PERSONAL PROPERTY SECURITY ACT

General Concepts
 Secured and unsecured transactions
o Remedies to enforce collection:
 Specific performance – collect and enforce payment through
court action
 Securities – Accessory contracts that secure the performance of
the obligation
 Lien – depreciative of the value of property, not in the strict monetary sense.
There is depreciation because of the encumbrance
o A charge on the property for the payment of some obligation. Specific
property is subject to a burden
 Security under the PPSA is not possessory in nature. Delivery is not
indispensable. In some cases, it can be possessory for its possession but it is
indispensable for transfer of possession because there are other ways of
perfection.

Effectivity date
 2/19/2019
 Transition: LRA should establish the Registry
 IRR signed in October 2019

Effect of PPSA on existing laws

 Repeals/modifies laws mentioned in Sec. 66
 But remember, there is a transitional period
 Pledge and mortgage common provisions – only repealed insofar as movable
property concerned. But the provisions “repealed” were actually reproduced
in PPSA
 Civil Code Art. 2241 – Aquino says the effect is replace #4 with the credits
guaranteed under security agreement under PPSA. Does not change the
concurrence and preference under 2241
o Under 2241, satisfy taxes first. All the rest in the enumeration,
concurrence, i.e. pro rata. Remaining value of the movable shall
divided among the creditors whose credit fall under the list (after #1)
pro rata after payment of taxes
 Civil Code 2085 – Repealed according to the PPSA but the underlying
principles are still the same
o 2085 par. 2 and 3 – no similar under the PPSA. But S2.03 of the IRR
states the grantor must have legal right.
o Who has legal right? Owner who has free disposal of property, or one
authorized by the owner. Cannot be one who merely has temporary
right over the property, like lessee, usufructuary
 Remember that to create an encumbrance or lien over the
property is an act of dominion
o 2085 last paragraph – still same effect
o Private sale now allowed for the sale on foreclosure of the security.
Remedy is now simpler.
o Art. 2048 – Same in principle although repealed by S49, PPSA
  However, although pactum commisorium is still not allowed,
there are certain remedies under PPSA that allow retention of
the collateral (Sec. 54, PPSA). This is not pactum commisorium,
which is automatic appropriation in favor of creditor. Under S54,
PPSA, right of retention is the right to propose, but you have to
go through the procedure. It is not automatic.
 Full satisfaction of debt: Give notice, wait for objection, if
none, deemed accepted
 Partial satisfaction: There must be affirmative consent in
writing of the interested parties
 Sec. 48 allows application of deposit for payment of
indebtedness
 Art. 2089 – Rule of indivisibility still applicable

Effect of PPSA on existing mortgages

 Executed before the effectivity of PPSA. E.g. chattel mortgage executed on a
car in 2017, term 5 years. Period has not expired when PPSA took effect on
2/19/19.
 S57 PPSA, that prior interest continues to be perfected…
o #1 – There is a period of the CM, e.g. until June 2019. Even if there is
no registry and transitional period has not yet expired, the CM already
ceased because the prior interest ceased to be perfected under the
prior law.
o #2 – Even if there are still some years remaining, the CM ceases as
soon as the transitional period expires.
 Should comply with the PPSA na.
 Best thing to do is within the transitional period, convert the
existing interest to make it PPSA compliant.
 During transitional period, should follow PPSA already, not chattel mortgage
law.
 Registration with the LRA should be in accordance with S4 of CML during
transitional period while there is no registry yet
 Grantor and secured debtor may agree to allow the registration of the notice
(S8.08, IRR)
 AQUINO DOES NOT ANTICIPATE THAT THERE WILL BE MANY
QUESTIONS ON PPSA IN THE NEXT BAR EXAM

PARTIES
 The collateral itself may be transferred. Once it is transferred, the security
interest follows the property. New owner (vendee) shall have to respect the
right of the secured creditor. He is considered in law as a grantor under the
PPSA
 Secured creditor includes buyer/assignee of a receivable
 Principal obligation not limited to loan agreements. It need not be the result
of a contract of loan. It can even be an obligation to pay for the price of the
goods purchased (called purchase money security interest).
 N.B. Security interest under PPSA secures not only present obligations but
also after-incurred obligations. (S39, PPSA)
o Grantor can later ask the termination or amendment of the notice to
the LRA ending the perfection of the security interest. But if the
 agreement states that it secures future obligations, then you cannot
ask for the termination of the notice.
 N.B. Stipulation to cover future advances included in template provided in
IRR. Look at sample security agreement. May be one of the forms that will
need to be drafted. Not necessarily this 2020 but in future
 No more affidavit of good faith under PPSA
 Mode of perfection varies depending on type of property, if tangible or
tangible.
 Securities and commodities are investment properties. They are in the nature
of rights arising from contracts. Treated as intangible personal property.
There are special rules regarding these types of properties because they are
intermediaries.

FUTURE PROPERTIES
 Can be used as collateral
 Qualification: The point of creation is at the time they are no longer future
property
 Future property includes things to be acquired.
 Despite the presence of a security agreement creating a security interest
over the future property, that interest is not yet created until the grantor
acquires rights in the property or at least power to encumber it.
 Only upon acquisition of ownership is security interest created

Sec. 3.05(c) IRR

 A property is existing and used as collateral, and grantor agreed that it be
replaced. PPSA allows the security interest to apply to existing tangible asset
as well as the replacement
 Replacement is also a type of future property
 Stipulated in the same security agreement entered into

Security: Deposit in a deposit-taking institution (bank)

 Right of recovery if what is being used is a bank deposit. Right to apply
deposit to loan as a secured creditor
 This is notwithstanding any agreement by the grantor/depositor and bank.
Security interest prevails

Security: Negotiable Instruments

 It is important to know what are negotiable instruments or documents under
PPSA because of the different rules that apply
 There is a different treatment for negotiable instruments and negotiable
documents of title. Priority is given depending on how you perfected
 Perfected by possession – priority over security interest perfected by
registration

 Other personal properties under PPSA

o Consumer goods
o Intellectual property
o Livestock

Security: Livestock
  There are special rules governing the same under Sec. 24 PPSA
 There is priority given to a credit for the purchase of livestock, except for
perfected purchase money security interest
 Under Art. 415 of Civil Code, livestock considered real property. But it is not
real property under PPSA and can still qualify as personal property

Security: Fixtures, Accessions, Commingled Goods

 Even if commingled, can still be constituted as security provided it can be
reasonably traced
 If CM executed over a building although it is real property. That particular CM
is binding on the parties applying the principle of estoppel. They are
estopped that the building is real property. But it cannot affect third persons.
Also, the CM cannot be registered. Even if there is mistake in registering the
CM, it cannot affect third persons. It is still considered real property as far as
third persons are concerned and you cannot foreclose it. But it’s binding
between the parties. As mortgagee, remedy is to compel debtor to execute
the necessary document that will constitute a chattel mortgage.
 Nothing in PPSA regarding estoppel but can still be applied.

Exemptions
 Does not apply to vessels and airplanes
 Vessels – register with MARINA. Apply rule under Ship Mortgage Decree
 Airplane – Civil Aviation Authority Act. Register with CAAP

Stages in life of security interest

1. Creation
o Security agreement is a formal contract. It should be written, otherwise
it will not be binding.
2. Perfection
o Priority interest – A security interest can be created but there is no
priority, or lower in rank. A security interest can be created but not yet
perfected. Creation and perfection is important for enforcement but
also for priority.
o Sec 11 deals with perfection of the security interest and presupposes
perfection of security agreement binding between the parties. It is
different from the perfection of the contract.
o Registration means you have to notify the registry
o Sec 12 enumerates mode of perfection. 3 ways.
 Same as in CM Law, you have to register to make the mortgage
binding on third persons. Essentially the same, except PPSA
recognizes possession too. Possession as perfection is similar to
that in pledge.
 If perfection is during the transitional period, register with
the ROD under the provisions of CM Law
 Control covers investment property. How? Execute a control
agreement. It is tripartite whereby control over the investment
property is conveyed.
 Tangible – perfection is through registration OR possession (Any
of the two)
 Intangible – registration OR control
  Take note there are special rules on deposits
 Control agreement Sec 3(d) – Parties: bank, depositor/
grantor, secured creditor. This is to authorize the deposit
taking institution to follow the instructions of the secured
creditor.
 Sec. 13(a) – If deposit account, perfection is not limited to
a control agreement. Special Rule: it can be created in
favor of the bank itself, and once the bank is the secured
creditor and the account is with the same bank, the
moment the security interest is created, it is already
perfected. Thus, with respect to the bank as secured
creditor, perfection arises from the moment of creation.
 SPECIAL RULES ON POSSESSION: Sec 4.02(b)
 Although constructive possession is allowed, there should
be transfer of possession either to secured creditor or
depositary acting for secured creditor.
 Law is explicit that debtor/grantor CANNOT possess the
collateral on behalf of the creditor.
 Constitutum possessorium not allowed.
 If the collateral returned to debtor, it can mean the end of
the security interest
 PRIORITY RULES [Part 2(e) 15’20”]
 Under CM, if a property had been mortgaged, subsequent
junior mortgages are allowed.
3. Enforcement
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