive the excess
(5) If there is a deficiency, grantor will still be liable for deficiency and SC can
claim it from grantor
● Exception: if there is a stipulation saying that SC will not be entitled
to deficiency

● What if SC damaged or lost the property because he failed to take care of the thing?
○ SC liable for any loss or deterioration due to failure to preserve or take care
of the collateral or encumbered asset

5. Special rights
● Accounts Receivable
○ SC may instruct the debtor of accounts receivable to make payment straight
to the SC instead of the grantor. Then, the SC can apply this to the
satisfaction of the debt less the reasonable expenses for collection
● If collateral is Negotiable Instrument perfected by possession
○ the SC can claim satisfaction either from the instrument itself or the goods
covered by the negotiable document of title
● Deposit account made in favor of D-T (ie bank)
○ SC may instruct the D-T to pay the balance of the deposit account to the
SC’s account by providing two things: (1) give copy of SA which created the
SC; (2) SC must give an affidavit that default occurred and that he is entitled
to enforce SI extrajudicially

6. Damages
● failure of grantor to comply with the rules in the PPSA or IRR

NOTIFICATION
● Once SC is able to acquire possession over the property which he has SI, he may now dispose
of it. But he needs to notify certain persons:
(1) Grantor
(2) Other secured creditors that are registered 5 days before notifies grantor
(3) Persons who have SI over thing not registered but nevertheless known to him before he
notifies the grantor

● When must the notice be sent?

○ 10 calendar days before the disposition (not business days!)
SZID, JR

○ May the grantor waive the right to be notified? He may but only after default.

● What must notification contain?

○ identification number of the grantor
● otherwise, it will be considered as a “seriously misleading notice”
● if seriously misleading, it will be considered in effective
(1) identification of secured creditor or his agent
(2) description of the collateral
(3) addresses
(4) duration of effectivity
(5) payment of any fees
(6) State the method if intended disposition (sale, retention, etc)
(7) Time and place of disposition

● How will the notice be sent?

○ Registered mail or email

● Requirements on notification need not be compiled when

○ collateral is perishable or threatens to decline in value
○ Or is of a type customarily sold on a recognized market

3 Kinds of Notices
(a) Initial notice → gagawa ng SA and we want to register it. We comply with requirements and it
has been met. The Registry registers the initial notice.
(b) Amendment Notice → providing new information or continuing the period of effectiveness of an
initial notice
(c) Termination Notice

SECTION 5.13. When the Grantor May Demand Amendment or Termination of a Notice. — A
grantor may give a written demand to the secured creditor for the amendment or termination of the
effectiveness of the notice in the following cases:

(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 Rule.

Upon receipt of the demand for amendment submitted by the grantor, the secured creditor must
register, within fifteen (15) working days, a notice amending the registration to release some property
that is no longer collateral or that was never collateral under a security agreement between the
secured creditor and the grantor in a case within subsection (c) of paragraph 1 of this section.

When is a notice effective?

SZID, JR

● Discoverable from the records of the Registry

When is a notice terminated?
● Information is no longer accessible to searchers of the public registry record
T or F. SI allowed to be registered in the Registry is a valid SI?
● False. The Registry is administrative in nature. They do not determine the validity of the SI.
● What is the remedy of the grantor here?
○ Go to court
POSTING
● In REM, Is posting required? YES. In at least 3 public places
● In the PPSA, it is required in the Registry - not later than 10 calendar days prior to EJ Disposition

PUBLIC SALE
● Good faith + commercially reasonable requirement
● Good faith indicators
○ Entity presiding is an experienced dealer in that type of property sold
○ Participating bidder do not engage in collusive practices - should be free competition
○ Records of the auction → identify bidders and their submission which must be
documented in writing and maintained
○ Awarded to highest bidder → who must pay full price at the conclusion of the auction
■ If cannot pay at given time, the collateral will be awarded to the next highest
bidder who will be given chance to pay for the second highest bidder
● “Commercially reasonable
(1) In conformity of the commercial practice among dealers in the type of property; and
(2) Not commercially unreasonable even if a better price could have been obtained at a
different time or place than that selected by SC
● Private sale
○ SC may purchase collateral only if the collateral is:
■ customarily sold in a recognizable market; OR
■ widely distributed standard price quotation
● Recognized Market → examples: PSE (Phil. Stock Exchange);
○ Atty. Tan: I would argue that HMR (auction houses) are governed by specific rules but
are private entities. I would think these are considered as recognized markets
● How are the proceeds to be distributed?
(1) Reasonable expenses for taking, holding, preparing
(2) satisfaction of principal obligation
(3) claims of subordinate SI
● only applied if written demand and proof of SI is received before proceeds is
distributed (completion of distribution).
(4) If there is an excess, grantor is entitled to receive the excess
(5) If there is a deficiency, grantor will still be liable for deficiency and SC can claim it from
grantor
● Exception: if there is a stipulation saying that SC will not be entitled to deficiency
● Suppose the subordinate lien holder enforces first. What are the rights of superior lien holder?
○ Superior lien holder may take over any time prior to disposition/retention
SZID, JR

○ Atty. Tan: What if the subordinate lien holder initiates enforcement proceedings and
superior does nothing? Will the purchaser take it free from the lien of the superior? It
seems like it. What the PPSA says is that “acquire grantor’s rights free from any lien.

RIGHT OF REDEMPTION
● When can a grantor redeem?
○ At any time prior to the disposition, grantor may pay the outstanding obligation
● When does this right cease to be available?
○ if grantor expressly makes a waiver in writing after he has been in default
○ if the collateral has been sold, disposed of or acquired or collected by the SC or if SC
has made an agreement about the sale, disposition or acquisition of the collateral (Why?
already sold! nothing to redeem)
○ when the SC has retained the collateral following the rules mentioned earlier on retention

REGISTRY
● Yet to be established (still in the transitional period)
Duties
● Register notices
● Index notices by identification number of grantor or serial number of vehicles
● To provide electronic notices
● Keep records for 10 years from termination of the ???

Compare REM and PPSA

REM PPSA

Name of REM Security Agreement

agreement

Parties Mortgagor and Grantor and Secured Creditor

Mortgagee

Object Immovable Movable property

property and
real rights over
immovable
property

3rd party Registered and Various modes → registration, perfection and control
effectiveness annotated in the agreement
title; even if
without
registration but
there is actual
knowledge
SZID, JR

Priority In case of GR: first one to perfect SI

multiple BUT: there are special rules with respect to certain assets
mortgagees →
Senior
encumbrancer

How is Extrajudicial OR Retention OR disposition OR giving instructions

collateral Judicial
disposed of? Foreclosure

Liability for Mortgagor liable Grantor liable

deficiency

Entitlement to Mortgagor only Grantor entitled after all debts are satisfied
surplus entitled after all
proceeds debts are
satisfied

Publication in JF: If > 50k, You only need to publish in the Registry within 10 days
Newspaper in once a week, 2 before disposition
GC prior to consecutive
disposition weeks. If < 50k,
no publication

EJF: Once a
week, 3
consecutive
weeks

Notice of sale No need to Need to notify the grantor

to mortgagor notify unless
stipulated

PRIORITY RULES Exercises

NO. 1

ANSWER: May has better right, she perfected first. Creation doesn’t matter re: perfection
SZID, JR

NO. 2

ANSWER: BDO because because the PPSA provides if the Secured Creditor is a deposit taking
institution

NO.3

ANSWER:

NO. 4
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ANSWER:

NO. 5

ANSWER:

NO. 6
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ANSWER:

NO. 7

ANSWER: Bill because his security was notated on the books of the SCC

NO. 8

ANSWER:
SZID, JR

SUMMARY OF PRIORITY RULES ON NON-CERTIFICATED. NON-INTERMEDIATED SECURITY:

NO. 9

ANSWER: