PERSONAL PROPERTY SECURITY ACT [RA NO.
11057]
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
D. Priority of Security Interest {CHAPTER IV}
1. Priority Rules {Sec 17}
- The priority of security interests and liens in the same collateral shall be determined according to time of
registration of a notice or perfection by other means, without regard to the order of creation of the security
interests and liens.
o Priority – right in an encumbered asset preference to the right of a competing claimant.
2. Priority for Perfection by Control {Sec 18}
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 interest perfected by any method.
b. A security interest in a deposit account or investment 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 or the
intermediary.
c. 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.
d. Any rights to set-off 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.
❖ Deposit Account or Investment Property
I. Zero - right to set-off by the DTI
i. First - SI of Deposit-taking Institution/Intermediary
ii. Second - SI perfected by control agreement (if more than 2, SI with earliest CA)
iii. Third - SI perfected by registration
e. A security interest in a security certificate perfected by the secured creditor’s possession of the certificate shall
have priority over a competing security interest perfected by registration of a notice in the Registry.
❖ Security Certificate
i. First – Possessor of certificate
ii. Second – SI perfected by registration
f. A security interest in electronic securities not held with an intermediary perfected by a notation of the security
interests in the books maintained for that purpose by or on behalf of the issuer shall have priority over a security
interest in the same securities perfected by any other method.
g. A security interest in electronic securities not held with an intermediary perfected by the conclusion of a control
agreement shall have priority over a security interest in the same securities perfected by registration of a notice
in the Registry.
h. The order of priority among competing security interests in electronic securities not held with an intermediary
perfected by the conclusion of control agreements is determined on the basis of the time of conclusion of the
control agreements.
❖ Electronic securities (with no intermediary)
i. First – Notation of SI in the issuer’s books
ii. Second – SI perfected by control agreement (if more than 2, SI with earliest CA)
iii. Third – SI perfected by registration
➢ Nature of a Control Agreement
a. With respect to securities
- With respect to securities, means an agreement in writing among the issuer or the intermediary, the
grantor and the secured creditor, according to which the issuer or the intermediary agrees to follow
instructions from the secured creditor with respect to the security, without further consent from the
grantor;
b. With respect to rights to deposit account
- With respect to rights to deposit account, means an agreement in writing among the deposit-taking
institution, the grantor and the secured creditor, according to which the deposit-taking institution agrees
to follow instructions from the secured creditor with respect to the payment of funds credited to the
deposit account without further consent from the grantor;
c. With respect to commodity contracts + investment property
- With respect to commodity contracts, means an agreement in writing among the grantor, secured
creditor, and intermediary, according to which the commodity intermediary will apply any value
distributed on account of the commodity contract as directed by the secured creditor without further
consent by the commodity customer or grantor.
3. Priority for Instruments (e.g. warehouse receipts, quedans, bill of lading, etc.) and Negotiable Documents (e.g. bearer
or order DOT) {Sec 19}
- A security interest in an instrument or negotiable document that is perfected by possession of the instrument or
the negotiable document shall have priority over a security interest in the instrument or negotiable document
that is perfected by registration of a notice in the Registry.
❖ Instruments and Negotiable Documents
i. First - SI perfected by possession
ii. Second - SI perfected by registration
4. Priority and Plight of Rentention by Operation of Law {Sec 20}
- 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 perfected security interest in the goods until payment thereof.
❖ Goods supplied/serviced by a supplier (priority of unpaid seller’s right of possessory lien)
i. First - Supplier of services/materials
1. in the ordinary course of business
2. retains possession of the goods
3. goods remain unpaid
ii. Second - Si perfected by other means
5. Effect of the Grantor’s Insolvency on the Priority of a Security Interest {Sec 22}
- Subject to the applicable insolvency law, a security interest perfected prior to the commencement of insolvency proceedings
with respect of the grantor shall remain perfected and retain the priority it had before the commencement of the
insolvency proceedings.
6. Purchase Money Security Interest {Sec 23}
a. 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 three (3) business days
after the grantor receives possession of the equipment.
b. A purchase money security interest in consumer goods that is perfected by registration of notice not later than
three (3) business days after the grantor obtains possession of the consumer goods shall have priority over a
conflicting security interest.
c. 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:
1) The purchase money security interest is perfected when the grantor receives possession of the
inventory or livestock, or acquires rights to intellectual property; and
2) Before the grantor receives possession of the inventory or livestock, or acquires rights in intellectual
property, the purchase money secured creditor gives written notification to the holder of the conflicting
perfected security interest in the same types of inventory, livestock, or intellectual property. The
notification sent to the holder of the conflicting security interest may cover multiple transactions
between the purchase money secured creditor and the grantor without the need to identify each
transaction.
d. The purchase money security interest in equipment or consumer goods perfected timely in accordance with
subsections (a) and (b), shall have priority over the rights of a buyer, lessee, or lien holder which arise between
delivery of the equipment or consumer goods to the grantor and the time the notice is registered.
❖ Purchase Money Security Interest
1) PMSI in equipment and its proceed – prioritized over IS if:
- Notice is registered within 3 business days after the grantor receives possession of the equipment.
2) PMSI in consumer goods - prioritized over IS if:
- Notice is registered within 3 business days after the grantor receives possession of the goods.
3) PMSI in in inventory, intellectual property or livestock - prioritized over IS if:
a) Receives possession inventory or livestock, or acquires rights to intellectual property; and
b) Secured Creditor serves written notice to the holder of the conflicting perfected SI before
grantor’s possession.
4) PMSI in equipment or consumer goods
- Better priority over the rights of a buyer, lessee, or lien holder which arise between delivery of the
equipment or consumer goods to the grantor and the time the notice is registered.
❖ Purchase Money – when you borrow money to purchase such movable property and that movable property
will act as the collateral in that security interest.
2. Livestock {Sec 24}
- 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
notification to the holder of the conflicting perfected security interest in the same livestock before the grantor receives
possession of the food or medicine.
❖ Livestock
i. First - PMSI on the livestock – secured creditor gives written notification to the holder of the
conflicting perfected security interest before the grantor receives possession of the food or medicine.
ii. Second - Perfected SI in livestock - securing an obligation incurred to enable the grantor to obtain food
or medicines for the livestock
iii. Third – others Sis
3. Fixtures, Accessions, and Commingled Goods {Sec 25}
- A 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.
❖ Under the Property Law, if the fixture is bolted to the floor with the intention, it would be considered as an
immovable property.
