QuestionsQuestions (Republic Act No. 11057)
To promote economic activity and access to least-cost credit, particularly for MSMEs, by establishing a unified and modern legal framework for securing obligations with personal (movable) property.
It applies to transactions that secure an obligation with movable collateral, except interests in aircrafts under RA 9497 and interests in ships under PD 1521 (Ship Mortgage Decree of 1978).
It is a property right in collateral that secures payment/performance of an obligation regardless of whether the parties denominated it as a security interest, regardless of asset type, and regardless of the status of the grantor/secured creditor.
It is created by a security agreement. A security agreement may provide for a security interest in future property, but the interest in that property is created only when the grantor acquires rights in it or the power to encumber it.
It must be in a written contract signed by the parties, possibly consisting of one or more writings that collectively establish intent to create a security interest. It must also provide language options (Filipino option for grantor) and DOF model agreements in plain English and Filipino.
A description is sufficient if it reasonably identifies the collateral, whether specific or general (e.g., “all equipment,” “all inventory,” or all personal property within a generic category).
The security interest extends to identifiable/traceable proceeds. For commingled deposit-account funds or money, it extends to commingled funds to the extent traceable but is limited by the amount of proceeds immediately before commingling, and further limited to the lowest intermediate balance rule where applicable.
It is perfected when it is created and the secured creditor takes one of the actions under Section 12. Upon perfection, it becomes effective against third parties.
Registration of a notice with the Registry; possession of collateral by the secured creditor; and control of investment property and deposit account.
It can be perfected through (1) creating the security interest in favor of the deposit-taking institution/intermediary, (2) concluding a control agreement, or (3) for certain electronic securities not held with an intermediary, notation in the issuer’s books for recording holder name.
Priority is determined by time of registration of a notice or perfection by other means, without regard to the order of creation.
A deposit account secured where secured creditor is the deposit-taking institution/intermediary has top priority. Otherwise, a control agreement perfected security interest has priority over competing interests except over the deposit-taking institution’s/intermediary’s rights. Among control agreement perfected interests, priority is by time the control agreements were concluded.
Equipment PMSI has priority over conflicting interests if a notice is registered within three (3) business days after the grantor receives possession. For consumer goods, PMSI perfected by registration within not later than three (3) business days after grantor obtains possession prevails over conflicting interests.
Yes, a transferee in ordinary course takes free if in good faith, but good faith does not exist if the security interest was registered prior to the transferee’s acquisition.
An initial notice is not rejected if it identifies grantor by required identifier, identifies secured creditor/agent by name, provides addresses, describes collateral, and pays required fee. A notice is “seriously misleading” if it does not provide the grantor’s identification number, making it ineffective as to that grantor.
It is effective at the time it is discoverable on Registry records. Its effectiveness lasts for the term indicated unless a continuation notice is registered before it lapses.
After default, the secured creditor may take possession without judicial process if the security agreement so stipulates and it can do so without breach of the peace, may proceed with expedited hearing if breach of peace is unavoidable, may recover in special cases (e.g., instruct payment for accounts, proceed on negotiable documents, apply deposit account balance), and may sell/dispose collateral under commercially reasonable requirements, with required notification in most cases.
It must conform to commercial practices among dealers in that type of property; it is not automatically commercially unreasonable if a better price could be obtained by another method/time. Proceeds go first to enforcement/disposition expenses (including reasonable attorneys’ fees/legal expenses), then to satisfy the secured obligation of the enforcing secured creditor, then subordinate interests/lienholders if proper demand and proof are received. Surplus is accounted for to the grantor; unless otherwise agreed, debtor is liable for deficiency.