COMMREV 28 APR 2020

PPSA – intended to benefit MSME

2 KINDS OF SECURITY:
1. Personal Security – personal guarantee
2. Real Security – properties are involved

Repealed Laws:
1. Chattel Mortgage
2. Rules on Concurrence and Preference of Credits insofar as they affect
personal property.

Take note of 9.01 of the IRR

2085 – 2092 - - provisions that apply to both pledge and mortgage.

- it still secures a principal obligation

Can third persons secure an obligation of another? YES.
Look at the definition of grantor… “Or that of another”

You have to own the moveable property or right

The grantor should be able transfer ownership.

2087

Sec. 49 (PPSA)

Prohibition against pactum commissorium (2088, NCC)

Still not allowed under PPSA.

Sec. 54 allows retention of property. The remedy of retention that is afforded is not
unilateral.

Sec. 48 Allows appropriation – applicable to deposit accounts. Not a new rule.

Application of the amount in the deposit. The bank shall have the right to
appropriate to settle obligation. Victoria Chu vs Court of Appeals: Security by way of
assignment (pledge)

- - no longer a pledge but a security agreement;

Indivisibility of obligation:
Yes. Still applicable. The security is also agreement. Sec. 39 of the PPSA
Sec. 3.12 of IRR

Concurrence and Preference of Credits:

Sec. 9.01

2241,

What is the effect of PPSA on existing oblig?

If they are valid before, they are still valid now. But until when?
a. They are valid until they cease to be perfected under the prior law.
b. Until the expiration of the transitional period. – up to the date when the
registry has been established and operational.

Sec. 55 in rel to Sec. 57

Rule 8.01 IRR

Sec. 8.02 - 8.05 of IRR: Interest under Prior Rule

Sec. 8.04

Sec. 3(j) Security Interest – “Property Right; Real Right”

The creditor holds the right; one in whose favor the security is constituted

The security can be in favor of the seller – buyer of an accounts receivable or a

lessor under an operating lease.

Sec. 2.03 of PPSA IRR

Definition of securities under the SRC

Financial Lease – has a right which can be used as security

If lease is more than a year = real right; can use it as security

Equipment
Art 415: Immovables by destination (still personal property under the PPSA, even if
real under the NCC)

Inventory – raw materials

Negotiable Instruments
Sec. 19 of PPSA

Negotiable Docs of Title

Can Future Properties be used to secure?
CM: No, after-acquired properties cannot be used.
PPSA: Future properties can be used. (SEC.5 and 3.05 of IRR)

PARTIES:
1. Grantor – lessees/transferors of accounts receivable/buyer
2. secured creditor

Can you secure after-incurred obligations?

Yes, under the PPSA. Sec. 39; Sec. 3.12 of IRR
- Dragnet or Blanket Mortgage (Sec. 2.2 of sample agreements)

Priority rules are also relevant to enforcement: because the one that can enforce
ahead of others is the creditor enjoying prior interest

CREATION - - Security Agreement (makes security interest enforceable)

When is the lien created – when SA is executed in the form prescribed by the PPSA.

PERFECTION - - - not the perfection of the contract but the perfection of the
security agreement. To make the SA effective against third persons. (Sec. 11, PPSA)

ENFORCEMENT - - - sale.

Security Agreement (Sec. 6, PPSA)

Sec. 7, PPSA – it is sufficient if the description is general

a. an existing obligation
b. with intent to secure an existing obligation

“SUBSTANCE TEST” – substance of the agreement that is controlling.

Sec. 2.02 of the PPSA.
If there is an INTENT to constitute security, it is still personal security interest)

“ASSIGNMENT OF RECEIVABLE” – is still regarded as security interest

Sale

PERFECTION:

1. Registration
2. Possession of Collateral (presupposes that there is already an existing
security agreement) - only for tangible properties. Not physical possession.
 May be actual or constructive. Does it include those under the law of sales
(constructive delivery) NO. Sec. 4.02. The debtor/grantor cannot possess the
asset on behalf of the secured creditor. “Kailangan mawala sa debtor to be
perfected”
- what if sinauli? Secured creditor will no longer have his priority interest.
Sec. 15/ Sec. 4.02

3. Control Agreement (with respect to intangible assets)

Deposit Account:
1. Execution of Control Agreement
2. Registration

Creation and Perfection can be the same.

“SUPER PRIORITY” of banks. Sec. 18(a) PPSA.
Right of the bank to set off Sec. 18(d) The right to set-off is preferred over the
The priority given to banks is not qualified as to time. Sec. 18© irrespective of the
time of the control agreement.
SEC. 18

Control Agreement – Sec. 4.07 of IRR

Sec. 27-34 of PPSA – Notice Requirement

Sec. 17 – Rules on Priority

“First in Time, Stronger in Right” - - in perfection. It is material in determining
priority interest.

SEC. 50 of the PPSA

What if after the sale, there is still deficiency?

Sec. 52(b) debtor is liable for deficiency