PERSONAL PROPERTY Under the PPSA, there is what we call a control agreement.

b. Control agreement – an agreement in writing between the

SECURITY ACT
grantor and the secured creditor which perfects the
security interests over intangible asset (IRR)

REPUBLIC ACT No. 11057 (1) With respect to securities, means an agreement in writing among
the issuer or the intermediary, the grantor and the secured creditor,
Section 2. Declaration of Policy according to which the issuer or the intermediary agrees to follow
It is the policy of the State to promote economic activity by increasing instructions from the secured creditor with respect to the security,
access to least cost credit, particularly for micro, small and medium without further consent from the grantor;
enterprises (MSMEs), by establishing a unified and modern legal
framework for securing obligations with personal property. (2) With respect to rights to deposit account, means an agreement
in writing among the deposit-taking institution, the grantor and the
Unified and Modern secured creditor, according to which the deposit-taking institution
Unified, in the sense that the Chattel Mortgage and Pledge are no longer agrees to follow instructions from the secured creditor with respect
separate. Modern, in the sense that these repeals laws enacted from to the payment of funds credited to the deposit account without
1950-1960. further consent from the grantor;

Security (3) With respect to commodity contracts, means an agreement in

PPSA encourages credits to be granted in small businesses since writing among the grantor, secured creditor, and intermediary,
creditors would want some form of security. With the PPSA, it was according to which the commodity intermediary will apply any value
intended to facilitate speedy application for credits with security. Before distributed on account of the commodity contract as directed by the
the approval of the PPSA, the Philippines had Pledge and Chattel secured creditor without further consent by the commodity customer
Mortgage, in connection to personal properties, but with the PPSA, there or grantor;
would no longer be any distinction between the two.
Notice here the terms grantor and secured creditor. These terms will be
Take note that PPSA covers all kinds of movable properties. In fact, common as we go along the PPSA provisions. When it comes to movable
commodities are included, wherein they are not specifically covered with properties, there is no longer a pledgor or mortgagor or a pledgee or
the pledge or chattel mortgages but there are specific provisions under mortgagee. These has been replaced with more general terms – grantor
PPSA referring to commodities. (pledger/mortgagor) and secured creditor (pledgee/mortgagee).

CHAPTER 1 The purposes of control agreements are as follows:

DEFINITIONS AND SCOPE (1) To bind third persons; and
(2) To establish a priority as to the secured creditor that has
Section 3. Definition of Terms entered into a control agreement.
a. Commodity Contract – a commodity futures contract, an
option on a commodity futures contract, a commodity Subjects of Control Agreements
option, or another contract if the contract or option is: (1) Securities
It can cover securities, which refer to shares of stocks, investments,
(1) Traded on or subject to the rules of a board of trade derivatives to be further discussed in Laws on Business
that has been designated as a contract market for Organization and Corporation Law.
such a contract; or
(2) Traded on a foreign commodity board of trade, Parties Involved
exchange, or market, and is carried on the books of a • Issuer – the originator, maker, debtor, or creator of the
commodity intermediary for a commodity customer. security
• Intermediary – a person such as a depositary or a clearing
At present, this is not common in the Philippines. But this provision is corporation
essentially forward-looking. These commodity contracts involved, for
example, goods that are traded. They are similar to stock exchange, (2) Deposit Account
wherein stocks are used for securities. In commodity contracts, they In other words, it refers to accounts in the bank – savings, current,
exchange commodities (or goods) like rice or goods. time-deposit.

In the book of De Leon, it appears that there is a SEC Regulation which Parties Involved
suspends in the meantime the commodity training. But if the suspension • Deposit-taking institution – otherwise simply known as the
is lifted, commodities considered under the law can be used as securities BANK
for an obligation.
(3) Commodity Contracts
ATTY. SARONA: I will not dwell more on that since it is still This covers goods as security for the obligation.
uncommon here in the country.
 c. Grantor – h. Registry – the centralized and nationwide electronic
(1) The person who grants a security interest in collateral registry established in the Land Registration Authority
to secure its own obligation or that of another person; (LRA) where notice of a security interest and a lien in
personal property may be registered;
(2) A buyer or other transferee of a collateral that acquires
its right subject to a security interest; ILLUSTRATION (G): X purchased pigs for X’s piggery. Animal is
considered a movable property. In order to borrow money or obtain
(3) A transferor in an outright transfer of an accounts loan, a security interest can be created over the pigs that X will purchase.
receivable; or The collateral are the pigs themselves, which is the reason why X entered
in to a contract of loan.
(4) A lessee of goods;

Letter H is not yet established in the present. So, look here in the registry
Again, the grantor now is used for the term mortgagor and pledgor.
if there is already a security interest over the personal properties of the
Generally, it refers to the person who grants a security interest in
debtor.
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
As mentioned, PPSA no longer contemplates a creditor-mortgagee or
transferee of a collateral that acquires its right subject to a security
creditor-pledgee but rather, what it has is a secured creditor.
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
i. Secured creditor – a person that has a security interest. For
if he/she is a lessee of the goods.
the purposes of registration and priority only, it includes a
buyer of account receivable and a lessor of goods under
With regard to a grantor, it is the same with Article 2085. The grantor an operating lease for not less than one (1) year;
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 What is an operating lease? It is an agreement by which the owner of
secure the obligation of the principal debtor. the property temporarily grants the use of his property to another who
undertakes to pay the rent thereof. Operating lease must be
d. Non-intermediated securities – securities other than distinguished from a finance lease where the latter is a lease of a
securities credited to a securities account and rights in movable property to finance the obligation of the owner of the property
securities resulting from the credit of securities to a
being leased.
securities account;
e. Notice – a statement of information that is registered in
the Registry relating to a security interest or lien. The term j. Security interest – a property right in collateral that
includes an initial notice., amendment notice, and secures payment or other performance of an obligation,
termination notice; 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
Letter D’s definition might be confusing because terms are repeated. But
the secured obligation; including the right of a buyer of
essentially, non-inter mediated securities are those who DO NOT
accounts receivable and a lessor under an operating lease
DEAL with securities or shares that go through, for example, stock for not less than one (1) year;
exchange. In other words, it is not offered in public. He/She does not
go through an intermediary. Compare that to intermediated securities, Essentially, a security interest is a property right in a movable or
these are the ones that go through an intermediary, such as a broker personal property which is the collateral to secure the performance of a
or a dealer, before it can be sold or transferred to other persons. principal obligation.

Non-inter mediated securities are held directly by the securities owner. k. Writing – for the purpose of this Act includes electronic
Again, because there is no middleman or intermediary. records.

Take note the term notice in Letter E. This is also consistently used in the This is actually the same with the e-Commerce Act.
law.
IRR Rule II
f. Proceeds – any property received upon sale, lease or other Scope of Application
disposition of collateral, or whatever is collected on or
distributed with respect to collateral, claims arising out of Section 2.03. Security Interest in Personal Property – A security
the loss or damage to the collateral, as well as a right to interest may be created over all forms of tangible or intangible asset
insurance payment or other compensation for loss or or personal property as defined by the Civil Code, including but not
damage of the collateral; limited to:

In PPSA, it is allowed to sell the security in interest in case there is default (a) Rights arising from contracts, including but not limited to:
on the part of the debtor. (a) Securities
(b) Commodity contracts
g. Purchase money security interest – a security interest in (c) Lease of goods including financial leases and
goods taken by the seller to secure the price or by a person operating leases for a period of not less than one (1)
who gives value to enable the grantor to acquire the goods year.
to the extent that the credit is used for that purpose; (b) Equipment
 (c) Inventory for a principal obligation. In other words, if there is no principal
(d) Deposit accounts obligation the security agreement will not be enforced.
(e) Negotiable instruments
(f) Negotiable documents of title Section 6. Security Agreement
(g) Consumer goods A security agreement must be contained in a written contract signed
(h) Intellectual property by the parties. It may consist of one or more writings that, taken
(i) Livestock together, establish the intent of the parties to create a security
(j) Fixtures, accessions, and commingles goods, or interest.
(k) Future property or after-acquired assets
The security agreement shall likewise provide for the language to be
Provided, that a security interest can only be created on the asset used in agreements and notices. The grantor shall be given the option
over which the grantor has a legal right. to have the agreement and notices in Filipino. The Department of
Finance (DOF) shall prepare model agreements in plain English and
It is already expressly stated in PPSA that security interest can cover Filipino.
future property or after-acquired assets. Notice the difference with
pledge and chattel mortgage. Again, in pledge and chattel mortgage, it IRR: Rule III
does not cover future property or after-acquired assets but only property CREATION OF SECURITY INTEREST
existing at the time the obligation was entered into.
Creation of a Security Interest
Section 4. Scope of the Act Section 3.01. Creation of Security Interest – A security interest shall
This Act shall apply to all transactions of any form that secure an be created by a security agreement or the lease of an operating lease
obligation with movable collateral, except interests in aircrafts subject for not less than one (1) year. A security agreement is likewise created
to Republic Act No. 9497, or the "Civil Aviation Authority Act of 2008", by the sale of an account receivable, unless otherwise stipulated by
and interests in ships subject to Presidential Decree No. 1521, or the all the parties in the document of sale.
"Ship Mortgage Decree of 1978".
Section 3.02. Continuity of Security Interest – A security interest
Section 4 is placed generally. In other words, Section 4 states that when created under the PPSA shall continue in the collateral
notwithstanding sale, lease, license, exchange, or other disposition of
it comes to personal property of aircraft and ships, what would
the collateral, except as otherwise provided in these Rules, or as
apply is the Chattel Mortgage Law. In order to bind third persons, the
agreed upon by the parties.
mortgage must be registered with the Coast Guard.
Form of the Security Agreement
For airplanes, there is no specific rule here. Thus, what would still apply Section 3.03. Form of Security Agreement – A security agreement
is Chattel Mortgage. But later on, it is possible that perfection and must be contained in a written contract signed by the parties. It must
priority over the mortgage airplane shall be made based on the identify the collateral and the secured obligation. It may consist of
registration provided with the Civil Aviation Act of 2009. one or more writings that, taken together, establish the intent of the
parties to create a security interest.
Take note of the exceptions of ships and airplanes in PPSA.
The security agreement shall likewise provide for the language to be
Section 5. Creation of a Security Interest. used in agreements and notices. The grantor shall be given the option
(a) A security interest shall be created by a security agreement, to have an agreement and notices in Filipino. The Department of
Finance (DOF) shall prepare model security agreements in plain
(b) A security agreement may provide for the creation of a security English and Filipino provided in Annex “A” of these Rules.
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 Section 3.04. Description of Collateral – A description of collateral
encumber it. 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
With the creation of this security interest, it is effective or binding
constituting the security interest. A description such as “all personal
between the parties.
property,” “all equipment,” “all inventory,” or “all personal property
within a generic category” of the grantor shall be sufficient.
A security agreement must be in writing. It can also be created by an Asset-Specific Rules
operating lease for not less than 1 year or an account receivable. Section 3.05. Security Interests Over Future Property.
a) A security agreement may provide for the creation of a
Who are the parties to a security agreement? Grantor and the secured security interest in that property is created only when the
creditor. They can be natural or juridical persons. The grantor maybe grantor acquires rights in it or the power to encumber it.
separate and distinct from the principal debtor.
b) A security agreement may provide that a security interest
This security agreement is still a consensual contract. It will still require in a tangible asset that is transformed into a product
the three essential elements of contract – consent, object, and extends to the product. A security interests that extends to
a product is limited to the value of the encumbered asset
consideration. Upon the creation of it, the parties will be bound by the
immediately before it became part of the product.
said security agreement.
c) A security agreement may provide that a security interest
Moreover, this security agreement is an accessory contract since it has in a tangible asset extends to its replacement. A security
the same intention as pledge and mortgage. It only acts as a security interest that extends to a replacement is limited to the
 value of the encumbered asset immediately before it was LOWEST INTERMEDIATE BALANCE RULE
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. ILLUSTRATION (Sec. 8, Par. B3): The grantor executed a security
agreement involving this car in favor of the secured debtor. With the
Note: If Chattel Mortgage Law has Reasonable Description Rule, the execution of the security agreement, the grantor is still the owner (since
PPSA has ANY AND ALL. In a sense, PPSA is broader than CML. there is no transfer of ownership). What if the grantor will sell the same
CHAPTER 2 car covered by the security interest to the buyer covered by 1M?
CREATION OF SECURITY INTEREST
The grantor will deposit the 1M in his bank account, which as an amount
Section 7. Description of Collateral. of, 2M. So, his balance is 3M in total at the time when he deposited the
A description of collateral shall be considered sufficient, whether it is amount. If the grantor will now withdraw 2.5M, only 500k will be left.
specific or general, if it reasonably identifies the collateral. A
description such as "all personal property", "all equipment", "all Apply the lowest intermediate balance rule, which assumes to the extent
inventory", or "all personal property within a generic category" of the possible that withdrawals from the commingled mass are not proceeds
grantor shall be sufficient. of the encumbered property. So, as the secured creditor, the extent of
The grantor may indicate in the contract “all my personal property will your security interest is up to 500k, which is lowest of the amount of the
act as a security interest for all my obligation in favor of the secured commingled funds between the time the proceeds were deposited and
creditor.” the time the security creditor had a claim on the proceeds.

As to the form, under Section 6, there is nothing indicated with regard Section 9. Continuity of Security Interest.
thereto. It does not require that it should be notarized. However, in the A security interest shall continue in collateral notwithstanding sale,
sample forms, it indicates NOTARIZED. lease, license, exchange, or other disposition of the collateral, except
as otherwise provided in Section 21 of this Act, or as agreed upon by
Section 8. Right to Proceeds and Commingled Funds and Money. the parties.
(a) A security interest in personal property shall extend to its
identifiable or traceable proceeds. 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
(b) Where proceeds in the form of funds credited to a deposit account can still execute acts of ownership, such as selling, leasing, exchanging,
or money are commingled with other funds or money: 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
(1) The security interest shall extend to the commingled parties. It is because if the personal property is sold to others, which
money or funds, notwithstanding that the proceeds have
constitutes a valid contract of sale, but between the purchaser and the
ceased to be identifiable to the extent they remain
secured creditor, who will have a better right?
traceable:

(2) The security interest in the commingled funds or money It would depend on if the secured creditor registered or had his security
shall be limited to the amount of the proceeds immediately interest to bind third parties.
before they were commingled: and
Section 10. Contractual Limitation on the Creation of a Security
(3) If at any time after the commingling, the balance Interest.
credited to the deposit account or the amount of the (a) A security interest in an account receivable shall be
commingled money is less than the amount of the effective notwithstanding any agreement between
proceeds immediately before they were commingled, the the grantor and the account debtor or any secured
security interest against the commingled funds or money creditor limiting in any way the grantor’s right to
shall be limited to the lowest amount of the commingled create a security interest.
funds or money between the time when the proceeds were (b) Nothing in this section shall affect any obligation or
commingled and the time the security interest in the liability of the grantor for breach of the agreement in
proceeds is claimed. subsection (a).

If the funds credited to a deposit account or money are commingled A security interest in an account receivable shall be effective
with other funds or money, SECURITY INTEREST WILL BE EXTENDED. notwithstanding any agreement between the grantor and the account
debtor or any secured creditor limiting in any way the grantor’s right to
PARAGRAPH B1: If the goods are sold, the proceeds will become part create a security interest. That means it would be valid and binding with
of the security interest. 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 A security interest in any tangible asset may be perfected by
creditor. registration or possession. A security interest in investment property
and deposit account may be perfected by registration or control.
Nothing in this section shall affect any obligation or liability of the
grantor for breach of the agreement in subsection (a). Under this provision, there are three means of perfecting a security
interest and to what mode of perfection is applicable would depend
Any stipulation limiting the grantors right to create a security interest on the kind of movable property that is involved.
shall be void.
Take a look at the IRR as well.
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 Under the IRR, means of perfection is discussed specifically with regard
receivables. to tangible assets, intangible assets and intermediated securities or
deposit accounts.
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 As discussed earlier, one of the modes is registration and that is
goods, construction contract, or contract for sale, lease or license of the applicable to tangible assets.
Intellectual Property - such stipulation is void.

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

Take note of the timeline – 15 DAYS after the grantor receives such So, even if the grantor would create another security interest on the car
proceeds. If the security interest was perfected by any of the modes in favor to another or second secured creditor (despite the previous
applicable, the extent of the security interests will be continuous. registration of the first secured creditor's security interest), that new
security interest is valid because, again, there no gap of time.
If, however, the creditor fails to perfect the security interest during the
15-day period, the secured creditor may subsequently make its security Example 2: Gap of Time Exists from Grantor to Secured Creditor and
interest effective as against third parties beyond the 15-day period but Another Secured Creditor
only from the time forward. In other words, it is not continuous.
However, there is a difference if the secured creditor took possession of
If you fail to do so, it will not bind third parties until perfection. If there the car as part of the security agreement. After a week, the secured
is a gap, any subsequent creditor will be given priority. creditor returned the car to the grantor. The security interest here is no
longer perfected because possession of the car was returned to the
Section 15. Change in Means of Perfection — grantor.
A security interest shall remain perfected despite a change in the
means for achieving perfection: Provided, That there was no time Later on, the secured creditor perfected a security interest through
when the security interest was not perfected. 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 Priority refers to the right of a person in an encumbered asset in
creditor. preference to the right of a competing claimant. Under Section 17,
priority is determined according to:
In this case, the two secured creditors will have to settle their respective (1) Time of registration; OR
claims because there is a gap of time made by the first creditor. He/She (2) Perfection by other means.
was granted possession of the car but returned it and later on, he/she
perfected his security interest through registration. This provision essentially means that if all security interests were
perfected by registration, priority is determined by the order of
At that point, the subsequent registration was not immediate from registrations.
the secured creditor's return of the possession of the car.
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
It talks about the extinguishment of the security interest itself. This is perfection is required to bind third parties in a security agreement, a
connected with change in the means of perfection. secured creditor (although not required by the PPSA to register his
security interest for the security agreement's validity/creation) who
For example, back in Section 15 of the PPSA, when a secured creditor created his security interest first but did not perfect his security
returns possession to the grantor the thing subjected to a security interest by registration stands to lose more than some other secured
interest but immediately registers his security interest, a security interest creditor who created his security interest earlier and perfected it by
is still created. registration.

However, again, if there is a gap between the time of the return of

Transcriber's Note: This is very similar to land titles. The first to register his
possession and the registration of the security interest, the security
title to the Land Registration Authority or the registration court has a
agreement is not binding against third persons.
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.
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. Distinction PPSA's Section 17 and New Civil Code's Pledge vis-a-vis
Multiple Creditors on a Movable Property
Perfection in security agreements is always in connection to binding Take note that the rules as to concurrence and preference of credit has
third persons to the security agreement. Creation is what creates security been amended in terms of movable properties by the PPSA.
agreements under the PPSA.
In pledge, it is impossible to have multiple creditors on the same
Section 16. Assignment of Security Interest. — movable property because for a valid pledge, there has to be a delivery.
If a secured creditor assigns a perfected security interest, an With respect to chattel mortgage, there can be several creditors
amendment notice may be registered to reflect the assignment. because possession is never surrendered to the creditor.

CHAPTER 4
Under the PPSA, it is possible to have several secured creditors over the
PRIORITY OF SECURITY INTEREST
same collateral/movable property. Hence, it is important to determine
who will be prioritized over the security interest created.
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 Hence, the PPSA allows the creation of multiple security interests
perfection by other means, without regard to the order of creation of over the same movable property in order to utilize the full value of the
the security interests and liens. asset. This important because when it comes to movables, the security
interest may involve all or future personal properties of the grantor.
PERFECTION BY PERFECTION BY OTHER
REGISTRATION MEANS
Whatever the mode of perfection, may it be possession or control,
Priority is determined by ORDER Priority is determined by ORDER
the one who first perfected the security interest will be the priority.
OF REGISTRATION. OF PERFECTION.

Perfection by other means include: When it comes to tangibles, the order of priority shall be as provided
• Possession (for movables) under Section 20 as well as to the different kinds of personal property.
• Control Agreement
• Creation of Security Interest for Intermediate Securities or Section 18. Priority for Perfection by Control –
Intangible Assets (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 PARAGRAPH D: One should remember that, under Obligations and
interest perfected by any method. Contracts, offset compensation is used as a mode of extinguishing an
(b) A security interest in a deposit account or investment property obligation.
that is perfected by a control agreement shall have priority over
a competing security interest except a security interest of the Illustration: If the depositor acquired a loan from the bank and he has
deposit-taking institution or the intermediary.
an account in the same bank, and then when his loan became due and
(c) The order of priority among competing security interests in a
demandable and the debtor fails to pay such loan, the bank can offset
deposit account or investment property that were perfected by
the conclusion of control agreements shall be determined on the deposit account in the loan as a payment of the obligation.
the basis of the time of conclusion of the control agreements.
(d) Any rights to set-off that the deposit-taking institution may have The right to offset prevails over priority over the security interest. If
against a grantor’s right to payment of funds credited to a the other creditors will question why the bank offset the deposit account
deposit account shall have priority over a security interest in the for the loan of the debtor, the bank can invoke Section 18 (d) of PPSA.
deposit account.
(e) A security interest in a security certificate perfected by the
PARAGRAPH E: It involves security certificate perfected by possession.
secured creditor’s possession of the certificate shall have priority
over a competing security interest perfected by registration of a The secured creditor who is in possession thereof shall have a priority
notice in the Registry. over those security interests which perfected by a registration of notice
(f) A security interest in electronic securities not held with an in the Registry.
intermediary perfected by a notation of the security interests in
the books maintained for that purpose by or on behalf of the PARAGRAPH F: It essentially involves the third kind of movable
issuer shall have priority over a security interest in the same property. Under perfection by control, the things involved are
securities perfected by any other method. intangible properties such as deposit accounts, security certificate, and
(g) A security interest in electronic securities not held with an electronic securities.
intermediary perfected by the conclusion of a control
agreement shall have priority over a security interest in the same PARAGRAPH G: Distinguish it from PARAGRAPH F.
securities perfected by registration of a notice in the Registry.
(h) The order of priority among competing security interests in
SECTION 18 (f) SECTION 18 (g)
electronic securities not held with an intermediary perfected by
security interest in electronic security interest in electronic
the conclusion of control agreements is determined on the basis
securities not held with an securities not held with an
of the time of conclusion of the control agreements.
intermediary perfected by a intermediary perfected by the
notation conclusion of a control
PARAGRAPH A: In other words, the banks will have preference.
agreement

Illustration: If a security interest over the deposit account is executed in

Take note of the kind of property involved and how it was perfected.
favor of the bank, the bank shall have a priority.
Take note who among those perfected will have the priority.

PARAGRAPH B: It means second priority.

Note: Memorize the priority rules when it comes to specific movable
properties.
PARAGRAPH C: When talking about priority of security interest, one has
to take note first the kind of movable property that is involved
Section 19. Priority for Instruments and Negotiable Documents. –
because different rules will apply.
A security interest in an instrument or negotiable document that is
perfected by possession of the instrument or the negotiable
In concurrence and preference of credit, there is no distinction when document shall have priority over a security interest in the instrument
it comes to the type of property. With regard to preference of credit, or negotiable document that is perfected by registration of a notice
there is only one rule in the sense that if the movable property will be in the Registry.
sold, the proceeds will be applied in accordance with the rules on
preference. In terms of negotiable instruments, those are mentioned in Civil Code
such as Bill of Lading, warehouse receipts, quedan, dock warrants. A
On the other hand, in PPSA it will depend on the type of property. One negotiable document of title is similar to those. They can be negotiated
has to take note that if deposit account is involved as collateral, the either by delivery if it is a bearer instrument plus indorsement if it is an
following are the priority: order document of title.

1. Banks or Deposit taking Institution if that is the secured If a person is in possession of the document and a security of interest
creditor has been perfected in his/her favor, he/she will have a priority over the
2. Controlled agreements other security interest that were perfected by registration. Section 19 is
3. Wherein they are perfected by conclusion of controlled specific to instruments and negotiable instruments.
agreements, take a look at the time of the conclusion of
the controlled agreements.
 The rule on priority is very essential when there are already several
As mentioned before, perfected purchase money is when you borrow
creditors, and debtor, in this case the grantor, has already become
a money to buy a livestock and a security interest was created and
insolvent. Insolvent does not necessarily mean that the grantor does
perfected. Thus, it is a priority.
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
Second priority is when the same livestock is used as a security and it
liquid he cannot convert his assets as soon as his obligations matures.
was perfected security interest, so that you would be able to borrow
money to buy food or medicine for that livestock.
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
PARAGRAPH C: Take note of the requirement for written
with the IRR Chapter 4.
notification.

Section 21. Transferee Exceptions. –

Section 20. Priority and Plight of Retention by Operation of Any party who obtains, in the ordinary course of business, any
Law. – A person who provides services or materials with respect to movable property containing a security interest shall take the same
the goods, in the ordinary course of business, and retains possession free of such security interest provided he was in good faith. No such
of the goods shall have priority over a perfected security interest in good faith shall exist if the security interest in the movable property
the goods until payment thereof. was registered prior to his obtaining the property.

Under PPSA, the highest priority rule is provided under Section 20. This It is still recognized here the purchaser in good faith. If you obtained the
may apply to a supplier of goods such as when he retains the goods personal property in the course of business, without any knowledge of
already ordered. This is because he provides services or materials with the security interest created or perfected, you will have a better right
respect to the goods in the ordinary course of business and he can over the property.
continue retain possession and has priority over such security interest
until he has paid. In the creation or even perfection of the security interest, the
ownership is retained by the grantor. There is no transfer of ownership
The supplier provides these goods or services in the ordinary course in any of these circumstances and therefore, the grantor can choose to
of business, he is unpaid and claims possession of the goods. sell the collateral or dispose it in any manner that he wants to.

This also covers those who made repairs for safekeep or preserve the If the grantor sells the collateral, it is perfected in accordance to the
personal property for transportation of goods and warehouseman’s PPSA and security interest shall extend to the proceed. However, if the
lien and hotel-keeper’s lien. 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
Remember the discussion on legal pledges created by operating of law or recheck if it is registered. There is no such good faith will exist if the
because this Section 20 would be applicable. security is registered prior to his obtaining the property. Similar to
the rules on registration of immovable property such registration is
Illustration: When the drawing a person made is not paid, he/she may considered constructive knowledge.
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 Section 22. Effect of the Grantor’s Insolvency on the Priority of a
belongings until he/she pays. Security Interest – Subject to the applicable insolvency law, a security
interest perfected prior to the commencement of insolvency
But remember that, in pledges created by law, there are instances proceedings in respect of the grantor shall remain perfected and
wherein a possessor in good faith needs to be reimbursed. retain the priority it had before the commencement of the insolvency
proceedings.
Note: It is not yet sure if the prior law is applicable in this case since it is
a new law.
This is mentioned in the Section 6.04(b) of the IRR of RA 11057. If the PARAGRAPH C: INVENTORY, INTELLECTUAL PROPERTY, OR
security interest is perfected prior to the commencement of the LIVESTOCK
insolvency proceedings, it shall remain perfected and the priority it had The secured creditor shall have priority over a conflicting perfected
also remains. security interest in the same inventory, intellectual property or livestock
if:
Section 23. Purchase Money Security Interest — (1) Perfected when the grantor receives possession of the
(a) A purchase money security interest in equipment and its inventory or livestock, or acquires rights to intellectual
proceeds shall have priority over a conflicting security interest, property;
if a notice relating to the purchase money security interest is (2) Written notification to the holder of the conflicting perfected
registered within three (3) business days after the grantor
security interest in the same types of inventory, livestock, or
receives possession of the equipment.
(b) A purchase money security interest in consumer goods that is intellectual property. The notification sent to the holder of the
perfected by registration of notice not later than three (3) conflicting security interest may cover multiple transactions.
business days after the grantor obtains possession of the
consumer goods shall have priority over a conflicting security If the security interest involves inventory, with regard to priority for the
interest. creditor who lend the money to purchase such inventory, the security
(c) A purchase money security interest in inventory, intellectual interest in his favor shall enjoy priority if:
property or livestock shall have priority over a conflicting
perfected security interest in the same inventory, intellectual 1. There is perfection when the grantor receives
property or livestock if:
possession of the inventory; and
(1) The purchase money security interest is perfected
when the grantor receives possession of the inventory
or livestock, or acquires rights to intellectual property; 2. There is a requirement of notice.
and
(2) Before the grantor receives possession of the The purchase money secured creditor gives written notification to the
inventory or livestock, or acquires rights in intellectual holder of the conflicting perfected security interest in the same types of
property, the purchase money secured creditor gives inventory.
written notification to the holder of the conflicting
perfected security interest in the same types of
inventory, livestock, or intellectual property. The For intellectual property, same thing applies. Purchase money is
notification sent to the holder of the conflicting perfected when the grantor acquires right to the intellectual property
security interest may cover multiple transactions and the written notification mentioned under the second requirement
between the purchase money secured creditor and above.
the grantor without the need to identify each
transaction. PARAGRAPH D: EQUIPMENT OR CONSUMER GOODS PERFECTED
(d) The purchase money security interest in equipment or consumer
TIMELY IN ACCORDANCE WITH (a) AND (b)
goods perfected timely in accordance with subsections (a) and
This refers back to equipment or consumer goods perfected timely in
(b), shall have priority over the rights of a buyer, lessee, or lien
holder which arise between delivery of the equipment or accordance with subsections (a) and (b). They shall have priority over
consumer goods to the grantor and the time the notice is the rights of a buyer, lessee, or lien holder which arise between delivery
registered. 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 Hence, the secured creditor of a purchase money security interest is
property and that movable property will act as the collateral in that still prioritized.
security interest.
Section 24. Livestock –
The secured creditor in that purchase money security interest (person A perfected security interest in livestock securing an obligation
who lends money to purchase the equipment) shall have a prioritize over incurred to enable the grantor to obtain food or medicine for the
livestock shall have priority over any other security interest in the
other security interest but the creditor, in that instance, must register
livestock, except for a perfected purchase money security interest in
the security interest within 3 business days after the grantor
the livestock, if the secured creditor providing credit for food or
receives possession of the equipment. Otherwise, he/she will not medicine gives written notification to the holder of the conflicting
enjoy the granted for the under Section 23. perfected security interest in the same livestock before the grantor
receives possession of the food or medicine.
PARAGRAPH B: CONSUMER GOODS
If it involves consumer goods which are perfected by registration of When it comes to livestock, the purchase money security interest is
notice not later than three (3) business days after the grantor obtains still a priority but take note of the requirements for its perfection.
possession of the consumer goods shall have priority over a conflicting
security interest. Second priority is the secured creditor in connection to credit for food
or medicine for that same livestock. Again, the additional requirement
In the book of De Leon, Section 23 is referred as “super priority” here aside from perfection is the written notification to the holder of
depending on the kind of movable property that is involved. the conflicting perfected security interest in the same livestock.
 Do we have to go and request a staff from the ROD to make the
Section 25. Fixtures, Accessions, and Commingled Goods – search and then issue an official record? In relation to titles, one can
A perfected security interest in a movable property which has become ask for a copy. But he/she has to go to the Registry of Deeds. It cannot
a fixture, or has undergone accession or commingling shall continue be done in the comfort of home.
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 This is a notice submitted to the ROD.
or the "Civil Code of the Philippines" shall apply.
Section 28. Sufficiency of Notice —
Note: Book II of the Civil Code is Property Law. (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;
The fixture under this provision is movable. But recall under the Property
(2) If it identifies the secured creditor or an agent of the
Law, if the fixture is bolted to the floor with the intention, it would be
secured creditor by name;
considered as an immovable property. (3) If it provides an address for the grantor and secured
creditor or its agent;
The intention here of Section 25 is to avoid confusion that if it has (4) If it describes the collateral: and
become a fixture or has undergone accession, it will still be considered (5) If the prescribed fee has been tendered, or an
as a movable property as it can still be reasonably traced. arrangement has been made for payment of fees by
other means.
(b) If the Registry rejects to register a notice, it shall promptly
CHAPTER 5
communicate the fact of and reason for its rejection to the
REGISTRATION – REGISTRY
person who submitted the notice.
(c) Each grantor must authorize the registration of an initial notice
Section 26. Establishment of Electronic Registry — by signing a security agreement or otherwise in writing.
(a) The Registry shall be established in and administered by the LRA. (d) A notice may be registered before a security agreement is
(b) The Registry shall provide electronic means for registration and concluded. Once a security agreement is concluded, the date of
searching of notices. registration of the notice shall be reckoned from the date the
notice was registered.
As the country is still in the transition period, this Electronic Registry (e) A notice of lien may be registered by a lien holder without the
provided in the PPSA has not yet been established. Nevertheless, Section consent of the person against whom the lien is sought to be
26 provides that the Registry shall be established in and administered by enforced.
(f) Description of the collateral in a notice shall be entered in
the LRA and shall provide electronic means for registration and
English.
searching of notices.

Here, it appears that the duty of the ROD is still ministerial in nature. So
The Registry here is intended to be centralized and nationwide where
long as all are complied with, the notice of the security of interest should
notice of a security interest and a lien in personal property may be
be registered.
registered. When it comes to registration of notice for purposes of
perfection, the intention here of the law is that the registration can be
Section 28 does not state who submits the initial notice. If a person
made anytime. In fact, in a later discussion, it can be registered prior to
goes to the ROD, does he/she fill up the forms or encode details
creation. In other words, advance registration is allowed.
himself/herself, or can the information be inputted in a website which
can be considered as initial notice? These are the things worth looking
Section 27. Public Record —
forward to once the Registry System is established.
(a) Information contained in a registered notice shall be considered
as a public record.
(b) Any person may search notices registered in the Registry. PARAGRAPH B: It appears that one has to go through the Registry if
(c) The electronic records of the Registry shall be the official the system is not computerized. There is no way of knowing whether the
records. Registry refers to a system. What is important here is that the reason
for the rejection must be communicated to the one who submitted
Since the Registry is not yet established, there is still no mention on how the initial notice.
this will be done.
PARAGRAPH C: It can be deduced that there is really a need to go to
Will it be accessible by anybody at any time through a website link the ROD to present the authorization of the grantor.
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 PARAGRAPH D: In other words, the registration was first effected.
other security interests created? Under Section 27, it states that any Perfection of the transaction was done first before the creation. Is
person may search notices registered in the Registry. Hence, one can go that allowed? YES.
to the Registry of Deeds and ask for it to be searched.
But take note, the date of registration of the notice shall be reckoned
But again, it is still not clear. Unless it is established, the people are still from the date the notice was registered. The parties may register even
in the blind. 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 PARAGRAPH B: The security interest therefore remains protected
notice, not the date of the conclusion of the security agreement. 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
Advanced registration is allowed. A pre-agreement registration is is registered before the initial term lapses.
allowed. The premise behind this is that it is not required to submit the
security agreement before submitting the initial notice. The same principle should apply for the continuation of the perfected
security interest for a period beyond the initial term.
PARAGRAPH E: Compare this to Paragraph C. A grantor must authorize
the registration of an initial notice, but the lien may be registered without PARAGRAPH C: The notice is effective even if there are minor errors
consent of the person against whom the lien is sought to be enforced. and the only exception is if the notice itself is seriously misleading.

It appears that (e) is the exception to the general rule in (c). The lien Illustration: The name of the creditor indicated is wrong or the property
can be registered even without the grantor’s permission. Again, there are mentioned therein is not that of the grantor. Take note of the phrase
seemingly contradicting provisions (c and e). Maybe this is to be seriously misleading.
amended in the IRR or in the rule or law itself.
PARAGRAPH D: The notice is ineffective if it cannot be searched in the
Another possible interpretation: One may be able to register, but system as against the correct identifier of the grantor which is the
without the authority of the grantor, such registration cannot be number assigned to the grantor. Therefore, it will be ineffective with
effective. As to which interpretation is correct, the law is still silent. respect to the said grantor.

PARAGRAPH F: The effect is that the advance registration will not Section 31 is an example of a ground to determine a notice to be
create and will not perfect the security right until the security interest seriously misleading.
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 Section 31. Seriously Misleading Notice –
registration of the notice, not the date of the conclusion of the security A notice that does not provide the identification number of the
agreement. grantor shall be seriously misleading.

Section 32. Amendment of Notice —

NOTE: In the initial notice, it is not required to indicate the amount or
(a) A notice may be amended by the registration of an amendment
maximum account for which the security interest was secured. In other
notice that:
words, the security creditor also has to take note of that. Maybe it is (1) Identifies the initial notice by its registration number;
better for the secured creditor to make an advance registration of the and
security interest, even if the security agreement was not yet created (2) Provides the new information.
because of that reason that the amount is not required to be indicated, (b) An amendment notice that adds collateral that is not proceeds
because it would establish, generally, his/her priority over other secured must be authorized by the grantor in writing.
(c) An amendment notice that adds a grantor must be authorized
creditors.
by the added grantor in writing.
(d) An amendment notice shall be effective only as to each secured
Section 29. One Notice Sufficient for Security Interests Under creditor who authorizes it.
Multiple Security Agreements – The registration of a single notice (e) An amendment notice that adds collateral or a grantor shall be
may relate to security interests created by the grantor under one (1) effective as to the added collateral or grantor from the date of
or more than one security agreement. its registration.

One single notice is SUFFICIENT to several security agreements. 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.
Section 30. Effectiveness of Notice —
(a) A notice shall be effective at the time it is discoverable on the
The PPSA does NOT state who should submit the amendment
records of the Registry.
notice, although it is expected to be the secured creditor.
(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. Could it be the grantor? Maybe, since there is no specific rule with
(c) A notice substantially complying with the requirements of this regards to the submission.
Chapter shall be effective unless it is seriously misleading.
(d) A notice that may not be retrieved in a search of the Registry To be valid, the amendment notice may be filed by the secured
against the correct identifier of the grantor shall be ineffective
creditor alone, although, in the rules, it can be filed by the grantor.
with respect to that grantor.
While the law is silent, the rules also indicate that it can be filed by the
PARAGRAPH A: Essentially, if the security interest can be searched in grantor.
the Registry System, then, that is considered as effective at the time that
it is discoverable on the records of the registry. 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 (d) The Registry shall maintain the capability to retrieve a record by
consent as mentioned in Section 3, Paragraph C. 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
A secured creditor who files the amendment notice necessarily attests
of ten (10) years after the lapse.
that no other consent is necessary for the amendment to take place.
(f) The duties of the Registry shall be merely administrative in
nature. By registering a notice or refusing to register a notice,
When talking about these amendment notice, it covers new the Registry does not determine the sufficiency, correctness,
information, some changes of information previously given in the initial authenticity, or validity of any information contained in the
notice, or corrections of some errors in the initial notice. It may include notice.
post registration in the change of name and address of the grantor or
name and address of the creditor or an additional guarantor, an Section 36. Search of Registry Records and Certified Report —
(a) The Registry shall communicate the following information to
additional collateral and description of the collateral, the buyer of
any person who requests it:
collateral as a new grantor, or even extension of period for effectiveness
(1) Whether there are in the Registry any unlapsed
of the notice. The PPSA prescribes no period for the registration of notices that indicate the grantor's identification
an amendment. number or vehicle serial number that exactly matches
the relevant criterion provided by the searcher;
Failure to register or make the necessary amendments for changes (2) The registration number, and the date and time of
should not necessarily impact the effectiveness of the notice unless registration of each notice; and
(3) All of the information contained in each notice.
it is seriously misleading.
(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
Section 33. Continuation of Notice — shall be admissible into evidence in judicial proceedings without
(a) The period of effectiveness of a notice may be continued by extrinsic evidence of its authenticity.
registering an amendment notice that identifies the initial notice
by its registration number.
Section 37. Disclosure of Information —
(b) Continuation of notice may be registered only within six (6)
(a) The secured creditor must provide to the grantor at its request:
months before the expiration of the effective period of the
(1) The current amount of the unpaid secured obligation;
notice.
and
(2) A list of assets currently subject to a security interest.
This applies to extend effectiveness of notice, wherein the amendment (b) The secured creditor may require payment of a fee for each
notice must be registered six (6) months before the expiration and then request made by the grantor in subsection (a) in this section, but
the amendment notice must identify the initial notice through the the grantor is entitled to a reply without charge once every six
registration number. (6) months.
(c) A security interest in a deposit account shall not:
(1) Affect the rights and obligations of the deposit-taking
Section 34. Termination of Effectiveness of a Notice —
institution without its consent; or
(a) The effectiveness of a notice may be terminated by registering
(2) Require the deposit-taking institution to provide any
a termination notice that:
information about the deposit account to third
(1) Identifies the initial notice by its registration number;
parties.
and
(2) Identifies each secured creditor who authorizes the
The grantor may request a secured creditor to provide the unpaid
registration of the termination notice.
(b) A termination notice terminates effectiveness of the notice as to amount of the secured obligation and the list of its assets subject to a
each authorizing secured creditor. security interest. Again, the amount is not required at the time of
initial notice or submission of the initial notice. This section 37 is
The effectiveness of a notice will be terminated even before expiration subsequent to the filing of the initial notice.
of the term stated in the in the shell notice, provided he secures the
authority from each secured creditor. 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
Section 35. Registry Duties — connection to bank secrecy.
(a) For each registered notice, the Registry shall:
(1) Assign a unique registration number; Section 38. Fees Set by Regulation —
(2) Create a record that bears the number assigned to the (a) The fees for registering a notice and for requesting a certified
initial notice and the date and time of registration; search report shall be set by regulation issued by the DOF for
and the recovery of reasonable costs of establishing and operating
(3) Maintain the record for public inspection. the Registry.
(b) The Registry shall index notices by the identification number of (b) The fee structure or any change thereof under subsection (a)
the grantor and, for notices containing a serial number of a shall further consider that the same shall not be burdensome to
motor vehicle, by serial number. either lender or grantor.
(c) The Registry shall provide a copy of the electronic record of the (c) There shall be no fee for electronic searches of the Registry
notice, including the registration number and the date and time records or for the registration of termination notices.
of registration to the person who submitted it. (d) The Registry may charge fees for services not mentioned above.
 Section 39. When the Grantor May Demand Amendment or In other words, there is a judicial remedy granted by the law as the
Termination of Notice – recourse of the grantor. The court may also issue a compulsory
A grantor may give a written demand to the secured creditor to amendment or termination through a court order, in accordance with
amend or terminate the effectiveness of the notice if: the grantor’s demand.
(a) All the obligations under the security agreement to which the
registration relates have been performed and there is no
Section 42. Compulsory Amendment or Termination by Court Order
commitment to make future advances;
—
(b) The secured creditor has agreed to release part of the collateral
(a) The court may, on application by the grantor, issue an order that
described in the notice;
the notice be terminated or amended in accordance with the
(c) The collateral described in the notice includes an item or kind of
demand, which order shall be conclusive and binding-on the
property that is not a collateral under a security agreement
LRA: Provided, That the secured creditor who disagrees with the
between the secured creditor and the grantor;
order of the court may appeal the order.
(d) No security agreement exists between the parties; or
(b) The court may make any other order it deems proper for the
(e) The security interest is extinguished in accordance with this Act.
purpose of giving effect to an order under subsection (a) of this
section.
It is the grantor who demands from the secured creditor for the (c) he LRA shall amend or terminate a notice in accordance with a
amendment or termination of notice. It is essential to ensure that the court order made under subsection (a) of this section as soon as
registered notice is cancelled or amended promptly. This cancellation reasonably practicable after receiving the order.
or amendment is not without limitation since the interest registered is
for and in behalf of the secured creditor. In effect, it shall be conclusive and binding to the LRA.

Remedy of the Secured Creditor: File an appeal on the order.

Grounds for Amendment or Termination of Notice
To make the necessary cancellation or termination, he must give a
The Court may also issue any other order it deems proper for the
written demand if such change or termination involves the following
amendment or termination of the notice.
situations:
(1) When there is no commitment to make future advances;
Note: No more discussion on Sections 43 and 44.
(2) When the secured creditor has already agreed to release
part of the collateral described in the notice;
Section 43. No Fee for Compliance of Demand –
(3) When what has been described is NOT a collateral; A secured creditor shall not charge any fee for compliance with a
(4) When there is really no security agreement between the demand received under Section 39.
parties in the first place; or
(5) When the security interest itself is extinguished, not Section 44. When Registration and Search Constitutes
necessarily the principal obligation. 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
TERMINATION AMENDMENT
or intent shall be subject to civil and criminal penalties according to
Grounds 1, 4, 5 Grounds 2 & 3
the relevant laws.

In connection to Section 39, there is Section 40, wherein the secured

CHAPTER 6
creditor must register WITHIN 15 WORKING DAYS an amendment
ENFORCEMENT OF SECURITY INTEREST SECURED CREDITOR’S
or termination notice.
RIGHTS

Section 40. Matters That May be Required by Demand –

Section 45. Right of Redemption —
Upon receipt of the demand submitted under Section 39, the secured
creditor must register, within fifteen (15) working days, an (a) Any person who is entitled to receive a notification of
amendment or termination notice: disposition in accordance with this Chapter is entitled to
(a) Terminating the registration in a case within subsections (a), (d) redeem the collateral by paying or otherwise
or (e) of Section 39; performing the secured obligation in full, including the
(b) Amending the registration to release some property that is no reasonable cost of enforcement.
longer collateral in a case within subsection (c) of Section 39 or (b) The right of redemption may be exercised, unless:
that was never collateral under a security agreement between (1) The person entitled to redeem has not, after the
the secured creditor and the grantor in a case within subsection default, waived in writing the right to redeem;
(c) of Section 39. (2) The collateral is sold or otherwise disposed of,
acquired or collected by the secured creditor or until
In other words, this is the compliance required on the part of the the conclusion of an agreement by the secured
security creditor upon demand by the grantor. creditor for that purpose; and
(3) The secured creditor has retained the collateral.
Section 41. Procedure for Noncompliance with Demand –
If the secured creditor fails to comply with the demand within fifteen When it comes to enforcement of the principal or secured obligation,
(15) working days after its receipt, the person giving the demand the secured creditor may not avail of these remedies provided under
under Section 39 may ask the proper court to issue an order the PPSA. He/She can file an action for collection of sum of money, to
terminating or amending the notice as appropriate.
enforce the principal obligation, or alternatively, if there is a security
interest created and perfected, he/she may avail of the remedies under priority over that of the enforcing secured creditor or lien holder
PPSA. shall be entitled to take over the enforcement process.
(b) The right referred to in subsection (a) of this section may be
TWO WAYS OF ENFORCING THE SECURITY INTEREST OF THE invoked at any time before the collateral is sold or otherwise
SECURED CREDITOR disposed of, or retained by the secured creditor or until the
1. Sale or disposition of the collateral to a public or private conclusion of an agreement by the secured creditor for that
purpose.
sale; or
(c) The right of the higher-ranking secured creditor to take over the
2. Retention by the creditor of the collateral in total or partial
enforcement process shall include the right to enforce the rights
satisfaction of the secured obligation.
by any method available to a secured creditor under this Act.

Section 45 talks about redemption. In other words, before a sale or

Here, it is clear that the higher-ranking secured creditor can take over
retention takes place, the right to redeem is available to the grantor or
the enforcement, even if it has already been stated by another secured
the debtor.
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
In redemption, the person is entitled to redeem the collateral by paying
of the secured creditor for the purpose has been executed.
or performing the secured obligation in full, including the reasonable
cost of enforcement.
ILLUSTRATION

Who are these persons entitled? SECURED CREDITOR 1

DUE DECEMBER 31, 2022
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
GRANTOR
the date of notification is sent to the grantor, held a security SC2
interest or lien on the collateral that was perfected by the COMMENCES
registration; and SECURED CREDITOR 2 ENFORCEMENT
4. Any other person from whom the secured creditor receives DUE DECEMBER 31, 2021 BUT SC1 MAY
notification (Sec. 51). TAKE OVER

Here, the grantor and the secured creditor (SC 1) created a security
Please do not confuse the term this right with the right of redemption in agreement with a security interest over the backhoe due on December
REM. In Real Estate Mortgage, the right to redeem is after the property
31, 2022. Subsequently, on the same collateral, another security interest
has been sold in a public auction. But here, in Section 45, the right of
was created over the same in favor of another secured creditor (SC 2)
redemption is used and available prior to the sale. due on December 31, 2021.
It only applies in sales, not disposal, since if it applies to the latter, it
cannot anymore exercise this right of redemption.
If SC 1 is preferred, meaning he has a priority or he is considered a
higher-ranking secured creditor, then, even if SC2 commences
If the grantor exercises the right to redeem under Section 45, he/she
enforcement of obligation over the collateral, SC 1 may take over such
cannot anymore waive the property for some reason as allowed in the
enforcement, either through a public or private sale.
PPSA. The secured creditor has retained the collateral so the grantor has
nothing more to redeem.
Under Section 47, the creditor is given the right to take possession of
the collateral.
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,
Section 47. Expedited Repossession of the Collateral —
waived in writing the right to redeem.” Note that the word NOT in
(a) The secured creditor may take possession of the collateral
this sentence is a TYPOGRAPHICAL ERROR since it appears that the
without judicial process if the security agreement so
person entitled to redeem waives. In doing so, supposedly, he can no
stipulates: Provided, That possession can be taken without a
longer exercise the right of redemption. The confusion arose here
breach of the peace.
probably because of the double negative.
(b) If the collateral is a fixture, the secured creditor, if it has priority
over all owners and mortgagees, may remove the fixture from
Just remember that IF THE WAIVER TO THE RIGHT OF
the real property to which it is affixed without judicial process.
REDEMPTION HAS BEEN EXECUTED BY THE PERSON ENTITLED,
The secured creditor shall exercise due care in removing the
HE/SHE CANNOT REDEEM ANYMORE.
fixture.
(c) If, upon default, the secured creditor cannot take possession of
In Section 45, it is clear that post-disposition redemption (or redemption collateral without breach of the peace, the secured creditor may
after sale) is not allowed. In chattel mortgage and even pledge, it is the proceed as follows:
same – one cannot redeem because it was already sold in the public (1) The secured creditor shall be entitled to an expedited
auction. hearing upon application for an order granting the
secured creditor possession of the collateral. Such
Section 46. Right of Higher-Ranking Secured. Creditor to Take application shall include a statement by the secured
Over Enforcement — creditor, under oath, verifying the existence of the
(a) Even if another secured creditor or a lien holder has commenced security agreement attached to the application and
enforcement, a secured creditor whose security-interest has 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.
Upon default, the secured creditor may without judicial process:
(a) Instruct the account debtor to make payment to the
Taking possession without judicial process is allowed if the security secured creditor, and apply such payment to the
agreement so stipulates. If it is not stipulated, the creditor cannot satisfaction of the obligation secured by the security
repossess. Further, even if it is stipulated, it must be that it can be interest after deducting the secured creditor’s
possessed without a breach of peace. reasonable collection expenses. On request of the
account debtor, the secured creditor shall provide
PARAGRAPH B: Take note of this specific rule with regard to fixture. evidence of its security interest to the account debtor
when it delivers the instruction to the account debtor;
If the collateral is a fixture and if the secured creditor has priority (b) In a negotiable document that is perfected by
possession, proceed as to the negotiable document
over all owners and mortgagees, the secured creditor may remove the
or goods covered by the negotiable document;
fixture from the real property to which it was affixed without judicial
(c) In a deposit account maintained by the secured
process.
creditor, apply the balance of the deposit account to
the obligation secured by the deposit account; and
PARAGRAPH C: This talks about the remedies of the secured creditor if (d) In other cases of security interest in a deposit account
upon default he/she cannot take possession of the collateral without perfected by control, instruct the deposit-taking
breach of peace. institution to pay the balance of the deposit account
to the secured creditor’s account.
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 Essentially, under Section 48, the secured creditor is authorized to
actually practiced yet and no rules have been promulgated with regard obtain payment without judicial process or resulting to other
thereto. remedies in the PPSA, in connection to the specific collateral or movable
properties mentioned in in this provision.
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 This is mentioned under Section 7.05 of the IRR.
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).

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. Note: Other provisions are self-explanatory.
(c) A disposition is not commercially unreasonable merely because
a better price could have been obtained by disposition at a PARAGRAPH C
different time or by a different method from the time and • Posting – done in the registry for the notice of sale.
method selected by the secured creditor. Do not confuse this with the requirement of posting for REM
(d) If a method of disposition of collateral has been approved in any or Chattel Mortgage.
legal proceeding, it is conclusively commercially reasonable. • Publication – It is one factor that could show that the sale
complied with the commercial reasonableness requirement.
Under this section, there is no express requirement that the sale must
be publicized and maybe in a private sale. But for a commercially PARAGRAPH D: Here, it appears that the sale or disposition is
reasonable sale, there must be publication which is considered to be an applicable to the public scene. But recall Section 49, wherein it provided
element of a commercially reasonable disposition. It ensures that the that the sale or disposition can take place either privately or publicly. In
advertising is sufficient to reach the proper audience provides sufficient other words, this sale in Section 7.07 is still considered private in nature.
time following the advertising.
PARAGRAPH E: The secured creditor better take this into consideration
When the sale take place? The PPSA is silent. so that there would be lesser issues with the requirement of commercial
reasonableness.
Section 7.07 of the IRR only reiterated what was stated in Section 50, in
connection to commercial reasonableness. PARAGRAPH F: There is a qualification for private disposition.
 Section 53. Rights of Buyers and Other Third Parties —
Note: Just take note of Section 50 in relation to the IRR and those (a) If a secured creditor sells the collateral under this Chapter, the
provided in Section 51. buyer shall acquire the grantor’s right in the asset free of the
rights of any secured creditor or lien holder.
Section 51. Notification of Disposition — (b) If a secured creditor leases or licenses the collateral under this
(a) Not later than ten (10) days before disposition of the collateral, Chapter, the lessee or licensee shall be entitled to the benefit of
the secured creditor shall notify: the lease or license during its term.
(1) The grantor; (c) If a secured creditor sells, leases or licenses the collateral not in
(2) Any other secured creditor or lien holder who, five (5) compliance with this Chapter, the buyer, lessee or licensee of
days before the date notification is sent to the the collateral shall acquire the rights or benefits described in
grantor, held a security interest or lien in the collateral subsections (a) and (b) of this section: Provided, That it had no
that was perfected by registration; and knowledge of a violation of this Chapter that materially
(3) Any other person from whom the secured creditor prejudiced the rights of the grantor or another person.
received notification of a claim of an interest in the
collateral if the notification was received before the Under Section 53(a), if a secured creditor sells the collateral under
secured creditor gave notification of the proposed Chapter 6, the buyer in the said sale generally acquires the grantor’s right
disposition to the grantor. in the asset free of the rights of any secured creditor or lien holder.
(b) The grantor may waive the right to be notified.
(c) A notification of disposition is sufficient if it identifies the Under Section 53(c), the buyer or other transferee, lessee, or licensee
grantor and the secured creditor; describes the collateral; states are affected by the enforcing creditor’s failure to comply with the
the method of intended disposition; and states the time and requirements under the law, if they have knowledge of the violation
place of a public disposition or the time after which other which prejudiced the rights of the other parties.
disposition is to be made.
(d) The requirement to send a notification under this section shall
Section 54. Retention of Collateral by Secured Creditor —
not apply if the collateral is perishable or threatens to decline
(a) After default, the secured creditor may propose to the debtor
speedily in value or is of a type customarily sold on a recognized
and grantor to take all or part of the collateral in total or partial
market.
satisfaction of the secured obligation, and shall send a proposal
to:
PARAGRAPH A, ITEM 3: Essentially, these persons are the ones who are
(1) The debtor and the grantor;
entitled to redeem. Thus, they need to be informed before disposition. (2) Any other secured creditor or lien holder who, five (5)
Aside from registration of sale and the notice of sales in the registry, days before the proposal is sent to the debtor and the
these persons mentioned should also be notified. grantor, perfected its security interest or lien by
registration; and
PARAGRAPH D: No need to comply with the notice when the goods are (3) Any other person with an interest in the collateral who
perishable. has given a written notification to the secured creditor
before the proposal is sent to the debtor and the
Under Section 51, it appears that the debtor is a person different from grantor.
the grantor. He is not required to be notified of the said disposition. The (b) The secured creditor may retain the collateral in the case of:
debtor, however, can choose to redeem the property, being the party (1) A proposal for the acquisition of the collateral in full
satisfaction of the secured obligation, unless the
interested in the obligation.
secured creditor receives an objection in writing from
any person entitled to receive such a proposal within
Section 52. Application of Proceeds — twenty (20) days after the proposal is sent to that
(a) The proceeds of disposition shall be applied in the following person; or
order: (2) A proposal for the acquisition of the collateral in
(1) The reasonable expenses of taking, holding, partial satisfaction of the secured obligation, only if
preparing for disposition, and disposing of the the secured creditor receives the affirmative consent
collateral, including reasonable attorneys’ fees and of each addressee of the proposal in writing within
legal expenses incurred by the secured creditor; twenty (20) days after the proposal is sent to that
(2) The satisfaction of the obligation secured by the person.
security interest of the enforcing secured creditor;
and
This is the second mode of enforcing the security interest. The first
(3) The satisfaction of obligations secured by any
one is sale or disposition. The second is retention which takes place
subordinate security interest or hen in the collateral if
a written demand and proof of the interest are after default.
received before distribution of the proceeds is
completed. Under Section 54(a), the secured creditor, after default, is entitled to
(b) The secured creditor shall account to the grantor for any surplus, propose to the debtor and the grantor to take all or part of the collateral
and, unless otherwise agreed, the debtor is liable for any in total or partial satisfaction of the obligation by sending a proposal.
deficiency. 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
It is different from pledge but similar to chattel mortgage upon constitute pactum commissorium.
foreclosure. The debtor is liable for any deficiency unless otherwise
agreed and the grantor is entitled to the surplus. 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.