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VIII. Personal Property Security Agreement - Coggle Diagram
VIII. Personal Property Security Agreement
A. General Concepts
B. Scope of PPSA (Sec. 4)
-
GR
- Applies to all transactions (any form) that secure any obligation with movable collateral.
XCPN
- Interests in
Aircrafts
(RA 9497) and
Ships
(PD 1521)
C. Security Interest (Sec. 3(cfji), 8-9 NCC 2126)
D. The Registry (26-36, 38-44, 64)
- Registration is one of the means by which third-parties can be bound. Person is presumed to be notified if lien or encumbrance is registered. This presumption cannot be defeated.
E. Priority of Security Interest (3g, 17-24)
- Priority refers to right of a person to derive the economic benefit of a security interest in preference to the right of a competing claimant.
F. Enforcement of Security Interest (45-51,63)
Right of Higher-Ranking Secured Creditor (S. 26)
- SC with higher priority than that of the enforcing SC/lien holder shall be entitled to take over the enforcement process. This right may be invoked anytime prior to disposition of the collateral/conclusion of the agreement. This right includes right to enforce rights by any method of enforcement under the PPSA.
HOW ENFORCED -
Through either
Recovery,
Disposition or
Retention.
In specific cases, secured creditor must first seek repossession of the collateral to enforce security interest.
REPOSSESSION (S. 47)
- A preliminary process that must be undertaken by an SC to enforce security interest.
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RECOVERY(S. 48)
- an enforcement procedure that does not require any judicial process.
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DISPOSITION (S. 49-51)
- Similar to general right of creditor to alienate collateral UPON DEFAULT of the debtor. May be in public or private sales (so long as comply with commercial reasonableness requirements)
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Right to Retention
- AFTER DEFAULT, right of credit to take all/part of the collateral to satisfy the obligation AFTER PROPOSAL to debtor.
Full Satisfaction
- Proposal for acquisition of the secured obligation,
without objection
from any of the addressees of the proposal; or
Partial Satisfaction
- 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.
Steps -
First step is to recover i.e. acquire the property.
Second, to dispose, subject to right to redeem.
Third, if not disposal then option to retain.
Application of Proceeds (S. 52) -
Applied in the following order:
REASONABLE EXPENSES
- taking, holding, preparing for disposition, and disposing of the collateral, including reasonable attorneys' fees and legal expenses incurred by the secured creditor
PRINCIPAL
- satisfaction of the principal obligation
SUBORDINATE
- Satisfaction of obligation secured by subordinate security interest or lien in the collateral IF written demand and proof of itnerest are received before distribution of proceeds is done.
Right to Deficiency/Excess (S. 52) -
The secured creditor shall account to the grantor for any surplus, and, unless otherwise agreed, the debtor is liable for any deficiency.
This modifies Paray ruling. Unlike chattel mortgage, debtor is liable for deficiency between proceeds and principal obligation.
Definition;Purchase Money Security Interest (3g) -
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;
General Rules (S. 17) -
Priority is determined according to the time of REGISTRATION of a notice or, PERFECTION by other means WITHOUT regard to the order of creation of the security interests and liens. In other words, date of perfection is controlling NOT the date of creation.
Priority for Perfection by Control (S. 18)
- Order of Preference (1 being most preferred)
Priority in Deposit account/investment property
Deposit-Taking Institution
- Security interest in a deposit account where secured creditor is the deposit-taking institution or intermediary (Preferred over all others)
1a. Right to Set-off
- any right to set-off that deposit taking-institution may have against a grantor's right to payment of funds credited to a deposit account is preferred over any security interest in the deposit account.
Perfected by Control Agreement
- Security interest in deposit account/investment property perfected by a control agreement. IF two or more, check time of conclusion of control agreements.
Priority in Security Certificate
Possession
- Security interest in security certificate perfected by the secured creditor's possession of the certificate.
Any Other
- competing security interest perfected by registration of a notice in the registry.
Priority in Electronic Securities Not Held by Intermediary
Perfected By Notation
- IF not held with an intermediary and perfected by notation with books.
Any Other
- competing security interest perfected by any other method.
Conclusion
- security interested perfected by conclusion of a control agreement. In case competing, time of conclusion of control agreement is determinant.
Registration
- security interest perfected by registration of a notice in the registry.
Priority for Instruments and Negotiable Documents (S. 19)
Possession
- Security instrument perfected by possession of the instrument.
Registration
- security instrument perfected by registration of a notice in the registry.
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Transferee Exception (S. 21)
- IF person in good faith AND no registration at time of acquisition, acquires movable property containing a security interest then he acquires movable free of security interest.
D1. Characteristics of the Registry
Sourcing of Funds (S. 64)
- Funds for implementation of PPSA from special account arising from revenues by the LRA under PD 1529 without further govt. approval
Registry Proper (S. 26)
- Electronic registry, with means for registration and searching of notices. Established and administered by the LRA.
PUBLIC RECORD (S. 27) -
Information in registered notice = public record. Electronic records are the official records. Any person may search notices registered in registry.
Fees Set by Regulation (S. 38)
- Fees for registration/search set by regulation by the DOF for recovery of reasonable costs for establishing/operating the registry. Such fees must not be burdensome to grantor/lender. No fees for electronic searches or registration of termination notices. But, may charge fees for services not mentioned here.
D2. Notices
D3. Searches and Reports (S. 36) -
Registry shall communicating following information upon request:
WHETHER
- there are unlapsed notices that indicate grantor's ID/Serial number that matches the relevant criterion provided by the searcher
REGISTRATION
- number, date and time of registration of notice
ALL INFORMATION
- contained in such notice.
D4. Amendments and Terminations
Amendments (S. 32)
- Notice may be amended by registration of amended notice that:
IDENTIFIES
- initial notice by its registration number
PROVIDES
- the new information to be registered.
2a.
ADDS A COLLATERAL
- must be authorized by grantor in writing
2b.
ADDS GRANTOR
- must be authorized by added grantor in writing
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Termination (S. 34)
- This terminates effectiveness of notice as to each authorizing secured creditor. Effectiveness of a notice may be terminated by registration of a termination notice that:
IDENTIFIES
- initial notice by reg number
IDENTIFIES
- each secured creditor who authorizes the registration of termination notice.
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Certified Report
- if requested, registry shall issue certified report of the results of a search that is an official record of the registry. This is admissible as evidence without need for extrinsic evidence of authenticity.
Q. Doesn't this violate Consti provision on power of SC to promulgate rules and procedures?
Duties of Registry (S.35)
- Administrative in nature. Registration/refusal to register does not determine sufficiency/correctness/authenticity/validity of any information contained in the notice.
Sufficiency of Notice (S. 28)
- Initial notice sufficient if:
IDENTIFIES
- the (a) grantor by ID number (as further prescribed in regulations); (b) Secured Creditor/their agent by name
PROVIDES
- an address for the grantor/secured creditor/c's agent
DESCRIBES
- the collateral (in English)
PRESCRIBED FEE
- has been tendered/arrangement for payment of fees by other means.
One Notice Rule (S. 29)
- Single notice may relate to security interests created by the grantor under (1) or more security agreements.
Effectiveness of Notice (S. 30) -
GR
: - effective at the time it is discoverable in the registry. For the duration of the term indicated in the notice, unless continuation notice is registered prior to lapse of term.
XCPN
- If irretrievable(via search) against the correct identifier of the grantor, ineffective against that grantor OR seriously misleading (S.31) SR when does not provide ID number of the grantor.
Non-Registration
- If registry fails to register a notice, it shall promptly communicate this + reason for rejection to person who submitted.
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Interference with Privacy (S. 44)
- if registration or search constitutes frivolous, malicious or criminal purpose or intent, subject to civi/crim penalties according to relevant laws.
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As to Registered Notices -
ASSIGN
- a unique registration number
CREATE
- a record bearing such number to the initial notice and the date and time of registration
MAINTAIN
- the record for public inspection
Other Duties
INDEX
- notices by identification number of the grantor. BUT if with motor vehicle, by serial number of motor vehicle.
PROVIDE A COPY
- of the electronic record of the notice, including reg number, date and time to person who submitted it
MAINTAIN
- capability to retreieve a record by ID number/Serial number
MAINTAIN
- records of lapsed notices for a (10) year period after lapse
C1. Creation (Sec. 5)
- Security interest shall be created by a security agreement.
a. Object (4-5, NCC 416-417)
- Personal Property.
Enumeration
SUSCEPTIBLE
- of appropriation not defined as immovables
REAL PROPERTY
- by special provision of law considered as personalty
FORCES OF NATURE
- which are brought under control by science
ALL THINGS
- which can be transported from place without impairment of the real property to which they are fixed.
OBLIGATIONS/ACTIONS
- which have as their object movables or demandbable sums
SHARES OF STOCK
- of agricultural, commercial and industrial entities, although they may have real estate
C2. Perfection (Secs. 3 (b), 11-13, 15, 25 Civil Code, Art. 2125)
- Refers to perfection in terms of when binding against third parties.
PPSA is perfected by mere consent.
Similar to NCC 2125 where registration of chattel needed to bind 3rd parties.
a. Disposition of Perfected Security Interest (3f, 9, 14, 21)
-
GR continuous
UNLESS good faith acquisition.
IF GF acquisition then proceeds constitute security interest.
Proceeds (3f) -
Property received upon sale/lease/disposition of collateral OR whatever collected on/or distributed with respect to collateral/claims arising out of loss or damage to the collateral + right to insurance/other compensation for loss or damage of the collateral.
Continuity of Security of Interest (Sec. 9)
- Security Interest shall continue in the collateral even if disposed UNLESS either (a) agreed upon by the parties; (b) Otherwise provided in Sec. 21 of the Act (Good Faith acquisition/not-registered)
Perfection in Proceeds (S. 14) -
Upon disposition, security interest the following rules govern:
PROCEEDS ARE MONEY
- accounts receivable, negotiable instruments or deposit accounts, then no further act, as interest is continuously perfected
DIFFERENT FORM
- than that stated in (1) then security interest must be perfected by one of the means applicable to the relevant type of collateral within (15) days of receipt of grantor of the proceeds. Otherwise, not binding against third parties.
Change in Means of Perfection (S. 15)
- Security interest remains perfected even if there is a change in the means for achieving perfection IF there was no time when the interest was not perfected.
b. Assignment of Security Interest (Sec. 16)
- If a secured creditor assigns a perfected interest, an amendment notice MAY be registered to reflect the assignment.
Similar to mortgage credit, where credit may assign the security to another property.
HOW PERFECTED (S. 11-12) -
Perfected when it is created and the secured creditor has taken one of the actions in accordance with Sec. 12
Means of Perfection (S. 12) - Can be via:
- Dependent on the type of asset
REGISTRATION
- Of notice with the registry
POSSESSION
- delivery of the collateral by the secured creditor.
CONTROL
- of investment property and deposit account.
AS TO TYPES OF ASSETS (S.12)
TANGIBLE ASSETS
- perfected by registration/possession
INVESTMENT PROPERTY
- perfected by registration or control
Control of Deposit/Investment Property (S. 13)
- Perfected via either:
CREATION
of the security interest in favor of the deposit-taking institution/intermediary
CONCLUSION
- of a control agreement
ELECTRONIC SECURITY
- if IP that is electronic security AND not held with an intermediary, notation of a security interest in the books maintained by/in behalf of the issuer for recording name of holder of securities.
Control Agreement (3b)
- Agreement in writing, subject to following qualifications:
SECURITIES
- between (a)issuer/intermediary, (b)grantor and (c)secured creditor.
Here, issuer/intermediary agrees to follow instructions from secured creditor inre: security without further consent from the grantor.
RIGHT TO DEPOSIT ACCOUNT
- between (a) grantor; (b) secured creditor; (c) deposit-taking institution.
Here, deposit-taking agrees to follow instructions from secured creditor without further consent of grantor inre: payment of funds credit to deposit account
COMMODITY CONTRACTS
- between (a) intermediary, (b)grantor and (c)secured creditor.
Here, commodity intermediary agrees to follow instructions from secured creditor without further consent of grantor inre: application any value distributed on account of the commodity contract.
ACCESSIONS (S. 25)
- Perfected security in a movable property that has become a fixture or by accession shall continue IF movable can still be reasonably traced.
b. Form (3k, Sec. 6-7)
- Writing as defined includes electronic records.
Form of Security Agreement (S. 6)
- MUST be in a written contract, signed by the parties. However, may consist in one or more writings that, taken together establish intent to create a security interest.
Language (S. 6)
- Security agreement shall provide for the language to be used in agreements and notices. DOF to prepare model agreements in plain English and Filipino.
Description of Collateral (S. 7) -
Can be either specific or general. Sufficient if it reasonably identifies the collateral. Covers descriptions like "All property/equipment/inventory/personal property under x category" of the grantor
c. Asset-Specific Rules - Account Receivable (Sec. 10)
- Security interest in an account receivable shall be effective notwithstanding any agreement between grantor and account debtor/secured creditor limiting the grantor's right to create a security interest.
Scope
- Applies only to accounts receivable arising from
CONTRACT
- for the supply or lease of goods or services other than financial services
CONSTRUCTION/Real Property
- Construction contract or for sale/lease of real property
INTELLECTUAL
- contract for sale, lease or license of intellectual property.
Breach
- does not affect any obligation or liability of grantor for breach of agreement to limit their right to create security interest.
Q. What obligation/liability is incurred by the grantor if a void contract/stipulation produces no effect?
Effect of Stipulation
- Any stipulation limiting grantor's right to create a security interest shall be void.
Accounts Receivable
- an income or something you can add as an asset, but you have yet to receive it. Accounts receivable (AR) is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers
New form of security interest. AR as an asset/coll
d. Disclosure of Information by Secured Creditor (Sec. 37a)
- Must provide the following at the grantor's request
CURRENT AMOUNT
- of the unpaid secured obligation;
LIST
- of assets currently subject to a security interest
Charge/Fee
- Secured creditor may require payment of a fee for each request made by the grantor under 37a. But, grantor entitled to a reply without charge once every (6) months.
Security Interest in a Deposit Account (37c) -
Shall not:
AFFECT
- The rights and obligations of the deposit-taking institution without its consent;
REQUIRE
- the deposit-taking institution to provide any information about the deposit account to third parties.
Future Property (5b)
- Security interest in future property created ONLY when the grantor acquires rights in it or the power to encumber it.
Definition of Terms (Sec. 3)
Proceeds (3f)
- 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
Security Interest (3j)
- 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; and
Secured Creditor (3i)
- 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;
Grantor (3c)
- Refers to any of the following persons:
PERSON
- Who grants a security interest in collateral to secure their own obligation or that of another person
BUYER/TRANSFEREE
- of a collateral that acquires its right subject to a security of interest
TRANSFEROR
- in an outright transfer of accounts receivable
LESSEE
- of goods.
Right to Proceeds and Commingled Funds and Money (Sec. 8)
- Applies upon disposition of the collateral. Continuously perfected if proceeds are in the form of money, accounts receivable, negotiable instruments or deposit accounts. Security interest goes here even if acquired by buyer in Good Faith.
Continuity of Security of Interest (Sec. 9)
- Security Interest shall continue in the collateral even if disposed UNLESS either (a) agreed upon by the parties; (b) Otherwise provided in Sec. 21 of the Act.
Similarity to Mortgage (2126)
- Security interest like mortgage is a right in rem, inseparable from the collateral. Subject to transferee exceptions.
XCPN (Sec. 21) Transferee Exceptions.
- 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. No such good faith shall exist if the security interest in the movable property was registered prior to his obtaining the property
Extent of Security Interest
- If Sec. Interest in personal property, extends to its identifiable and traceable proceeds.
Commingled Funds/Money
- if proceeds are in the form of funds credited to a deposit account or commingled money then:
Security Interest
- Extends to commingled money or funds, even if proceeds have ceased to be identifiable to the extent they remain traceable
Limited
- Security Interest in the commingled funds/money limited to amount of proceeds before they were commingled
After Commingling
- Anytime after, balance credited to the deposit account / amount of commingled money is less than the amount of the proceeds immediately before they were commingled, the security interest against the commingled funds or money shall be limited to the amount of funds/money between the time proceeds were commingled and time security interest in them were claimed.
Chattel Mortgage (NCC 2140)
- By a chattel mortgage, personal property is recorded in the Chattel Mortgage Register as a security for the performance of an obligation. If the movable, instead of being recorded, is delivered to the creditor or a third person, the contract is a pledge and not a chattel mortgage. (n)
Policy (11057, Sec. 2)
- It is the policy of the State 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.
Interpretation (Sec. 61)
- If there is conflict between a provision of this
Act and a provision of any other law, this Act shall govern unless the other law specifically cites or amends the conflicting provisions of this law.
Implementing Rules and Regulations (62)
- Within six (6) months
from the passage of this Act, the DOF in coordination with the Department of Justice, through the LRA, shall promulgate the necessary rules and regulations for the effective implementation of this Act.
Separability (65)
- Should any provision herein be declared unconstitutional, the same shall not affect the validity of the other provisions of this Act.
Effectivity (67)
- This Act shall take effect fifteen (15) days after
publication in at least two (2) newspapers of general circulation.
Implementation (68)
- 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 Section 26.
Laws Repealed (66)
-
Chattel Mortgage Law
- Sec. 1-16
Civil Code
- 2085-2123, 2127, 2140-2141, 2241, 2243, and 2246-2247
Financing Company Act
- Sec. 13
Property Registration Decree
- Sec. 114-116
PD 1529 (Amendments to Land Registration
- Sec. 10, if inconsistent.
Land Transpiration and Traffic Code
- Sec. 5e
Processual Presumption (Citibank v. Sabeniano) -
In the absence of evidence that foreign laws are different from PH ones, presumed that they are the same as PH laws.
Right to Deficiency (Paray v. Rodriguez)
-
1.GR - Once a thing pledged is sold at auction neither pledgee nor pledgor can recover deficiency/excess between the purchase price and the amount of the principal obligation.
XCPN - Recto Law