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Notes from the discussion:

 READ IRR
Notes from the discussion:  Currently we are still at the transitional period – entities
or individuals entering into security agreements relating
 Guaranty and Suretyship – based on the personal
to creation of security interests over personal properties
commitment of another person to ensure the faithful
are governed by the PPSA but we are still in the
performance of the obligations under a principal
transitional period and rights and obligations during this
contract.
transitional period are outlined in the IRR of the PPSA.
 Contracts of Real Security – the performance of the
 OBJECTIVE: to strengthen the legal framework for
obligations under the principal contract is secured by an
secured transactions and to make the cost of borrowing
encumbrance of property so it is either real property or
for micro and small – medium enterprises lower. WHY?
personal property.
Because prior to PPSA we have pledge (delivery of
 Types of contracts are: antichresis, the security
personal property being secured is required) and chattel
agreement under Personal Property Security Act (PPSA)
mortgage law.
and the Real Estate Mortgage (REM) contract.
 Sometimes, REM is not practical, so you enter into a
 Security Right ^defined in the slide. – the obligation
chattel mortgage.
under the principal contract is not limited to payment of
 If your loan is secured by a chattel mortgage you are
obligation. Security contracts can actually guarantee or
required to pay registration fees under the chattel
secure the faithful performance of an obligation to do or
mortgage law.
an obligation not to do.
 Registration fees under the chattel mortgage laws are
based on the secured amount.
 With the passage of the PPSA, the hope is that those fees
will be lowered so that it would be less costly for the
small borrowers to get credit.

Notes from the discussion:

 As of today, that registry is not yet operational. It has

been established; notices were already given last March
from the LRA that it has been established but it is not yet
completely operational. (not yet allowed to register
notices of security interests pursuant to PPSA with that
registry)
Notes from the discussion:
 No cases filed yet. But SC will still say that some of the
provisions under Art. 2085 to 2092 will still apply to PPSA
in a supplementary manner to a certain extent ---
PACTUM COMMISSORIUM.
 Ownership of the property of the security grantor must
be present over the personal property that is the subject

of the security agreement under the PPSA subject to the
provision of the PPSA that allows for future property to
be included as part of the security agreement.
 PPSA applies only to security agreements entered into by
parties = CONSENSUAL CONTRACTS not security interest
created by operation of law (in rel. to Art. 2121)
Notes from the discussion:
 Take note of the priority of the security interests created
under the PPSA and the IRR.
 Sec. 13 of RA 5980 is repealed because all security
agreements governing personal properties will not have a
different type of registry.
 Sec. 10 of PD 1529 specifically relating to the registry.
Notes from the discussion:
 If you get a car loan agreement to the bank it will not be
a chattel mortgage but a security agreement under the
PPSA and if you want to register it, then you will register
it with the LRA.
Notes from the discussion:
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 Take note that the PPSA applies to all contractual
transactions to any form not arising from law.
 All transactions of any form that secure an obligation
with movable collateral or personal property.
 Take note of the definition of MOVABLES under the civil
code on personal property (ART. 416)
Notes from the discussion:
 How created: when you enter into a security agreement.
 Can be in a form of lease – operating for at least 1 year or
a sale of an account receivable unless otherwise
stipulated by the parties.
Example: got a loan for 10M from a bank and you are the
owner of a building. You have tenants in the building, part of
the security package required by the bank is that the
assignment of receivables from tenants.
 Based on the provisions of the assignment, the bank will
only step in and collect the receivables from the tenants
when you default on the loan. Then, its not an actual sale
of the receivables but only the creation of the security
interest over those receivables.
 Take note of the form – debtor/ the security grantor
should be able to understand the provisions stated in the
security agreement. They can demand that the contract
be translated to a language known or familiar to them.
 Delivery is not required under PPSA. Once you sign the
contract it is considered binding.
 CAN A SECURITY GRANTOR BE A THIRD PARTY/ A
PERSON DIFFERENT FROM THE DEBTOR UNDER THE
PRINCIPAL OBLIGATION? Yes. There can be an
accommodation grantor.
 Description of the collateral (ex. Securities) under PPSA
can be general and specific as long as it identifies the
collateral – as long as it can be reasonably identified. Ex.
“all personal property, all inventory, all equipment, all
property within generic category etc.” vs Chattel
mortgage – there must be a specific description of the
collateral.

Notes from the discussion:
 Intellectual property, shares of stocks (intangibles),
tangible movable assets are covered by the PPSA
Notes from the discussion:
 Future property under PPSA, there is an express
allowance under the law that it can be cover however,
that security interest over that future property will only
arise once the grantor acquires rights in it or the power
to encumber it.
(contract may still be valid but the security interest will not be
created at the time of the execution of the contract, it will
only arise once the grantor acquires the rights over the
property)
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 Tangible asset that is formed into a product (created
from raw materials and the raw materials are converted
into finished goods) security interest will extend to the
finished goods but only limited to the value of the raw
materials before it became the finished products.
 Security interest will also extend to replacement of the
tangible asset. If the security interest was created over
an old camry, and it was sold and the proceeds from the
sale was used to buy a new bmw sedan and the security
interest will extend to the bmw sedan but will only be
limited to the value of the old camry.
 Right of proceeds – when a car is sold but the proceeds
were placed in the bank the security creditor still has
security interest over the proceeds and it extends to the
identifiable and traceable proceeds.
 If it is co-mingled to objects of the same kind or quantity,
security interest will be extended to the co-mingled
funds but will only be limited to the fund before they
were co-mingled.
 EXEPTION: banks cannot enter into security agreements
with respect to their accounts receivables from financial
services they give to customers.
 Right to create security interest over the accounts
receivables will be effective notwithstanding any
agreement between the grantor and the account debtor
limiting the right to create a security over the account
receivable. (provision shall be considered void and any
security interest created over those accounts receivable
will be considered effective)
 Tangible assets with respect to which intellectual
property is used, security interest in the tangible asset
does not extend to the intellectual property and vice
versa.
Example: you are an owner of a trademark – owner of
Jollibee trademark, security interest over that intellectual
property of those trademark will not extend to the tangible
asset where it is used.
Notes from the discussion:
 The security agreement under the PPSA is an accessory
obligation similar to pledges and the real estate
mortgage. Once the principal obligation is extinguished
the accessory obligation is extinguished.
 If the accessory obligation is void, it will not affect the
principal obligation. However, if the principal obligation is
void, you cannot enter into a security agreement to
secure a void contract.
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 Real security because you are creating liens over without the further consent of the security grantor.
property (personal property—but it does not mean it is a Once you default in your principal loan obligation, the
real contract because it becomes effective by mere secured creditor can directly communicate with the
consent) bank.
 Take note that on possession the debtor or grantor
cannot take possession in behalf of the secured
creditor for purposes of perfecting security interest.

Notes from the discussion:

 Don’t confuse it with perfection under contracts which

refers to the giving birth if a contract.
 Perfection under PPSA – it is when the security interest
becomes effective against 3rd parties.

Notes from the discussion:

 Not all are available on all types of assets but not

limited to one because parties can agree to both
means.
 Control agreement – you have a bank account, and you
want to create a security interest in that account to
secure your loan obligations to another person, to
perfect that you will agree to enter into a control
agreement and under that agreement, it allows that
security creditor to give instructions directly to the
bank with respect to the funds found in that account
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^fria
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