Personal Property Security Act Overview

Policy and declared objectives

The State’s policy is to promote economic activity by increasing access to least cost credit, particularly for micro, small, and medium enterprises (MSMEs), through a unified and modern legal framework for securing obligations with personal property. (Section 2)

Key definitions and core concepts

A “commodity contract” includes specified commodity futures and options, if traded on a designated contract market or a foreign commodity board of trade, exchange, or market and carried on the books of a commodity-intermediary for a commodity customer. (Section 3(a))
A “control agreement” is an agreement in writing (i) among issuer/intermediary, grantor, and secured creditor for securities, (ii) among deposit-taking institution, grantor, and secured creditor for deposit accounts, or (iii) among grantor, secured creditor, and intermediary for commodity contracts, each with the specified instruction-following effect without further consent. (Section 3(b))
A “grantor” includes: (i) a person who grants a security interest to secure its own or another’s obligation; (ii) a buyer or transferee whose right is subject to a security interest; (iii) a transferor in an outright transfer of an accounts receivable; or (iv) a lessee of goods. (Section 3(c))
A “non-intermediated securities” means securities other than securities credited to a securities account and rights resulting from crediting securities to a securities account. (Section 3(d))
A “notice” is a statement of information registered in the Registry relating to a security interest or lien, including initial notice, amendment notice, and termination notice. (Section 3(e))
“Proceeds” include property received upon sale, lease, or other disposition of collateral; collections/distributions with respect to collateral; claims arising from loss or damage; and rights to insurance payment or other compensation. (Section 3(f))
A “purchase money security interest” is 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 the credit is used for that purpose. (Section 3(g))
The “Registry” is the centralized and nationwide electronic registry established in the Land Registration Authority (LRA) where notice of a security interest and lien in personal property may be registered. (Section 3(h))
A “secured creditor” has a security interest and, for registration and priority only, includes a buyer of account receivable and a lessor of goods under an operating lease for not less than one (1) year. (Section 3(i))
A “security interest” is a property right in collateral that secures payment or other performance of an obligation, regardless of labels, parties’ status, or the secured obligation’s nature; it includes the rights of a buyer of accounts receivable and a lessor under an operating lease for not less than one (1) year. (Section 3(j))
“Writing” includes electronic records for purposes of the Act. (Section 3(k)

Coverage and exclusions

The Act applies to all transactions of any form that secure an obligation with movable collateral, except interests in aircraft subject to Republic Act No. 9497 and interests in ships subject to Presidential Decree No. 1521. (Section 4(a))
The Act covers interests in personal property secured transactions involving movable collateral. (Section 4(a))
The term movable collateral operates through the rules on creation, perfection, priority, registration, and enforcement across the Act’s chapters. (Sections 5–54)

Creation, security agreement, and collateral rules

A security interest is created by a security agreement. (Section 5(a))
A security agreement may provide for a security interest in future property, but the security interest in that property is created only when the grantor acquires rights in it or the power to encumber it. (Section 5(b))
A security agreement must be contained in a written contract signed by the parties and may consist of one or more writings that, taken together, establish the intent to create a security interest. (Section 6)
A security agreement shall provide for the language used in agreements and notices. (Section 6)
The grantor must be given the option to have the agreement and notices in Filipino. (Section 6)
The Department of Finance (DOF) shall prepare model agreements in plain English and Filipino. (Section 6)
A collateral description is sufficient if it reasonably identifies the collateral, even if specific or general; descriptions like “all personal property,” “all equipment,” “all inventory,” or all personal property within a generic category are sufficient. (Section 7)
A security interest extends to identifiable or traceable proceeds. (Section 8(a))
When proceeds are deposit-account funds or money that are commingled, the security interest extends to the commingled funds to the extent traceable, is limited to the amount immediately before commingling, and if the balance later drops, it is limited to the lowest amount between commingling and claim. (Section 8(b)(1)–(3))
A security interest continues in collateral notwithstanding sale, lease, license, exchange, or other disposition, except as otherwise provided in Section 21 or agreed upon by the parties. (Section 9)
A security interest in an account receivable is effective notwithstanding any agreement between the grantor and account debtor or any secured creditor limiting the grantor’s right to create the security interest. (Section 10(a))
Any stipulation limiting the grantor’s right to create a security interest for an account receivable is void. (Section 10(c))
The grantor remains liable for breach of the agreement limiting creation, where the account receivable stipulation is invoked. (Section 10(b))
Section 10 applies only to accounts receivable arising from contracts for supply/lease of goods or services other than financial services; construction contracts or contracts for sale/lease of real property; and contracts for sale/lease/license of intellectual property. (Section 10(d))

Perfection and registry-based effectiveness

A security interest is perfected when it has been created and the secured creditor has taken an action in accordance with Section 12. (Section 11(a))
Upon perfection, a security interest becomes effective against third parties. (Section 11(b))
A security interest may be perfected by (a) registration of a notice with the Registry, (b) possession of the collateral by the secured creditor, or (c) control of investment property and deposit account. (Section 12(a)–(c))
Tangible assets may be perfected by registration or possession; investment property and deposit accounts may be perfected by registration or control. (Section 12)
A security interest in a deposit account or investment property may be perfected by control through (i) creation in favor of the deposit-taking institution or intermediary, (ii) conclusion of a control agreement, or (iii) for electronic securities not held with an intermediary, notation in the issuer’s books for recording holder name. (Section 13(a)(1)–(3))
A deposit-taking institution or intermediary is not required to enter into a control agreement even if requested by the grantor, and it need not confirm existence of the agreement to another person unless requested by the grantor. (Section 13(b))
Upon disposition of collateral, a security interest extends to proceeds without further act and remains continuously perfected if proceeds are money, accounts receivable, negotiable instruments, or deposit accounts. (Section 14(a))
If proceeds are in a different form, perfection of the security interest in proceeds must be done by the applicable method within fifteen (15) days after the grantor receives proceeds, otherwise it is not effective against third parties. (Section 14(b))
A security interest remains perfected despite a change in means for achieving perfection, provided there is no time when the security interest was not perfected. (Section 15)
If a secured creditor assigns a perfected security interest, an amendment notice may be registered to reflect the assignment. (Section 16)

Priority and key exceptions

Priority among security interests and liens in the same collateral is determined by the time of registration of a notice or perfection by other means, without regard to order of creation. (Section 17)
A deposit-account security interest where the secured creditor is the deposit-taking institution or intermediary has priority over a competing security interest perfected by any method. (Section 18(a))
A deposit-account or investment-property security interest perfected by a control agreement has priority over a competing security interest except one of the deposit-taking institution or intermediary. (Section 18(b))
Competing security interests in a deposit account or investment property perfected by conclusion of control agreements are prioritized based on the time of conclusion of the control agreements. (Section 18(c))
Any set-off rights of the deposit-taking institution against a grantor’s right to payment from the deposit account have priority over the security interest in that deposit account. (Section 18(d))
A security interest in a security certificate perfected by secured creditor’s possession has priority over a competing security interest perfected by registration. (Section 18(e))
For electronic securities not held with an intermediary, notation in the issuer’s books perfects priority over competing interests perfected by any other method. (Section 18(f))
For electronic securities not held with an intermediary, a control agreement perfects priority over interests perfected by registration. (Section 18(g))
Competing electronic securities interests not held with an intermediary perfected by control agreements are prioritized by the time of conclusion of those control agreements. (Section 18(h))
For instruments and negotiable documents perfected by possession, such security interests have priority over those perfected by registration. (Section 19)
A service/material provider who retains goods in ordinary course has priority over a perfected security interest until payment for those services/materials. (Section 20)
Transferees in ordinary course take movable property free of a registered security interest if the transferee is in good faith; no good faith exists if the security interest was registered prior to acquisition. (Section 21)
Subject to applicable insolvency law, a security interest perfected prior to commencement of insolvency proceedings remains perfected and retains prior priority. (Section 22)

Purchase money, livestock, and fixture continuation

A purchase money security interest in equipment and its proceeds has 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. (Section 23(a))
A purchase money security interest in consumer goods perfected by registration not later than three (3) business days after grantor obtains possession has priority over a conflicting security interest. (Section 23(b))
Purchase money security interests in inventory, intellectual property, or livestock have priority over a conflicting perfected security interest if (i) perfection occurs when grantor receives possession of inventory or livestock or acquires rights in intellectual property, and (ii) before grantor receives possession or acquires rights, the purchase money secured creditor gives written notification to the holder of the conflicting perfected security interest covering multiple transactions without identifying each transaction. (Section 23(c)(1)–(2))
Timely perfected purchase money security interests in equipment or consumer goods have priority over rights of buyer, lessee, or lien holder arising between delivery to the grantor and the time the notice is registered. (Section 23(d))
A perfected security interest in livestock securing an obligation to enable the grantor to obtain food or medicine has priority over any other security interest in the livestock except a perfected purchase money security interest, if the secured creditor providing credit gives written notification before grantor receives possession of the food or medicine. (Section 24)
A perfected security interest in movable property that becomes a fixture, undergoes accession or commingling continues if the involved property can still be reasonably traced; ownership determinations apply Book II of Republic Act No. 386 (Civil Code of the Philippines). (Section 25)

Registry establishment, notices, and official records

The Registry is established in and administered by the Land Registration Authority (LRA) and provides electronic means for registration and searching of notices. (Section 26)
Registered notice information is a public record, and any person may search notices registered in the Registry. (Section 27(a)–(b))
The Registry’s electronic records are the official records. (Section 27(c))
An initial notice is not rejected if it (i) identifies the grantor by an identification number as prescribed in regulations, (ii) identifies the secured creditor or its agent by name, (iii) provides an address for the grantor and secured creditor or their agent, (iv) describes the collateral, and (v) tenders the prescribed fee or makes an arrangement for payment of fees by other means. (Section 28(a)(1)–(5))
If the Registry rejects a notice, it must promptly communicate the fact of and reason for rejection to the submitter. (Section 28(b))
Each grantor must authorize registration of an initial notice by signing the security agreement or otherwise in writing. (Section 28(c))
A notice may be registered before a security agreement is concluded; once concluded, the registration date is reckoned from the date the notice was registered. (Section 28(d))
A notice of lien may be registered by a lien holder without consent of the person against whom enforcement is sought. (Section 28(e))
Collateral description in a notice must be entered in English. (Section 28(f))
Registration of a single notice may relate to security interests created under one or more than one security agreement. (Section 29)
A notice is effective at the time it is discoverable on the Registry records. (Section 30(a))
A notice is effective for the duration of the term indicated unless a continuation notice is registered before the term lapses. (Section 30(b))
A notice that substantially complies with Chapter 5 requirements is effective unless seriously misleading. (Section 30(c))
If a notice cannot be retrieved in Registry search against the correct grantor identifier, it is ineffective with respect to that grantor. (Section 30(d))
A notice that does not provide the grantor identification number is seriously misleading. (Section 31)
Amendment by amendment notice is allowed if it (i) identifies the initial notice by its registration number and (ii) provides new information. (Section 32(a)(1)–(2))
Adding collateral not proceeds requires grantor written authorization; adding a grantor requires authorization by the added grantor. (Section 32(b)–(c))
An amendment notice is effective only as to each secured creditor who authorizes it. (Section 32(d))
An amendment notice adding collateral or a grantor is effective only as to the added collateral or grantor from the date of registration. (Section 32(e))
Continuation of a notice is done by registering an amendment notice identifying the initial notice; continuation notice may be registered only within six (6) months before expiration of the effective period. (Section 33(a)–(b))
Termination of effectiveness is done by registering a termination notice identifying the initial notice and each secured creditor authorizing termination; termination terminates effectiveness as to each authorizing secured creditor. (Section 34(a)–(b))
The Registry must (i) assign a unique registration number, (ii) create a record with number and date/time of registration, and (iii) maintain the record for public inspection. (Section 35(a)(1)–(3))
The Registry indexes notices by grantor identification number and, for motor vehicles, by serial number. (Section 35(b))
The Registry provides a copy of the electronic record, including registration number and date/time, to the submitter. (Section 35(c))
The Registry must retrieve records by grantor identification number and by motor-vehicle serial number. (Section 35(d))
The Registry maintains records of lapsed notices for ten (10) years after lapse. (Section 35(e))
Registry duties are administrative only; registration or refusal does not determine sufficiency, correctness, authenticity, or validity of information in notices. (Section 35(f))
Upon request, the Registry communicates whether there are any unlapsed notices exactly matching the grantor identifier or vehicle serial number, the registration number and date/time for each notice, and all information contained in each notice. (Section 36(a)(1)–(3))
On request, the Registry issues a certified report of search results as an official record admissible in evidence in judicial proceedings without extrinsic evidence of authenticity. (Section 36(b))

Notice sufficiency, fee rules, and disclosure rights

The secured creditor must provide the grantor, upon request: (i) the current amount of the unpaid secured obligation and (ii) a list of assets currently subject to a security interest. (Section 37(a)(1)–(2))
The secured creditor may charge a fee per request, but the grantor is entitled to a reply without charge once every six (6) months. (Section 37(b))
A security interest in a deposit account does not affect the deposit-taking institution’s rights and obligations without its consent and does not require the institution to provide information about the deposit account to third parties. (Section 37(c)(1)–(2))
Fees for registering notices and requesting certified search reports are set by DOF regulations for recovery of reasonable costs of establishing and operating the Registry, and the fee structure must not be burdensome to either lender or grantor. (Section 38(a)–(b))
There is no fee for electronic searches of Registry records or for registration of termination notices. (Section 38(c))
The Registry may charge fees for services not mentioned above. (Section 38(d))
A grantor may demand in writing that a secured creditor amend or terminate a notice’s effectiveness if all obligations have been performed with no future advances commitment; the secured creditor agreed to release part of collateral; the notice includes property not collateral under the parties’ security agreement; no security agreement exists; or the security interest is extinguished under the Act. (Section 39(a)–(e))
After receiving the demand, the secured creditor must register an amendment or termination notice within fifteen (15) working days for the appropriate scenario. (Section 40(a)–(b))
If the secured creditor fails to comply within fifteen (15) working days after receipt, the demanding person may ask the proper court to issue an order terminating or amending the notice as appropriate. (Section 41)
The court may issue a conclusive and binding order terminating or amending the notice consistent with the demand upon application by the grantor; the secured creditor may appeal the order. (Section 42(a))
The court may make other orders to give effect to its order and the LRA must amend or terminate as soon as reasonably practicable after receiving the order. (Section 42(b)–(c))
A secured creditor must not charge any fee for compliance with a demand received under Section 39. (Section 43)
A person who submitted a notice for registration or carried out a Registry search with a frivolous, malicious or criminal purpose or intent is subject to civil and criminal penalties under relevant laws. (Section 44)

Enforcement rights after default

A person entitled to receive notification of disposition under the Act is entitled to redeem collateral by paying or otherwise performing the secured obligation in full, including reasonable cost of enforcement. (Section 45(a))
The redemption right is barred if (i) the person entitled to redeem waived the right in writing after default, or (ii) the collateral is sold/otherwise disposed of or acquired/collected by the secured creditor, or until conclusion of an agreement by the secured creditor for that purpose, or (iii) the secured creditor retained the collateral. (Section 45(b)(1)–(3))
Even if another secured creditor or lien holder commenced enforcement, a secured creditor with priority over the enforcing secured creditor or lien holder may take over enforcement at any time before the collateral is sold/disposed of or retained, or until conclusion of an agreement for that purpose. (Section 46(a)–(b))
Taking over enforcement includes enforcing rights by any method available under the Act. (Section 46(c))
If the security agreement stipulates, the secured creditor may take possession of collateral without judicial process if doing so does not breach the peace. (Section 47(a))
If the collateral is a fixture and the secured creditor has priority over all owners and mortgagees, it may remove the fixture from real property without judicial process with due care. (Section 47(b))
If possession cannot be taken without breach of the peace, the secured creditor must apply for an expedited hearing; the application must include an oath statement verifying the security agreement exists and identifying at least one default event. (Section 47(c)(1))
The secured creditor must provide the debtor, grantor, and if a fixture, any real estate mortgagee, a copy of the application with supporting documents and evidence for the order granting possession. (Section 47(c)(2))
The court grants possession only after finding default occurred and the secured creditor has the right to take possession, and may direct the grantor to take actions needed for possession. (Section 47(c)(3))
Breach of the peace includes entering the grantor’s private residence without permission, resorting to physical violence or intimidation, or being accompanied by a law enforcement officer when taking possession or confronting the grantor. (Section 47(c)(3) proviso)
Upon default, a secured creditor may proceed without judicial process to (i) instruct the account debtor to pay and apply payments after deducting reasonable collection expenses, with an evidence-of-security-interest duty upon request when delivering instruction; (ii) in negotiable documents perfected by possession, proceed as to the negotiable document or goods covered; (iii) in a deposit account maintained by the secured creditor, apply the balance to the secured obligation; and (iv) in other deposit accounts perfected by control, instruct the deposit-taking institution to pay the balance to the secured creditor’s account. (Section 48(a)–(d))
After default, a secured creditor may sell or otherwise dispose of collateral publicly or privately, in its present condition or following any commercially reasonable preparation/processing. (Section 49(a))
The secured creditor may buy collateral at a public disposition, or at a private disposition only if the collateral is of a kind customarily sold on a recognized market or is subject to widely distributed standard price quotations. (Section 49(b))

Commercial reasonableness and disposition notice

Dispositions must be conducted in a commercially reasonable manner. (Section 50(a))
A disposition is commercially reasonable if it conforms with commercial practices among dealers in the type of property. (Section 50(b))
A disposition is not commercially unreasonable merely because a better price could have been obtained by disposing at a different time or by a different method from the time/method selected. (Section 50(c))
If a method of disposition is approved in any legal proceeding, it is conclusively commercially reasonable. (Section 50(d))
Not later than ten (10) days before disposition, the secured creditor must notify: (i) the grantor; (ii) other secured creditors or lien holders who, five (5) days before notice is sent to the grantor, held a security interest or lien in collateral perfected by registration; and (iii) any other person from whom the secured creditor received notification of an interest if received before notice of proposed disposition was given to the grantor. (Section 51(a)(1)–(3))
The grantor may waive the right to be notified. (Section 51(b))
A notification is sufficient if it identifies the grantor and secured creditor, describes collateral, states the method of intended disposition, and states the time and place of a public disposition or the time after which other disposition is to be made. (Section 51(c))
Notification requirements do not apply if collateral is perishable, threatens to decline speedily in value, or is of a type customarily sold on a recognized market. (Section 51(d))

Application of proceeds and third-party rights

Proceeds of disposition must be applied in the following order: (i) reasonable expenses of taking, holding, preparing for disposition, and disposing of collateral including reasonable attorneys’ fees and legal expenses incurred by the secured creditor; (ii) satisfaction of the obligation secured by the security interest of the enforcing secured creditor; and (iii) satisfaction of obligations secured by any subordinate security interest or lien in the collateral if a written demand and proof are received before distribution is completed. (Section 52(a)(1)–(3))
The secured creditor must account to the grantor for any surplus. (Section 52(b))
The debtor is liable for any deficiency unless otherwise agreed. (Section 52(b))
If a secured creditor sells collateral under the enforcement chapter, the buyer acquires the grantor’s right in the asset free of rights of any secured creditor or lien holder. (Section 53(a))
If a secured creditor leases or licenses collateral under the chapter, the lessee or licensee is entitled to the benefit of the lease or license during its term. (Section 53(b))
If sale, lease, or license is not in compliance with the chapter, the buyer/lessee/licensee acquires rights/benefits described above if it had no knowledge of a violation that materially prejudiced the rights of the grantor or another person. (Section 53(c))
After default, the secured creditor may propose to the debtor and grantor to take all or part of the collateral in full or partial satisfaction of the secured obligation and must send proposals to (i) debtor and grantor; (ii) other secured creditors or lien holders perfected by registration five (5) days before proposal is sent; and (iii) other persons with an interest who gave written notification to the secured creditor before proposal is sent. (Section 54(a)(1)–(3))
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