(RA 11057)

PPSA
• An Act Strengthening the Secured Transactions Legal Framework in
the Philippines, which shall provide for the Creation, Perfection,
Determination of Priority, Establishment of a Centralized Notice
Registry, and Enforcement of Security Interests in Personal Property,
and for Other Purposes.

Former Laws Applicable

✓ Chattel mortgage Law (Act 1508)
✓ Civil Code Provisions (Arts. 2093-2123)
✓ Civil Code Provisions (Ats. 2140-2141)
✓ Revised Administrative Code
✓ Revises Penal Code (Act No. 3815)
✓ Ship Mortgage Decree (PD 1521)
History of the Law
• Law was signed on August 17, 2018
• Law took effect on February 9, 2019 or fifteen (15) days after the PPSA was
published in two newspapers of general circulation.
• Under the said law, the IRR must be issued, and registry be
established by LRA to be operational
• The IRR was published on November 18, 2019
• The IRR took effect on December 3, 2019
• LRA has not yet created the registrar
• It is already March 2021 (from 2019)
• Thus, it is NOT yet implemented
• Before its implementation, the provisions of Pledge and Chattel
Mortgage will apply (Transitional Period)

Purposes of the Law

• PPSA aims to promote economic activity by increasing access to
least cost credit, particularly for micro, small, and medium
enterprises (MSMEs), by establishing a unified and modern legal
framework for securing obligations with personal property.
• PPSA aims to strengthen the secured transactions legal
framework in the Philippines, which shall provide for the creation,
perfection, determination of priority, establishment of a centralized
notice registry, and enforcement of security interests in personal
property and for other purposes.
• The underlying philosophy of the PPSA is to establish a “unified and
modern legal framework for securing obligations with personal
property.”
• “UNIFIED” here means that the PPSA recognizes the existence of
disparate regimes of movable collateral, and that it intends to bring
them all together, and unify them under a single regime.
 • “MODERN” suggests a departure from the traditional security
arrangements.
• “LEGAL FRAMEWORK” shows that the PPSA intends to establish
not just a set of rules, but rather an entire system in itself.

Repealed Certain Laws (Sec. 66)

• Thus, it amended or repealed certain laws in the Philippines
pertaining to Pledge and Chattel mortgages. Furthermore, certain
registration procedures for security interest was also repealed and it
provided new procedures.
• But the PPSA does not prevent contracting parties from creating
security arrangements that take on the characteristics of
previously-recognized arrangements such as pledge and chattel
mortgage, provided that the particular arrangement is not
inconsistent with the PPSA or the Rules.

Repealed Certain Laws

• Section 66. Repealing Clause. – The following laws, and all laws,
decrees, orders, and issuances or portions thereof, which are
inconsistent with the provisions of this Act, are hereby repealed,
amended, or modified accordingly:
a) Sections 1 to 16 of Act No. 1508, otherwise known as “The
Chattel Mortgage Law”;
b) Articles 2085-2123, 2127, 2140-2141, 2241, 2243, and 2246-2247
of Republic Act No. 386, otherwise known as the “Civil Code of the
Philippines”;
c) Section 13 of Republic Act No. 5980, as amended by Republic Act
No. 5980, as amended by Republic Act No. 8556, otherwise known
as the “Financing Company Act of 1998”;
d) Sections 114-116 of Presidential Decree No. 1529, otherwise
known as the “Property Registration Decree”;
e) Section 10 of Presidential Decree No. 1529, insofar as the
provision thereof is inconsistent with this Act; and
f) Section 5(e) of Republic Act No. 4136, otherwise known as the
“Land Transportation and Traffic Code”.

• TO REITERATE, the PPSA expressly repealed, amended, or modified,

among others, the provisions:
a) Chattel Mortgage Law )Act No. 1508) (specifically, Sections 1-6);
b) The provisions of the Civil Code of the Philippines (Republic Act
No. 386) (“Civil Code”) on mortgage and pledge (specifically,
Articles 2085-2123,2127.2140-2141,2241*, 2143* and 2246-
2247*), and;
c) The registration of chattel mortgages under the Property
Registration Decree (Presidential Decree No. 1529) (specially,
Sections 114-116)

• In effect, we have a SINGLE type of security transaction.

• No more Pledge and Chattel Mortgage!
 Effect of Repeal (Implied Repealed by Substitution)
• The statutory provisions listed in Section 9.01(b) are not considered
as repealed in full, but only insofar as they are inconsistent with the
PPSA.
• The general functions of the Registers of Deeds as established in
Section 10 of P.D. 1529 remain insofar as real property is concerned.
Article 2127 of the Civil Code remains applicable insofar as mortgages
on immovables are concerned.

Transitional Period – is defined as the period from the date of effectivity

of this Act until the date when the Registry has been established and
operational.
• The transitional period has begun as of February 9, 2019 (effectivity).
• Under the PPSA Rules, however, all security interests created from
February 9, 2019 to the PPSA’s full implementation when the registry
is established and operational (the “Transitional Period”) will be
governed by the PPSA except that registration will be in
accordance with the Chattel Mortgage Law until the registry is
established.
• Until such implementation, the law on Pledge or Chattel Mortgage
will apply.
• Once the registry is established, the creation of a valid security
interest over personal property under Philippine law will be entirely
governed by the PPSA and the PPSA Rules, except interests in
aircraft which are subject to the Civil Aviation Authority Act of 2008
(Republic Act No. 9497) and interest in ships which will continue to be
governed by the Ship Mortgage Decree of 1978 (Presidential Decree
No. 1521).

Chapter 1 – Definitions and Scope

1. Grantor – (formerly, debtor/mortgagor)

• Person who grants a security interest in collateral to secure its own
obligation or that of another person;
• A buyer or other transferee of a collateral that acquires its right
subject to a security interest;
• A transferor in an outright transfer of an accounts receivable; or
• A lessee of goods;
2. Notice – a statement of information that is registered in the Registry
relating to a security interest or lien. The terms includes an initial notice,
amendment notice, and termination notice.
3. Proceeds – any property received upon sale, lease, or other disposition of
collateral, or whatever is collected on or distributed with respect to
collateral, claims arising out of the loss or damage to the collateral, as well
as a right to insurance payment or other compensation for loss or damage of
the collateral.
4. Purchase money security interest – a security interest in goods taken
by the seller to secure the price or by a person who gives value to enable the
 grantor to acquire the goods to the extent that the credit is used for that
purpose.
5. Registry – the centralized and nationwide electronic registry established in
the Land Registration Authority (LRA) where notice of a security interest
and a lien in personal property may be registered.
6. Secured creditor – a person that has a security interest. For the purposes
of registration and priority only, it includes a buyer of account receivable
and a lessor of goods under an operating lease for not less than one (1) year.
7. Security interest – a property right in collateral that secures payment
or other performance of an obligation, regardless of whether the parties
have denominated it as a security interest, and regardless of the type of
asset, the status of the grantor or secured creditor, or the nature of the
secured obligation; including the right of a buyer of accounts receivable and
a lessor under an operating lease for not less than one (1) year.
• Writing – for the purpose of this Act includes electronic records.
Scope of the Law
• This Act shall apply to all transactions of any form that secure an
obligation with movable collateral, except interests in: (1) aircrafts
subject to Republic Act No. 9497, or the “Civil Aviation Authority Act
of 2008”, and interest in (2) ships subject to Presidential Decree No.
1521, or the “Ship Mortgage Decree of 1978.”
• Any kind of personal property. (Movable property)
• Movables that can be used as a collateral
Bank Accounts, Accounts Receivable, Inventory and Raw
Goods, Intellectual Property Rights, Industrial and
Agricultural Equipment, Durable Consumer Goods,
Agricultural Products (crops, livestock, fish), Vehicles.
• Tangible or Intangible (Incorporeal)

Movables
• Under the PPSA, registrable collaterals now include deposit
accounts, receivables, checks/negotiable instruments, shares of stock,
store inventory, equipment, livestock, motor vehicles, and intellectual
property rights, among others.
• PPSA does not cover aircraft and ships, which are covered by
separate laws. Aircraft can be used as collateral under the Civil
Aviation Authority Act of 2008, while ships can be used as collateral
under the Ship Mortgage Decree of 1978.

Future property as collateral

• The PPSA also makes it possible to use future property as
collateral, provided that the security interest is not created until and
unless the borrower acquires rights in it or the power to encumber it
(Section 5 b).
 • Previously under old laws, a borrower cannot pledge or
mortgage property that he does not own.(must be the absolute
owner)

Chapter 2 – Creation of Security Interest

Security Interest
• A property right in collateral that secures payment or other
performance of an obligation, regardless of whether the parties have
denominated it as a security interest, and regardless of the type of
asset, the status of the grantor or secured creditor, or the nature of
the secured obligation; including the right of a buyer of accounts
receivable and a lessor under an operating lease for not less than one
(1) year.
• It extends to the identifiable and traceable proceeds of the
personal property in case it produces proceeds, and it continues
in the collateral even if it is transferred to another person.

How do you create a Security Interest?

• A security interest is created by:
a SECURITY AGREEMENT, under which the debtor grants a
security interest in the debtor’s property as collateral for a loan
or other obligation.

Creation of a Security Interest

• A security interest shall be created by a SECURITY AGREEMENT.
• A security agreement may provide for the creation of a security
interest in a future property (or after-acquired property), but the
security interest in the property is created only when the grantor
acquires rights in it or the power to encumber it.
• The security agreement may also provide (does not automatically
extend to the product unless specifically provided in the security
agreement) that a security interest in a TANGIBLE ASSET that is
TRANSFORMED INTO A PRODUCT ENTENDS to the product (but
limited to the value of the encumbered asset before it became part of
the product).
• It may likewise provide that a security interest in a TANGIBLE ASSET
EXTENDS to its replacement (but limited to the value of the
encumbered asset before it was replaced).
• Where proceeds in the form of funds credited to a deposit account or
money are commingled with other funds or money:
1. The security interest shall extend to the commingled money
or funds (it extends to the mass), notwithstanding that the
proceeds have ceased to be identifiable to the extent they
remain traceable.
2. The security interest in the commingled funds or money shall
be limited to the amount of the proceeds immediately before
 they were commingled (but it will be limited to the proportion
which the encumbered part of the mass bears to the entire
mass).

What is the form of security agreement?

The security agreement must be contained in a written contract signed by
the parties and must identify the collateral and the secured obligation.
1. The Security Agreement in Writing – law allows one or more writings.
2. Description of Collateral – law provides that it must reasonably
identify, it may be specific or general.

Security Agreement
• A security agreement must be contained in a WRITTEN contract
signed by the parties. It may consist of one or more writings provided
when taken together it can establish the intent of the parties to create
a security interest.
• The security agreement shall likewise provide for the language to be
used in agreements and notices. The grantor shall be given the option
to have the agreement and notices in Filipino. The Department of
Finance (DOF) shall prepare model agreements in plain English and
Filipino.

Description of Collateral
• A DESCRIPTION OF COLLATERAL shall be considered sufficient
(whether it is specific or general) if it reasonably identifies the
collateral.
• Example (under the law) – A description such as “all personal
property”, “all equipment”, “all inventory”, or “all personal property
within a generic category” of the grantor shall be sufficient.

Continuity of Security Interest

• General Rule – a security interest will continue in the collateral
(follow the property) notwithstanding sale, lease, license, exchange,
or other disposition of the collateral (to any subsequent transferee),
• Exception – except as otherwise provided in Section 21 of this Act
(subsequent transferee is a buyer in good faith [no knowledge]) or
agreed (stipulation) upon by the parties.
• Exception to Exception to buyer in GF – No such good faith shall
exist if the security interest in the movable property was registered
prior to his obtaining the property.

Effect of Contractual Limitation on the Creation of a Security

Interest
• Rule – a security interest in an account receivable shall be effective
notwithstanding any agreement between the grantor and the account
debtor or any secured creditor limiting in any way the grantor’s right
to create a security interest.
• Effect of violation – Any stipulation limiting the grantor’s right to
create a security interest shall be VOID.
 • However, it shall not affect any obligation or liability of the
grantor for breach of the agreement.

Creation of Security Interest

• Under the PPSA Rules, parties are free to enter into any form of
security arrangements is not inconsistent with the PPSA or the PPSA
Rules.
• Further, subject to existing law, parties may also apply the PPSA Rules
to other functional equivalents of security interest, including –
i. Fiduciary transfers of title;
ii. Financial lease;
iii. Assignment or transfer receivables; and
iv. Sale with retention of title

• In other words, the PPSA does not prevent contracting parties from
creating security arrangements that take on the characteristics of
previously-recognized arrangements such as pledge and chattel
mortgage, provided that the particular arrangement is not
inconsistent with the PPSA or the Rules.
• However, the Civil Code provisions establishing arrangements such as
pledge and chattel mortgage have been repealed, thus it is now the
PPSA that governs these types of arrangements.

How is it extinguished?
• A security interest is extinguished – when ALL SECURED
OBLIGATIONS HAVE BEEN DISCHARGED and there are no
outstanding commitments to extend the credit secured by the
security interest.
• FULL PERFORMANCE BY GRANTOR

Chapter 3 – Perfection of Security Interest

(Registration)

Perfection of Security Interest made

• After a security interest has been created, it may be perfected by
(RPC):
i. Registration of a notice with the registry of property
(Tangible/Intangible);
ii. Possession of the collateral by the secured creditor (Tangible);
and
iii. Control of investment property and deposit account
(Intangible).

• Effect – on perfection, a security interest becomes effective against

third parties. If not registered, valid/binding only to the parties.
Means of Perfection of Tangible
• A security interest in any tangible asset may be perfected by
registration. By filing a notice with the registry or possession
(whether actual or constructive).
• Constructive possession may happen when the secured creditor is
holding the keys of a warehouse filled with inventory (analogous with
constructive delivery in sales).
• If Tangible Asset – perfected by- RP
(1) registration or
(2) possession
Means of Perfection of Intangible
• While a security interest in INVESTMENT PROPERTY OR
DEPOSIT ACCOUNT may be perfected by registration of notice with
the registry of LRA or through control.
• Perfection by CONTROL is made in the following manner:
i. The creation of a security interest in favor of the deposit
taking institution (bank) or intermediary;
ii. The conclusion of a Control Agreement (which must be
executed under oath and must include the date and time of
execution), or;
iii. For investment property that is an electronic security but not
held with an intermediary, the notation of the security interest
in the books of the issuer.
• If a security interest in investment property and deposit
account, it is perfected by- RC
(1) registration or
(2) completion of control agreement

Effect if not registered

• Valid to the parties. Not Valid to third persons.

Perfection in Proceeds (Section 14)

Upon DISPOSITION of collateral, if the proceeds are in the form of
money accounts receivable, negotiable instruments or deposit
accounts, the security interest shall extend to proceeds of the
collateral without further act and be CONTINUOUSLY
PERFECTED.
Upon DISPOSITION of collateral, if the proceeds are in difierent
from money, account s receivable, negotiable instruments or
deposit accounts, the security interest in such proceeds must be
perfected by one of the means (new RPC) applicable to the
relevant type of collateral within fifteen (15) days after the grantor
receives such proceeds; otherwise, the security interest in such
proceeds shall not be effective against third parties.

Changes in Means of Perfection

• A security interest shall remain perfected despite a change in the
means for achieving perfection: Provided, that there was no time
when the security interest was not perfected (perfection is valid from
the start).
 • It does NOT AFFECT the previous perfection.
Assignment of Security Interest(sec 16)
• If a secured creditor assigns a perfected security interest, an
amendment notice may be registered to reflect the assignment.

Chapter 4 : PRIORITY OF SECURITY INTEREST

Priority
• The right of a person in an encumbered asset in preference to the
right of a competing claimant (Sec. 1.05 [y], Rule I Preliminary
Provisions, IRR 2019).
• Simply put,
(1) the preference of the secured creditor in payment of his claim.
(2) He gets to be paid ahead of other creditors.

Effect of Priority of Security Interest

• Section 66 of PPSA amended 2241,2243,2246, and 2247 of
Republic Act No. 386, otherwise known as the “Civil Code of the
Philippines”.
• There are the provisions on the concurrence and preference of credits
pertaining to movables which preferences are inconsistent with the
rights of the secured creditor under PPSA and PPSA rules.
• PPSA created a single set of priority rules that will determine priority
of enforcement of security in case there are several creditors (i.e.,
rules to determine which secured creditor will have priority over the
same collateral).

How is priority determined?

• Generally, the priority of security interests and liens in the same
collateral will be determined according to time of registration of a
notice in LRA or perfection by other means, without regard to the
order of creation of the security interest and liens or (except as
expressly stipulated I the PPSA Rules) to the mode of perfection.

Specific Rules in Priority of Security Interest

• Section 18. Priority for Perfection by Control
1. A security interest in a DEPOSIT ACCOUNT with respect to
which the secured creditor is the deposit-taking institution
(BANKS) of the intermediary.
 2. Rights to Set-Off (Gullas v. PNB)
• Any rights to set-off (or compensate) that the deposit-taking
institution may have against a grantor’s right to payment of
funds credited to a deposit account shall have priority over a
security interest in the deposit account.
3. A security interest in a DEPOSIT ACCOUNT OR
INVESTMETNT PROPERTY that is perfected by a control
agreement shall have priority over a competing security
interest except a security interest of the deposit-taking
institution for the intermediary.
• The order of priority among competing security interests
in a deposit account or investment property that were
perfected by the conclusion of control agreements shall
be determined on the basis of the time of conclusion
of the control agreements.
4. A security interest in a security certificate perfected by the
secured creditor’s possession (HELD) of the certificate shall
have priority over a competing security interest perfected by
registration of a notice in the Registry .
(Possession v. Registration)
5. A security interest in electronic securities NOT HELD with an
intermediary.
a. If perfected by a notation of the security interest v.
securities perfected by any other method.
b. I perfected by the conclusion of a control agreement
v. perfected by registration of a notice in the Registry.

• Section 19. Priority for instruments and Negotiable Documents

• A security interest in an instrument of negotiable document
that is perfected by possession of the instrument or the
negotiable documents shall priority over a security interest
in the instrument or negotiable document that is perfected by
registration of a notice in the Registry.
(Possession v. Registration)

• Section 20. Priority and Plight of Retention by Operation of Law

• A person who provides services or materials with respect to the
goods, in the ordinary course of business, and RETAINS
POSSESSION of the goods shall have priority over a
perfected security interest in the goods until payment
thereof.

• Section 22. Efiect of the Grantor’s Insolvency on the Priority of a

Security Interest
• Subject to the applicable insolvency law, a security interest
perfected prior to the commencement of insolvency
proceedings in respect of the grantor shall REMAIN
PERFECTED and RETAIN THE PRIORITY it had before the
commencement of the insolvency proceedings.
• Section 23. Purchase Money Security Interest (PMSI)
1. A security interest in goods taken by the seller to secure the
price or xxx
2. A purchase money security interest in equipment and its
proceeds shall have priority over a conflicting security
interest, if a notice relating to the purchase money
security interest is registered within 3 business days
after the grantor receives possession of the
equipment.
3. A purchase money security interest in inventory, intellectual
property or livestock shall have priority over a conflicting
perfected security interest in the same inventory, intellectual
property, or livestock if:
a) The purchase money security interest is perfected
when the grantor receives POSSESSION of the
inventory or livestock, or ACQUIRES RIGHTS to
intellectual property, and
b) Secured creditor gives WRITTEN NOTIFICATION to
the holder of the conflicting perfected security
interest in the same types of inventory, livestock, or
intellectual property before the grantor receives
possession of the inventory or livestock or acquires
rights in intellectual property.

• Section 21. Transferee Exceptions

❖ General Rule – Any party who obtains, in the ordinary course of
business, any movable property containing a security interest
shall take the same free of such security interest provided he
was in good faith (transferee who took it in good faith)
❖ Exception – If security interest was registered prior to his
obtaining the property.
• Section 24. Livestock
• A perfected security interest in livestock securing an
obligation incurred to enable the grantor to obtain food
or medicine for the livestock shall have priority over any
other security interest in the livestock, except for a perfected
purchase money security interest in the livestock, if the
secured creditor providing credit for food or medicine gives
written notifications to the holder of the conflicting perfected
security interest in the same livestock before the grantor
receives possession of the food or medicine.

• Section 25. Fixtures, Accessions, and Commingled Goods

• A goods perfected security interest in a movable property
which has become a fixture or has undergone accession or
commingling shall continue provided the movable property
involved can still be reasonably traced. In determining
ownership over fixtures, accessions, and commingled goods,
the provisions of Book II of Republic Act No. 386 or the “Civil
Code of the Philippines” shall apply.
 Chapter 5 : REGISTRATION/REGISTRY

Registry (Section 26)

• Under the PPSA Rules, the Land Registration Authority (LRA), within
6 months from the publication of the PPSA Rules, will establish
and administer the centralized, nationwide registry (Electronic
Central Registry) where notice of security interests and liens in
personal property may be registered and searched.
(not created yet)
• The registry must provide electronic means for registration and
search of notices. The LRA will issue the necessary guidelines on the
use and management of the registry.

Registry during the Transitional Period

• During the Transitional Period, the registration of the security
agreement with the LRA will be accordance with the Chattel
Mortgage Law.
• The LRA will also determine a system of provision registration of
such agreements during such Transitional Period.

Effect of Registration
• Information contained in a registered notice shall be considered as a
public record.
• Hence, any person may search (online) notices registered in the
Registry.

• One Notice Sufficient for Security Interests Under Multiple Security

Agreements (Section 29)
1. notice can cover multiple security agreements
2. the notice must include the identification no. of grantor
(Effect if not)

Sufficiency of Notice (section 28)

• Each grantor must authorize the registration of an initial notice
by signing a security agreement or otherwise in writing.

Can the registration precede the creation of a security agreement?

• Yes, A notice may be registered before a security agreement is
concluded.
• Once a security agreement is concluded, the date of registration of
the notice shall be reckoned from the date the notice was
registered.
• A notice of lien may be registered by a lien holder without the consent
of the person against whom the lien is sought to be enforced.
 Instance when initial notice of security interest shall not
be rejected (5)

Effectiveness of Notice (Section 30)

• Effective at the time it is discoverable on the records of the Registry
• Effective for the duration of the term indicated in the notice unless
a continuation notice is registered before the term lapses
• A notice substantially complying with the requirements of this
Chapter shall be effective unless it is seriously misleading
• A notice that does not provide the identification number of grantor
shall be seriously mislead. (sec 31)

Amendment of Notice (Section 32)

When?
• A notice may be amended by the registration of an amendment notice
that:
1. Identifies the initial notice by its registration number; and
2. Provides the new information
Effect: An amendment notice shall be effective only
as to each secured creditor who authorizes it.
An amendment notice that adds collateral or grantor
(both must be authorized by the grantor in writing)
shall be effective as to the added collateral or grantor
from the date of its registration.
• Continuation of notice – may be registered only within 6 months
before the expiration of the effective period of the notice (sec.33)
• A termination notice (How? By registration of termination notice?
Terminates effectiveness of the notice as to each authorizing secured
creditor (sec 34).
• The Registry shall maintain records of lapsed notices for a period of
10 years after the lapse (sec 35)
• Right of Grantor to Demand Amendment or Termination of notice
(se.39) – A grantor may give a written demand to the secured creditor
to AMEND OR TERMINATE the effectiveness of the notice if:
PANNE
1. All the obligations under the security agreement too which
the registration related have been performed and there is
no commitment to make future advances;
2. The secured creditor has agreed to release part of the
collateral described in the notice;
3. The collateral described in the notice included an item or
kind of property that is not a collateral under a security
agreement between the secured creditor and the grantor;
4. No security agreement exists between the parties; or
5. The security interest is extinguished in accordance with
this Act.

• Section 40 – Secured creditor has 15 days upon receipt of the

demand to register the amendment or terminate the notice.
Compulsory Amendment or Termination by Court Order
• The court may, on application by the grantor, issue an order that
the notice be terminated or amended in accordance with the demand,
which order shall be conclusive and binding-on the LRA: Provided,
That the secured creditor who disagrees with the order of the court
may appeal the order.
• The LRA shall amend or terminate a notice in accordance with a
court order made under subsection (a) of this section as soon as
reasonably practicable after receiving the order.

Chapter 6: ENFORCEMENT OF SECURITY

INTEREST

Rights of the Grantor (2)

1. In case the secured creditor is not complying with the PPSA or
IRR, the grantor can ask for appropriate remedies in court.
2. Right of REDEMPTION – any person who is entitled to receive a
notification of disposition is entitled to REDEEM the collateral
(How?) BY PAYING OR OTEHRWISE PERFOMING THE
SECURED OBLIGATION IN FULL, including the reasonable cost
of enforcement.

• The right of redemption may be exercised, unless: NO RIGHT

TO REDEEM
(1) The person entitled to redeem has not, after the default,
waived in writing the right to redeem;
(2) The collateral is sold of otherwise disposed of, acquired, or
collected by the secured creditor or until the conclusion of
an agreement by the secured creditor for that purpose; and
(3) The secured creditor has retained the collateral.

Rights of the Secured creditor (6)

• The secured creditor may enforce its security through, among other
modes of enforcement, the following:
i. JUDICIAL process - Any judicial enforcement of
securities, including disposition of collateral, will be
governed by rules promulgated by the Philippine
Supreme Court; Or
ii. EXTRA-JUDICIAL process, including
a) The SALE oof the secured assets through public
or private disposition; or
b) RETENTION of collateral. (The guidelines for
the extra-judicial disposition are provided in
Section 7.09)
 1. Expedited Repossession of the Collateral(Sec 47)- [EJ] (Stipulation
+ No BP)
2. Right of Higher-Ranking Secured Creditor to take Over the
Enforcement
3. Right to Retain/Retention- How? By sending a proposal to the
Grantor/Debtor (Reqs.)
4. Right to Dispose/Sell the Collateral (publicly or privately)
5. Special rights (Recovery in Special Cases)
6. Right to Damages

Expedited Repossession of the Collateral (Sec 47)

• The secured creditor may TAKE POSSESSION of the collateral
without judicial process if the security agreement so stipulates:
Provided, that possession can be taken without a breach of the peace.
• If the collateral is a fixture, the secured creditor, if it has
priority over all owners and mortgages, may remove the
fixture from the real property to which it is affixed without
judicial process. The secured creditor shall exercise due care in
removing the fixture.

Taking Possession of the collateral

• If the collateral is not with the secured creditor, upon default, the
secured creditor may TAKE POSSESSION of the collateral without a
judicial process:
(1) If the security agreements so stipulates,
(2) But possession must be without breach of the peace.

• In this connection, “breach of the peace” Includes 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.

• In case of enforcement of the security, under the PPSA the secured

creditor may take possession of the property without need of judicial
 process (Section 47) and proceed to dispose the collateral in a public
or private sale upon notice to the debtor (Section 49).
• Under old laws, foreclosure may only be done before a
notary public (pledge), public officer, or court (chattel
mortgage), and foreclosure sales were required to be
done publicly.

THE PROCESS
• If the secured creditor cannot take possession of the collateral
without breach of the peace, the secured creditor may proceed as
follows:
(1) The secured creditor will be entitled to an expedited
hearing upon application with the court for an order
granting the secured creditor possession of the collateral.
(2) The secured creditor must provide the debtor, grantor, and
if the collateral is a fixture, any real estate mortgagee, a
copy of the application with supporting documents and
evidence.
(3) The secured creditor is entitled to an order granting
possession of the collateral upon the court finding that
a default has occurred under the security agreement and
that the secured creditor has a right to take possession of
the collateral.

• Under the following special cases, upon default, the secured creditor
may take possession of the collateral without judicial process by:
(1) Instructing the account debtor of an accounts
receivable to make payment to the secured creditor,
and apply such payment to the satisfaction of the
obligation secured by the security interest after
deducting the secured creditor’s reasonable collection
expenses;
(2) In a negotiable document where the security interest is
perfected by possession proceedings as to the
negotiable document or goods covered by the
negotiable document;
(3) In a deposit account maintained by the secured creditor,
applying the balance of the deposit account to the
obligation secured by the deposit account; and
(4) In other cases of a security interest in a deposit account
perfected by a control agreement, instructing the
deposit-taking institution to pay the balance of the
deposit account to the secured creditor’s account by
providing:
i. A copy of the security agreement and
ii. The secured party’s affidavit, stating that a default
has occurred and that the secured party is entitled
to enforce the security interest non-judicially.
Right of Higher-Ranking Secured Creditor to Take Enforcement (sec
46)
• Even if another secured creditor or a lien holder has commenced
enforcement, a secured creditor whose security-interest has priority
over that of the enforcing secured creditor or lien holder shall be
entitled to take over the enforcement process.
• The right of the higher-ranking secured creditor to take over the
enforcement process shall include the right to enforce the rights by
any method available to a secured creditor.

Retention of Collateral (Sec 54)

• After default, a secured creditor may also propose to the debtor and
grantor to take all or part of the collateral in total or partial
satisfaction of the secured obligation by sending a proposal to the-
(1) Debtor and grantor;
(2) Any other secured creditors or lien holders, &
(3) Any other person from who the secured creditor received
notification of a claim.

• The secured creditor may retain the collateral in case of:

(1) A proposal for the acquisition of the collateral in full
satisfaction of the secured obligation, without objection from
any of the addressees of the proposal; or
(2) A proposal for the acquisition of the collateral in partial
satisfaction of the secured obligation, but only if the secured
creditor received the written affirmative consent of the
addressees of the proposal.

Right to Dispose of Collateral (sec 49)

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.

Application of Proceeds (sec 52)

• The proceeds of disposition shall be applied in the following order
1) The reasonable expenses of taking, holding, preparing for
disposition, and disposing of the collateral, including
reasonable attorneys’ fees and legal expenses incurred by the
secured creditor;
2) The satisfaction of the (principal) obligation secured by the
security interest of the enforcing secured creditor; and
3) The satisfaction of obligations secured by any subordinate
security interest or hen in the collateral if a written demand
 and proof of the interest are received before distribution of the
proceeds is completed.

• The secured creditor shall account to the grantor for any surplus,
and, unless otherwise agreed, the debtor is liable for any
deficiency(sec 52 b).

Effects of right to dispose of collateral

• Application of the Proceeds (Expenses, Principal, subordinate
interest)
• Excess – Grantor is entitled to receive it
• Deficiency:
• GR- Grantor is still liable
• Exc.- Grantor is not liable if there is stipulation that he is
not liable.

• The secured creditor will account for the surplus amount; meanwhile,
in case of deficiency, the debtor continues to be liable for such
deficiency (Sec 52 b)

Can the secured creditor buy the collateral?

✓ The secured creditor may buy the collateral at any public
auction, or at a private disposition BUT only if the collateral is of
kind that is customarily sold on a recognized market or the subject
of widely distributed standard price quotations.

Disposition of Collateral
• After default, a secured creditor may (upon prior notice to the
grantor, other secured creditors, and any other person from whom the
secured creditor received notification of a claim of interest in the
collateral) sell or otherwise dispose of the collateral, publicly or
privately, in its present condition or following any commercially
reasonable preparation or processing.
• A disposition is commercially reasonable if the secured creditor
disposes of the collateral in conformity with commercial practices
among dealers in that type of property.
• The specific guidelines on private or public disposition are set out in
Section 7.09 of the PPSA Rules.

Recovery in Special Cases (sec 48)

• Upon default, the secured creditor may without judicial process:
a) Instruct the account debtor to make payment to the secured
creditor and apply such payment to the satisfaction of the
obligation secured by the security interest after deducting the
secured creditor’s reasonable collection expenses. On request
of the account debtor, the secured creditor shall provide
evidence of its security interest to the account debtor when it
delivers the instruction to the account debtor.
 b) In a negotiable document that is perfected by possession,
proceed as to the negotiable document or goods covered by
the negotiable document;
c) In a deposit account maintained by the secured creditor, apply
the balance of the deposit account to the obligation secured
by the deposit account; and
d) In other cases of security interest in a deposit account
perfected by control, instruct the deposit-taking institution to
pay the balance of the deposit account to the secured
creditor’s account.

Rights of the Buyer (Highest Bidder and other Third Parties (sec 53)
• If a secured creditor sells the collateral (auction), the buyer shall
acquire the grantor’s right in the asset free of the rights of any
secured creditor or lien holder.(siya na ang may.ari)
• If a secured creditor leases or licenses the collateral, the leases or
license shall be entitled to the benefit of the lease or license
during its term.
• If a secured creditor sells, leases, or licenses the collateral not in
compliance with PPSA, the buyer, lease or licensee of the collateral
shall acquire the rights or benefits described in subsections (a) and
(b) of section 53: Provided, that it had no knowledge (good faith
required) of a violation of this Chapter that materially prejudiced the
rights of the grantor or another person.