Personal Property Security Act (R.A.

11057)
Part 1: Creation & Perfection of Security Interest

Preliminary Matters:
® Was signed into law on August 17, 2018
® Took effect: Sept 7, 2018
® IRR was passed on: Oct 10, 2019

PPSA seek to establish a unified and modern legal framework to secure obligation using personal
property.

How?
® By providing rules on creation, perfection, determination of priority and enforcement in
what is now known as security interest.
® This is in line with the policy that you can acquire the least possible cost and this is
geared towards small and medium enterprise.
® Before security transaction over personal properties secure the performance of principal
obligation. These are governed by the laws of Pledge and Chattel Mortgage.

The laws that cover the PPSA is the Civil Code, Act. 1508 and Chattel Mortgage. However,
these laws have been repealed EXPRESSLY especially on the Pledge and Chattel Mortgage in
Sec. 66 in the PPSA. There is a single type of security transaction which is the security interest.

Pledge and Chattel Mortgage will still govern if PPSA is not yet still implemented. There is still
a waiting with the LRA for the implementation of the PPSA.

What does the PPSA Cover?

® Covers all transaction of any form that secure obligations with personal property. This
covers ANY kind of personal property (e.g., tangible, incorporeal rights, deposit
accounts, negotiable document of title, intellectual property, equipment, livestock, etc.)
® Excluded: Aircrafts (Civil Aviation Authority Act) and Ships (Ship mortgage decree)

What is security interest?

® It is a property right in collateral that secures the payment or other performance of an
obligation.
® Regardless with the name given to the contract by the parties or the type of the asset or
the status of the grantor or the secured creditor.
o Who is the grantor?
 The one that grants the security interest to secure his or someone else’s
obligation. He can also be a buyer or a transferee of a collateral (acquires
the right to a collateral subject to the security interest).
 He can also be the transferor in an outright transfer of accounts receivable
and he can also be a lessee of goods.
® Regardless of the nature of the secured obligations.

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 ® It includes the right of the buyer’s rights receivable or a lessor of an operating lease for
not less than one (1) year.
® Extends to: Identifiable proceeds of the personal property. In case, it produces proceeds
(funds, money, etc.). This will continue in the collateral even if it is sold, leased, licensed
or exchanged.
® Unless there is a stipulation to the contrary or in case the subsequent transferee is a buyer
in good faith (no knowledge of any defect in the title).
o Note: He will not be a buyer in good faith if the security interest is registered
before the transferee acquired it.
® In accounts receivable (arise from contract of supply, lease of goods or services, contract
of sale): It will still be VALID even if there is a contractual limitation on the grantors
right to create a security interest.
o Law expressly states that limiting the security interest is VOID.

How is a security interest created?

® SECURITY AGREEMENT: It must be in writing, signed by the parties.
o The law allows it to be in one or more writings. Provided, that it shows the
intention of the parties to create a security interest.
o There must be a description of the collateral: It can be specific or general.
o Can also cover future property.
 It will only exist if the grantor acquires the rights over the future property
or gains the power to encumber it.
o It can also provide that the security interest which are intangible assets extends to
products in case of transformation or to its replacement in case it is replaced.
 It is only limited to the value of the assets before its transformation or
replacement.
 Security Interest is only limited to the proportion in which the encumbered
mass bares to the whole.

Perfection of the security interest.

® It becomes effective against third parties.
® In case the security agreement is not registered, it will not bind third parties but valid
between the parties.
® 1st: Creation through Security Agreement
o Tangible Assets/Properties
 REGISTRATION with the notice of the LRA; or
 POSESSION of the property by the creditor.
o Intangible Assets/Properties (Investment Property or Deposit Accounts)
 REGISTRATION with the notice of the LRA; or
 Completion of a CONTROL agreement
 It must be under oath to determine the time of its perfection
 This is among the grantor, the secured creditor, either the
intermediary or the deposit taking institute (bank).

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 o Note: The intermediary or the deposit taking institute
agrees to follow the instruction of the secured creditor
WITHOUT the consent of the grantor.

What should the LRA do?

® Mandated to establish and administer an electronic central registry.
o Notice of and liens in personal property and searched for.
 This of public access as this is of public record.
 Cover: Multiple security agreements
 Effective: from the time it is discovered with the records of the LRA. It
will last until the time it is indicated in the notice. Unless, there is a
continuation notice that is registered within 6 months.
 The notice must contain the identification number of the grantor.
 Other matters: Identification of the secured creditor and his agent, the
description of the collateral, address, duration of the effectivity and the
payment of any fees.
 The notice may be amended.

When is Security Interest extinguished?

® Extinguished when all of the secured obligations are discharged and no outstanding
commitments to extend credit secured by the security interest. The grantor may demand
termination of the notice.
® Full performance.
® Grantor may apply for termination: No security agreement exists at all.
o How to apply for termination or amendment? Demand to the secure creditor.
Secured Creditor has 15 days upon receipt of the demand in which he will register
the amendment or the termination of the notice.
o If Secured Creditor fails to register the amended notice or termination notice.
Remedy? Grantor go to the court and issue an order either amending or
terminating the notice.

Perfection by virtue of control.

® A security interest is in a deposit account or investment properties is perfected by
control.
o Creation is in favor of the deposit taking institution or the intermediary
o Created through the conclusion of a controlled agreement.
o In case of investment that are electronic securities by the notation of the security
interest in the books for purpose of naming the holder of the security.
Note: Grantor cannot compel deposit taking institute or the intermediary to be enter in a control
agreement. Deposit taking institute or Intermediary is not compelled to confirm the existence of
a controlled agreement except upon the request of the grantor.

Additional Rules:
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® If the collateral produces money, accounts receivable, negotiable instruments or deposit
accounts upon this position, the security interest will extend without need of a further
agreement. PERFECT WITHOUT NEED OF A FURTHER AGREEMENT.
® If the proceeds are different from money etc., it can only be perfected by the means
which are applicable to the type. Such as new registration, possession or control.
PERFECTED AGAIN.
o Within 15 days with the receipt of the grantor of the proceeds will not be
effective against third persons.
® Over a fixture (part of another movable or immovable or commingle): It continues to
exist as long as it is still traceable.
® Anything subsequent of change of the means of perfection does not affect the previous
perfection. PERFECTION CONTINUES.

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