Seventeenth Congress instructions from the secured creditor with respect to the payment of funds

Second Regular Session credited to the deposit account without further consent from the grantor;

Begun and held in Metro Manila, on Monday, the twenty-fourth day of July, two thousand (3) With respect to commodity contracts, means an agreement in writing
seventeen. 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
REPUBLIC ACT No. 11057
consent by the commodity customer or grantor;

An Act Strengthening the Secured Transactions Legal Framework in the Philippines,

(c) Grantor –
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 (1) The person who grants a security interest in collateral to secure its own
obligation or that of another person;
Be it enacted by the Senate and House of Representatives of the Philippine Congress
Assembled: (2) A buyer or other transferee of a collateral that acquires its right subject
to a security interest;
Section 1. Title. -This Act shall be known as the "Personal Property Security Act".
(3) A transferor in an outright transfer of an accounts receivable; or
Section 2. Declaration of Policy.  -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 (4) A lessee of goods;
(MSMEs), by establishing a unified and modern legal framework for securing obligations with
personal property.
(d) Non-inter mediated securities – securities other than securities credited to a
securities account and rights in securities resulting from the credit of securities to a
CHAPTER 1 securities account;
DEFINITIONS AND SCOPE
(e) Notice – a statement of information that is registered in the Registry relating to a
Section 3. Definition of Terms. -As used in this Act, the following terms shall mean: security interest or lien. The term includes an initial notice., amendment notice, and
termination notice;
(a) Commodity contract – a commodity futures contract, an option on a commodity
futures contract, a commodity option, or another contract if the contract or option is: (f) Proceeds – 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
(1) Traded on or subject to the rules of a board of trade that has been
other compensation for loss or damage of the collateral;
designated as a contract market for such a contract; or

(g) Purchase money security interest – a security interest in goods taken by the seller
(2) Traded on a foreign commodity board of trade, exchange, or market,
to secure the price or by a person who gives value to enable the grantor to acquire
and is carried on the books of a commodity intermediary for a commodity
the goods to the extent that the credit is used for that purpose;
customer;

(h) Registry – the centralized and nationwide electronic registry established in the

(b) Control agreement –
Land Registration Authority (LRA) where notice of a security interest and a lien in
personal property may be registered;
(1) With respect to securities, means an agreement in writing among the
issuer or the intermediary, the grantor and the secured creditor, according
(i) Secured creditor – a person that has a security interest. For the purposes of
to which the issuer or the intermediary agrees to follow instructions from
registration and priority only, it includes a buyer of account receivable and a lessor of
the secured creditor with respect to the security, without further consent
goods under an operating lease for not less than one (1) year;
from the grantor;

(j) Security interest – a property right in collateral that secures payment or other

(2) With respect to rights to deposit account, means an agreement in
performance of an obligation, regardless of whether the parties have denominated it
writing among the deposit-taking institution, the grantor and the secured
as a security interest, and regardless of the type of asset, the status of the grantor or
creditor, according to which the deposit-taking institution agrees to follow
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 (3) If at any time after the commingling, the balance credited to the deposit
one (1) year; and account or the amount of the 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
(k) Writing – for the purpose of this Act includes electronic records.
lowest amount of the commingled funds or money between the time when
the proceeds were commingled and the time the security interest in the
Section 4. Scope of the Act.— This Act shall apply to all transactions of any form that secure proceeds is claimed.
an obligation with movable collateral, except interests in aircrafts subject to Republic Act No.
9497, or the "Civil Aviation Authority Act of 2008", and interests in ships subject to Presidential
Section 9. Continuity of Security Interest.— A security interest shall continue in collateral
Decree No. 1521, or the "Ship Mortgage Decree of 1978".
notwithstanding sale, lease, license, exchange, or other disposition of the collateral, except as
otherwise provided in Section 21 of this Act, or agreed upon by the parties.
CHAPTER 2
CREATION OF SECURITY INTEREST
Section 10. Contractual Limitation on the Creation of a Security Interest. —

Section 5. Creation of a Security Interest.—

(a) A security interest in an account receivable shall be effective notwithstanding any
agreement between the grantor and the account debtor or any secured creditor
(a) A security interest shall be created by a security agreement, limiting in any way the grantor’s right to create a security interest.

(b) A security agreement may provide for the creation of a security interest in a future (b) Nothing in this section shall affect any obligation or liability of the grantor for
property, but the security interest in that property is created only when the grantor breach of the agreement in subsection (a).
acquires rights in it or the power to encumber it.
(c) Any stipulation limiting the grantor’s right to create a security interest shall be
Section 6. Security Agreement.— A security agreement must be contained in a written contract void.
signed by the parties. It may consist of one or more writings that, taken together, establish the
intent of the parties to create a security interest.
(d) This section shall apply only to accounts receivable arising from:

The security agreement shall likewise provide for the language to be used in agreements and
(1) A contract for the supply or lease of goods or services other than
notices. The grantor shall be given the option to have the agreement and notices in Filipino. The
financial services;
Department of Finance (DOF) shall prepare model agreements in plain English and Filipino.

(2) A construction contract or a contract for the sale or lease of real

Section 7. Description of Collateral. — A description of collateral shall be considered sufficient,
property; and
whether it is specific or general, if it reasonably identifies the collateral. A description such as
"all personal property", "all equipment", "all inventory", or "all personal property within a generic
category" of the grantor shall be sufficient. (3) A contract for the sale, lease or license of intellectual property.

Section 8. Right to Proceeds and Commingled Funds and Money.— CHAPTER 3

PERFECTION OF SECURITY INTEREST
(a) A security interest in personal property shall extend to its identifiable or traceable
proceeds. Section 11. Perfection of Security Interest.—

(b) Where proceeds in the form of funds credited to a deposit account or money are (a) A security interest shall be perfected when it has been created and the secured
commingled with other funds or money: creditor has taken one of the actions in accordance with Section 12.

(1) The security interest shall extend to the commingled money or funds, (b) On perfection, a security interest becomes effective against third parties.
notwithstanding that the proceeds have ceased to be identifiable to the
extent they remain traceable:
Section 12. Means of Perfection.— A security interest may be perfected by:

(2) The security interest in the commingled funds or money shall be limited
(a) Registration of a notice with the Registry;
to the amount of the proceeds immediately before they were commingled:
and
 (b) Possession of the collateral by the secured creditor; and Section 17. Priority Rules.— 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.
(c) Control of investment property and deposit account.

Section 18. Priority for Perfection by Control.—

A security interest in any tangible asset may be perfected by registration or possession. A
security interest in investment property and deposit account may be perfected by registration or
control. (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.
Section 13. Perfection by Control.—

(b) A security interest in a deposit account or investment property that is perfected by

(a) A security interest in a deposit account or investment property may be perfected
a control agreement shall have priority over a competing security interest except a
by control through:
security interest of the deposit-taking institution or the intermediary.

(1) The creation of the security interest in favor of the deposit-taking

(c) The order of priority among competing security interests in a deposit account or
institution or the intermediary;
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.
(2) The conclusion of a control agreement; or
(d) Any rights to set-off that the deposit-taking institution may have against a
(3) For an investment property that is an electronic security not held with grantor’s right to payment of funds credited to a deposit account shall have priority
an intermediary, the notation of the security interest in the books over a security interest in the deposit account.
maintained by or on behalf of the issuer for the purpose of recording the
name of the holder of the securities.(b) Nothing in this Act shall require a
(e) A security interest in a security certificate perfected by the secured creditor’s
deposit-taking institution or an intermediary to enter into a control
possession of the certificate shall have priority over a competing security interest
agreement, even if the grantor so requests. A deposit-taking institution or
perfected by registration of a notice in the Registry.
an intermediary that has entered into such an agreement shall not be
required to confirm the existence of the agreement to another person
unless requested to do so by the grantor. (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
Section 14. Perfection in Proceeds.—
securities perfected by any other method.

(a) Upon disposition of collateral, a security interest shall extend to proceeds of the
(g) A security interest in electronic securities not held with an intermediary perfected
collateral without further act and be continuously perfected, if the proceeds are in the
by the conclusion of a control agreement shall have priority over a security interest in
form of money, accounts receivable, negotiable instruments or deposit accounts.
the same securities perfected by registration of a notice in the Registry.

(b) Upon disposition of the collateral, if the proceeds are in a form different from
(h) The order of priority among competing security interests in electronic securities
money, accounts receivable, negotiable instruments or deposit accounts, the security
not held with an intermediary perfected by the conclusion of control agreements is
interest in such proceeds must be perfected by one of the means applicable to the
determined on the basis of the time of conclusion of the control agreements.
relevant type of collateral within fifteen (15) days after the grantor receives such
proceeds; otherwise, the security interest in such proceeds shall not be effective
against third parties. Section 19. Priority for Instruments and Negotiable Documents.  -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
Section 15. Change in Means of Perfection.— A security interest shall remain perfected despite
document that is perfected by registration of a notice in the Registry.
a change in the means for achieving perfection: Provided, That there was no time when the
security interest was not perfected.
Section 20. Priority and Plight of Retention by Operation of Law. -A person who provides
services or materials with respect to the goods, in the ordinary course of business, and retains
Section 16. Assignment of Security Interest.— If a secured creditor assigns a perfected
possession of the goods shall have priority over a perfected security interest in the goods until
security interest, an amendment notice may be registered to reflect the assignment.
payment thereof.

CHAPTER 4
PRIORITY OF SECURITY INTEREST
Section 21. Transferee Exceptions. -Any party who obtains, in the ordinary course of business, Section 25. Fixtures, Accessions, and Commingled Goods.  -A perfected security interest in a
any movable property containing a security interest shall take the same free of such security movable property which has become a fixture, or has undergone accession or commingling shall
interest provided he was in good faith. No such good faith shall exist if the security interest in continue provided the movable property involved can still be reasonably traced. In determining
the movable property was registered prior to his obtaining the property. 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.
Section 22. Effect of the Grantor’s Insolvency on the Priority of a Security Interest.  -Subject to
the applicable insolvency law, a security interest perfected prior to the commencement of CHAPTER 5
insolvency proceedings in respect of the grantor shall remain perfected and retain the priority it REGISTRATION – REGISTRY
had before the commencement of the insolvency proceedings.
Section 26. Establishment of Electronic Registry.—
Section 23. Purchase Money Security Interest.—
(a) The Registry shall be established in and administered by the LRA.
(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
(b) The Registry shall provide electronic means for registration and searching of
security interest is registered within three (3) business days after the grantor receives
notices.
possession of the equipment.

Section 27. Public Record.—

(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 (a) Information contained in a registered notice shall be considered as a public record.
interest.
(b) Any person may search notices registered in the Registry.
(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, (c) The electronic records of the Registry shall be the official records.
intellectual property or livestock if:

Section 28. Sufficiency of Notice.—

(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 (a) An initial notice of security interest shall not be rejected:

(2) Before the grantor receives possession of the inventory or livestock, or (1) If it identifies the grantor by an identification number, as further
acquires rights in intellectual property, the purchase money secured creditor prescribed in the regulations;
gives written notification to the holder of the conflicting perfected security
interest in the same types of inventory, livestock, or intellectual property. (2) If it identifies the secured creditor or an agent of the secured creditor by
The notification sent to the holder of the conflicting security interest may name;
cover multiple transactions between the purchase money secured creditor
and the grantor without the need to identify each transaction.
(3) If it provides an address for the grantor and secured creditor or its
agent;
(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 (4) If it describes the collateral: and
consumer goods to the grantor and the time the notice is registered.
(5) If the prescribed fee has been tendered, or an arrangement has been
Section 24. Livestock. -A perfected security interest in livestock securing an obligation incurred made for payment of fees by other means.
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 (b) If the Registry rejects to register a notice, it shall promptly communicate the fact
in the livestock, if the secured creditor providing credit for food or medicine gives written of and reason for its rejection to the person who submitted the notice.
notification to the holder of the conflicting perfected security interest in the same livestock
before the grantor receives possession of the food or medicine.
(c) Each grantor must authorize the registration of an initial notice by signing a
security agreement or otherwise in writing.
 (d) A notice may be registered before a security agreement is concluded. Once a (e) An amendment notice that adds collateral or a grantor shall be effective as to the
security agreement is concluded, the date of registration of the notice shall be added collateral or grantor from the date of its registration.
reckoned from the date the notice was registered.
Section 33. Continuation of Notice.—
(e) A notice of lien may be registered by a lien holder without the consent of the
person against whom the lien is sought to be enforced.
(a) The period of effectiveness of a notice may be continued by registering an
amendment notice that identifies the initial notice by its registration number.
(f) Description of the collateral in a notice shall be entered in English.
(b) Continuation of notice may be registered only within six (6) months before the
Section 29. One Notice Sufficient for Security Interests Under Multiple Security Agreements.  - expiration of the effective period of the notice.
The registration of a single notice may relate to security interests created by the grantor under
one (1) or more than one security agreement.
Section 34. Termination of Effectiveness of a Notice.—

Section 30. Effectiveness of Notice.—

(a) The effectiveness of a notice may be terminated by registering a termination
notice that:
(a) A notice shall be effective at the time it is discoverable on the records of the
Registry.
(1) Identifies the initial notice by its registration number; and

(b) A notice shall be effective for the duration of the term indicated in the notice
(2) Identifies each secured creditor who authorizes the registration of the
unless a continuation notice is registered before the term lapses.
termination notice.

(c) A notice substantially complying with the requirements of this Chapter shall be
(b) A termination notice terminates effectiveness of the notice as to each authorizing
effective unless it is seriously misleading.
secured creditor.

(d) A notice that may not be retrieved in a search of the Registry against the correct
Section 35. Registry Duties.—
identifier of the grantor shall be ineffective with respect to that grantor.

(a) For each registered notice, the Registry shall:

Section 31. Seriously Misleccding Notice. -A notice that does not provide the identification
number of the grantor shall be seriously misleading.
(1) Assign a unique registration number;
Section 32. Amendment of Notice.—
(2) Create a record that bears the number assigned to the initial notice and
the date and time of registration; and
(a) A notice may be amended by the registration of an amendment notice that:

(3) Maintain the record for public inspection.

(1) Identifies the initial notice by its registration number; and

(b) The Registry shall index notices by the identification number of the grantor and,
(2) Provides the new information.
for notices containing a serial number of a motor vehicle, by serial number.

(b) An amendment notice that adds collateral that is not proceeds must be authorized
(c) The Registry shall provide a copy of the electronic record of the notice, including
by the grantor in writing.
the registration number and the date and time of registration to the person who
submitted it.
(c) An amendment notice that adds a grantor must be authorized by the added
grantor in writing.
(d) The Registry shall maintain the capability to retrieve a record by the identification
number of the grantor, and by serial number of a motor vehicle.
(d) An amendment notice shall be effective only as to each secured creditor who
authorizes it.
(e) The Registry shall maintain records of lapsed notices for a period of ten (10) years
after the lapse.
 (f) The duties of the Registry shall be merely administrative in nature. By registering a (b) The fee structure or any change thereof under subsection (a) shall further
notice or refusing to register a notice, the Registry does not determine the sufficiency, consider that the same shall not be burdensome to either lender or grantor.
correctness, authenticity, or validity of any information contained in the notice.
(c) There shall be no fee for electronic searches of the Registry records or for the
Section 36. Search of Registry Records and Certified Report.— registration of termination notices.

(a) The Registry shall communicate the following information to any person who (d) The Registry may charge fees for services not mentioned above.
requests it:
Section 39. When the Grantor May Demand Amendment or Termination of Notice.  -A grantor
(1) Whether there are in the Registry any unlapsed notices that indicate the may give a written demand to the secured creditor to amend or terminate the effectiveness of
grantor's identification number or vehicle serial number that exactly the notice if:
matches the relevant criterion provided by the searcher;
(a) All the obligations under the security agreement to which the registration relates
(2) The registration number, and the date and time of registration of each have been performed and there is no commitment to make future advances;
notice; and
(b) The secured creditor has agreed to release part of the collateral described in the
(3) All of the information contained in each notice. notice;

(b) If requested, the Registry shall issue a certified report of the results of a search (c) The collateral described in the notice includes an item or kind of property that is
that is an official record of the Registry and shall be admissible into evidence in not a collateral under a security agreement between the secured creditor and the
judicial proceedings without extrinsic evidence of its authenticity. grantor;

Section 37. Disclosure of Information.— (d) No security agreement exists between the parties; or

(a) The secured creditor must provide to the grantor at its request: (e) The security interest is extinguished in accordance with this Act.

(1) The current amount of the unpaid secured obligation; and Section 40. Matters That May be Required by Demand. -Upon receipt of the demand submitted
under Section 39, the secured creditor must register, within fifteen (15) working days, an
amendment or termination notice:
(2) A list of assets currently subject to a security interest.

(a) Terminating the registration in a case within subsections (a), (d) or (e) of Section
(b) The secured creditor may require payment of a fee for each request made by the
39;
grantor in subsection (a) in this section, but the grantor is entitled to a reply without
charge once every six (6) months.
(b) Amending the registration to release some property that is no longer collateral in a
case within subsection (c) of Section 39 or that was never collateral under a security
(c) A security interest in a deposit account shall not:
agreement between the secured creditor and the grantor in a case within subsection
(c) of Section 39.
(1) Affect the rights and obligations of the deposit-taking institution without
its consent; or
Section 41. Procedure for Noncompliance with Demand. -If the secured creditor fails to comply
with the demand within fifteen (15) working days after its receipt, the person giving the demand
(2) Require the deposit-taking institution to provide any information about under Section 39 may ask the proper court to issue an order terminating or amending the notice
the deposit account to third parties. as appropriate.

Section 38. Fees Set by Regulation.— Section 42. Compulsory Amendment or Termination by Court Order.—

(a) The fees for registering a notice and for requesting a certified search report shall (a) The court may, on application by the grantor, issue an order that the notice be
be set by regulation issued by the DOF for the recovery of reasonable costs of terminated or amended in accordance with the demand, which order shall be
establishing and operating the Registry. conclusive and binding-on the LRA: Provided, That the secured creditor wrho
disagrees with the order of the court may appeal the order.
 (b) The court may make any other order it deems proper for the purpose of giving (c) The right of the higher-ranking secured creditor to take over the enforcement
effect to an order under subsection (a) of this section. process shall include the right to enforce the rights by any method available to a
secured creditor under this Act.
(c) The LRA shall amend or terminate a notice in accordance with a court order made
under subsection (a) of this section as soon as reasonably practicable after receiving Section 47. Expedited Repossession of the Collateral.—
the order.
(a) The secured creditor may take possession of the collateral without judicial process
Section 43. No Fee for Compliance of Demand. -A secured creditor shall not charge any fee for if the security agreement so stipulates: Provided, That possession can be taken
compliance with a demand received under Section 39. without a breach of the peace.

Section 44. When Registration and Search Constitutes Interference with Privacy of Individual.  - (b) If the collateral is a fixture, the secured creditor, if it has priority over all owners
A person who submitted a notice for registration or carried out a search of the Registry with a and mortgagees, may remove the fixture from the real property to which it is affixed
frivolous, malicious or criminal purpose or intent shall be subject to civil and criminal penalties without judicial process. The secured creditor shall exercise due care in removing the
according to the relevant laws. fixture.

CHAPTER 6 (c) If, upon default, the secured creditor cannot take possession of collateral without
ENFORCEMENT OF SECURITY INTEREST SECURED CREDITOR’S RIGHTS breach of the peace, the secured creditor may proceed as follows:

Section 45. Right of Redemption.— (1) The secured creditor shall be entitled to an expedited hearing upon
application for an order granting the secured creditor possession of the
collateral. Such application shall include a statement by the secured
(a) Any person who is entitled to receive a notification of disposition in accordance
creditor, under oath, verifying the existence of the security agreement
with this Chapter is entitled to redeem the collateral by paying or otherwise
attached to the application and identifying at least one event of default by
performing the secured obligation in full, including the reasonable cost of
the debtor under the security agreement;
enforcement.

(2) The secured creditor shall provide the debtor, grantor, and, if the
(b) The right of redemption may be exercised, unless:
collateral is a fixture, any real estate mortgagee, a copy of the application,
including all supporting documents and evidence for the order granting the
(1) The person entitled to redeem has not, after the default, waived in secured creditor possession of the collateral; and
writing the right to redeem;
(3) The secured creditor is entitled to an order granting possession of the
(2) The collateral is sold or otherwise disposed of, acquired or collected by collateral upon the court finding that a default has occurred under the
the secured creditor or until the conclusion of an agreement by the secured security agreement and that the secured creditor has a right to take
creditor for that purpose; and possession of the collateral. The court may direct the grantor to take such
action as the court deems necessary and appropriate so that the secured
(3) The secured creditor has retained the collateral. creditor may take possession of the collateral: Provided, That breach of the
peace shall include entering the private residence of the grantor without
permission, resorting to physical violence or intimidation, or being
Section 46. Right of Higher-Ranking Secured. Creditor to Take Over Enforcement. — accompanied by a law enforcement officer when taking possession or
confronting the grantor.
(a) Even if another secured creditor or a lien holder has commenced enforcement, a
secured creditor whose security-interest has priority over that of the enforcing Section 48. Recovery in Special Cases.— Upon default, the secured creditor may without
secured creditor or lien holder shall be entitled to take over the enforcement process. judicial process:

(b) The right referred to in subsection (a) of this section may be invoked at any time (a) Instruct the account debtor to make payment to the secured creditor, and apply
before the collateral is sold or otherwise disposed of, or retained by the secured such payment to the satisfaction of the obligation secured by the security interest
creditor or until the conclusion of an agreement by the secured creditor for that after deducting the secured creditor’s reasonable collection expenses. On request of
purpose. the account debtor, the secured creditor shall provide evidence of its security interest
to the account debtor when it delivers the instruction to the account debtor;
 (b) In a negotiable document that is perfected by possession, proceed as to the before the secured creditor gave notification of the proposed disposition to
negotiable document or goods covered by the negotiable document; the grantor.

(c) In a deposit account maintained by the secured creditor, apply the balance of the (b) The grantor may waive the right to be notified.
deposit account to the obligation secured by the deposit account; and
(c) A notification of disposition is sufficient if it identifies the grantor and the secured
(d) I n other cases of security interest in a deposit account perfected by control, creditor; describes the collateral; states the method of intended disposition; and
instruct the deposit-taking institution to pay the balance of the deposit account to the states the time and place of a public disposition or the time after which other
secured creditor’s account. disposition is to be made.

Section 49. Right to Dispose of Collateral.— (d) The requirement to send a notification under this section shall not apply if the
collateral is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market.
(a) After default, a secured creditor may sell or otherwise dispose of the collateral,
publicly or privately, in its present condition or following any commercially reasonable
preparation or processing. Section 52. Application of Proceeds.—

(b) The secured creditor may buy the collateral at any public disposition, or at a (a) The proceeds of disposition shall be applied in the following order:
private disposition but only if the collateral is of a kind that is customarily sold on a
recognized market or the subject of widely distributed standard price quotations.
(1) The reasonable expenses of taking, holding, preparing for disposition, and
disposing of the collateral, including reasonable attorneys’ fees and legal expenses
Section 50. Commercial Reasonableness Required.— incurred by the secured creditor;

(a) In disposing of collateral, the secured creditor shall act in a commercially (2) The satisfaction of the obligation secured by the security interest of the enforcing
reasonable manner. secured creditor; and

(b) A disposition is commercially reasonable if the secerned creditor disposes of the (3) The satisfaction of obligations secured by any subordinate security interest or hen
collateral in conformity with commercial practices among dealers in that type of in the collateral if a written demand and proof of the interest are received before
property. distribution of the proceeds is completed.

(c) A disposition is not commercially unreasonable merely because a better price could (b) The secured creditor shall account to the grantor for any surplus, and, unless otherwise
have been obtained by disposition at a different time or by a different method from agreed, the debtor is liable for any deficiency.
the time and method selected by the secured creditor.
Section 53. Rights of Buyers and Other Third Parties.—
(d) If a method of disposition of collateral has been approved in any legal proceeding,
it is conclusively commercially reasonable.
(a) If a secured creditor sells the collateral under this Chapter, the buyer shall acquire
the grantor’s right in the asset free of the rights of any secured creditor or lien holder.
Section 51. Notification of Disposition.—
(b) If a secured creditor leases or licenses the collateral under this Chapter, the lessee
(a) Not later than ten (10) days before disposition of the collateral, the secured or licensee shall be entitled to the benefit of the lease or license during its term.
creditor shall notify:
(c) If a secured creditor sells, leases or licenses the collateral not in compliance with
(1) The grantor; this Chapter, the buyer, lessee or licensee of the collateral shall acquire the rights or
benefits described in subsections (a) and (b) of this section: Provided, That it had no
knowledge of a violation of this Chapter that materially prejudiced the rights of the
(2) Any other secured creditor or lien holder who, five (5) days before the
grantor or another person.
date notification is sent to the grantor, held a security interest or lien in the
collateral that was perfected by registration; and
Section 54. Retention of Collateral by Secured Creditor.—
(3) Any other person from whom the secured creditor received notification
of a claim of an interest in the collateral if the notification was received
 (a) After default, the secured creditor may propose to the debtor and grantor to take (b) A prior interest remains effective between the parties notwithstanding its creation
all or part of the collateral in total or partial satisfaction of the secured obligation, and did not comply with the creation requirements of this Act.
shall send a proposal to:
Section 57. Perfection of Prior Interest.—
(1) The debtor and the grantor;
(a) A prior interest that was perfected under prior law continues to be perfected under
(2) Any other secured creditor or lien holder who, five (5) days before the this Act until the earlier of:
proposal is sent to the debtor and the grantor, perfected its security interest
or lien by registration; and
(1) The time the prior interest would cease to be perfected under prior law;
and
(3) Any other person with an interest in the collateral who has given a
written notification to the secured creditor before the proposal is sent to the
(2) The expiration of the transitional period.
debtor and the grantor.

(b) If the perfection requirements of this Act are satisfied before the perfection of a
(b) The secured creditor may retain the collateral in the case of:
prior interest ceases in accordance with subsection (a) of this section, the prior
interest continues to be perfected under this Act from the time when it was perfected
(1) A proposal for the acquisition of the collateral in full satisfaction of the secured under the prior law.
obligation, unless the secured creditor receives an objection in writing from any
person entitled to receive such a proposal within twenty (20) days after the proposal
(c) If the perfection requirements of this Act are not satisfied before the perfection of
is sent to that person; or
a prior interest ceases in accordance with subsection (a) of this section, the prior
interest is perfected only from the time it is perfected under this Act.
(2) A proposal for the acquisition of the collateral in partial satisfaction of the secured
obligation, only if the secured creditor receives the affirmative consent of each
(d) A written agreement between a grantor and a secured creditor creating a prior
addressee of the proposal in writing within twenty (20) days after the proposal is sent
interest is sufficient to constitute authorization by the grantor of the registration of a
to that person.
notice covering assets described in that agreement under this Act.

CHAPTER 7
(e) If a prior interest referred to in subsection (b) of this section was perfected by the
TRANSITIONAL PROVISIONS
registration of a notice under prior law, the time of registration under the prior law
shall be the time to be used for purposes of applying the priority rules of this Act.
Section 55. Interpretation of Transitional Provisions.— For this Chapter, unless the context
otherwise requires:
Section 58. Priority of Prior Interest.—

(a) Existing secured creditor – means a secured creditor with a prior security interest;
(a) The priority of a prior interest as against the rights of a competing claimant is
determined by the prior law if:
(b) Prior law – means any law that existed or in force before the effectivity of this Act;
(1) The security interest and the rights of all competing claimant arose
(c) Prior interest – means a security interest created or provided for by an agreement before the effectivity of this Act; and
or other transaction that was made or entered into before the effectivity of this Act
and that had not been terminated before the effectivity of this Act, but excludes a
(2) The priority status of these rights has not changed since the effectivity
security interest that is renewed or extended by a security agreement or other
of this Act.
transaction made or entered into on or after the effectivity of this Act; and

(b) For purposes of subsection (a)(2) of this section, the priority status of a prior
(d) Transitional period - means the period from the date of effectivity of this Act until
interest has changed only if:
the date when the Registry has been established and operational.

(1) It was perfected when this Act took effect, but ceased to be perfected;
Section 56. Creation of Prior Interest.—
or

(a) Creation of prior interest shall be determined by prior laws.

(2) It was not perfected under prior law when this Act took effect, and was
only perfected under this Act.
Section 59. Enforcement of Prior Interest.— (c) Section 13 of Republic Act No. 5980, as amended by Republic Act No. 8556,
otherwise known as the "Financing Company Act of 1998";
(a) If any step or action has been taken to enforce a prior interest before the
effectivity of this Act, enforcement may continue under prior law or may proceed (d) Sections 114-116 of Presidential Decree No. 1529, otherwise known as the
under this Act. "Property Registration Decree";

(b) Subject to subsection (a) of this section, prior law shall apply to a matter that is (e) Section 10 of Presidential Decree No. 1529, insofar as the provision thereof is
the subject of proceedings before a court before the effectivity of this Act. inconsistent with this Act; and

CHAPTER 8 (f) Section 5(e) of Republic Act No. 4136, otherwise known as the "Land
CONGRESSIONAL OVERSIGHT AND MISCELLANEOUS PROVISIONS Transportation and Traffic Code".

Section 60. Congressional Oversight and Periodic Review.— A Congressional Oversight Section 67. Effectivity.— This Act shall take effect fifteen (15) days after publication in at least
Committee shall be created that will conduct a periodic review every five (5) years commencing two (2) newspapers of general circulation.
from the effectivity of this Act. The Congressional Oversight Committee shall be composed of
the Chairperson of the Senate Committee on Banks, Financial Institutions and Currencies, the
Section 68. Implementation.— Notwithstanding the entry into force of this Act under Section
Chairperson of the House of Representatives Committee on Banks and Financial Intermediaries,
67, the implementation of the Act shall be conditioned upon the Registry being established and
and representatives of other relevant congressional committees.
operational under

Section 61. Interpretation.— If there is conflict between a provision of this Act and a provision
Approved,
of any other law, this Act shall govern unless the other law specifically cites or amends the
conflicting provisions of this law.
(Sgd)VICENTE C. SOTTO III
President of the Senate
Section 62. Implementing Rules and Regulations.— 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. (Sgd)PANTALEON D. ALVAREZ
Speaker of the House of Representatives
Section 63. Rules on Enforcement Procedure.— Subject to Section 47, the expedited
hearing/proceedings shall be conducted in a summary manner consistent with the declared This Act which is a consolidation of House Bill No. 6907 and Senate Bill No. 1459 was passed by
policies of this Act and in accordance with the rules of procedure that the Supreme Court may the House of Representatives and the Senate on May 30, 2018.
promulgate.
(Sgd) MYRA MARIE D. VILLARICA
Section 64. Sourcing of Funds.— The funds needed for the implementation of this Act shall be Secretary of the Senate
taken from the Special Account arising from revenues collected by the LRA under Section 111 of
Presidential Decree No. 1529, without need for any further government approval. (Sgd) CESAR STRAIT PAREJA
Secretary General
Section 65. Separability Clause.— Should any provision herein be declared unconstitutional, House of Representatives
the same shall not affect the validity of the other provisions of this Act.
(Sgd) RODRIGO ROA DUTERTE
Section 66. Repealing Clause.— The following laws, and all laws, decrees, orders, and President of the Philippines
issuances or portions thereof, which are inconsistent with the provisions of this Act, are hereby
repealed, amended, or modified accordingly: Approved: August 17, 2018.

(a) Sections 1 to 16 of Act No. 1508, otherwise known as "The Chattel Mortgage
Law";

(b) Articles 2085-2123, 2127, 2140-2141, 2241, 2243, and 2246-2247 of Republic Act
No. 386, otherwise known as the "Civil Code of the Philippines";