‘SEVENTEENTH CONGRESS.

CConaRESS OF THE PHILIPPINES
Second Regular Session }

SENATE

S.No. 1459

PREPARED BY THE COMMITTEES ON BANKS, FINANCIAL
INSTITUTIONS AND CURRENCIES; AND FINANCE WITH
SENATORS AQUINO IV, ESCUDERO, VILLAR,
GATCHALIAN, AND DE LIMA AS AUTHORS THEREOF

AN ACT STRENGTHENING THE SECURED TRANSACTIONS
LEGAL FRAMEWORK IN THE PHILIPPINES,
WHICH SHALL PROVIDE FOR THE CREATION,
PERFECTION, DETERMINATION OF PRIORITY,
ESTABLISHMENT OF A CENTRALIZED NOTICE
REGISTRY, AND ENFORCEMENT OF SECURITY
INTERESTS IN PERSONAL PROPERTY, AND FOR
OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of
the Philippines in Congress assembled:

SECTION 1. Title. - This Act shall be known as the
“Personal Property Security Act’

SEC. 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 (MSMEs), by establishing a unified



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and modern legal framework for securing obligations with
personal property,
CHAPTER 1
DEFINITIONS AND SCOPE

SEC. 3. Definition of Terms. — As used in this Act, the
following terms shal] mean:

(2) 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:

(1) traded on or subject to the rules of a board of trade
that has been designated as a contract market for such a
contract; or

@) traded on a foreign commodity board of trade,
exchange, or market, and is carried on the books of a
commodity intermediary for a commodity customer;

(b) Control agreement —

(1) With respect to securities, means an agreement in
writing among the issuer or the intermediary, the grantor
and the secured creditor, according to which the issuer or

the intermediary agrees to follow instructions from the



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secured creditor with respect to the security, without
further consent from the grantor;

(2) With respect to rights to deposit account, means
an agreement in writing among the deposit-taking
institution, the grantor and the secured creditor, according
to which the deposit-taking institution agrees to follow
instructions from the secured creditor with respect to the
payment of funds credited to the deposit account without
further consent from the grantor;

(3) With respect to commodity contracts, means an
agreement in writing among the grantor, secured creditor,
and intermediary, according to which the commodity
intermediary will apply any value distributed on account of
the commodity contract as directed by the secured creditor
without further consent by the commodity customer or
grantor;

(© Grantor ~

(1) the person who grants a security interest in
collateral to secure its own obligation or that of another

person;



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(2) a buyer or other transferee of a collateral that
acquires its right subject to a security interest;

(3) a transferor in an outright transfer of an accounts
receivable; or

(4) a lessee of goods;

(@) Non-intermediated securities ~ securities other
than securities credited to a securities account and rights
in securities resulting from the credit of securities to a
securities account;

(©) Notice — a statement of information that is
registered in the Registry relating to a security interest or
lien, The term includes an initial notice, amendment
notice, and termination notice;

® 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 other compensation for loss or

damage of the collateral;



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(g) Purchase money security interest — 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;

(h) Registry - the centralized and nationwide
electronic registry established in the Land Registration
Authority (LRA) where notice of a security interest and a
lien in personal property may be registered;

(® Secured creditor — 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;

@) Security interest - 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



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of a buyer of accounts receivable and a lessor under an
operating lease for not less than one (1) year; and

(&) Writing — for the purpose of this Act includes
electronic records.

SEC. 4. Scope of the Act. ~ This Act shall apply to all
transactions of any form that secure 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
Decree No. 1521, or the “Ship Mortgage Decree of 1978”.

CHAPTER 2
CREATION OF SECURITY INTEREST

SEC. 5. Creation of a Security Interest. ~

(a) A security interest shall be created by a security
agreement.

(b) A security agreement may provide for the creation
of a security interest in a 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,



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SEC. 6. Security Agreement. ~ A security agreement
must be contained in a written contract 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.

The security agreement shall likewise provide for the
language to be used in agreements and notices. The
grantor shall be given the option to have the agreement
and notices in Filipino. The Department of Finance (DOF)
shall prepare model agreements in plain English and
Filipino.

SEC. 7. Description of Collateral. — A description of
collateral shall be considered sufficient, 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.

SEC. 8. Right to Proceeds and Commingled Funds and

Money. —



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(@) A security interest in personal property shall
extend to its identifiable or traceable proceeds.

(©) Where proceeds in the form of funds credited to a
deposit account or money are commingled with other funds
or money:

(1) The security interest shall extend to the
commingled money or funds, notwithstanding that the
proceeds have ceased to be identifiable to the extent they
remain traceable;

@) The security interest in the commingled funds or
money shall be limited to the amount of the proceeds
immediately before they were commingled; and

(8) If at any time after the commingling, the balance
credited to the deposit 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 lowest amount of the commingled funds or

money between the time when the proceeds were



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commingled and the time the security interest in the
proceeds is claimed.

SEC. 9. Continuity of Security Interest. — A security
interest shall continue in collateral 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.

SEC. 10. Contractual Limitation on the 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
limiting in any way the grantor’s right to create a security
interest.

(b) Nothing in this section shall affect any obligation
or liability of the grantor for breach of the agreement in
subsection (a).

(© Any stipulation limiting the grantor’s right to

create a security interest shall be void.



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@ This section shall apply only to accounts
receivable arising from:

(1) a contract for the supply or lease of goods or
services other than financial services;

(2) a construction contract or a contract for the sale or
lease of real property; and

(3) a contract for the sale, lease or licence of
intellectual property.

CHAPTER 3
PERFECTION OF SECURITY INTEREST

SEC. 11. Perfection of Security Interest. —

(a) A security interest shall be perfected when it has
been created and the secured creditor has taken one of the
actions in accordance with Section 12,

(®) On perfection, a security interest becomes
effective against third parties.

SEC. 12. Means of Perfection. - A security interest
may be perfected by:

(a) registration of a notice with the Registry;

(b) possession of the collateral by the secured creditor; and



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© control of investment property and deposit account.

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.

SEC. 13. Perfection by Control. —

(a) A security interest in a deposit account or
investment property may be perfected by control through:

(1) The creation of the security interest in favour of
the deposit-taking institution or the intermediary;

(2) The conclusion of a control agreement; or

(3) For an investment property that is an electronic
security not held with an intermediary, the notation of the
security interest in the books maintained by or on behalf of
the issuer for the purpose of recording the name of the
holder of the securities.

(©) Nothing in this Act shall require a deposit-taking
institution or an intermediary to enter into a control
agreement, even if the grantor so requests. A deposit-

taking institution or an intermediary that has entered into



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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.

Sec. 14, Perfection in Proceeds. ~

(a) Upon disposition of collateral, a security interest
shall extend to proceeds of the collateral without further
act and be continuously perfected, if the proceeds are in the
form of money, accounts receivable, negotiable instruments
or deposit accounts.

(b) Upon disposition of the collateral, if the proceeds
are in a form different from money, accounts receivable,
negotiable instruments or deposit accounts, the security
interest in such proceeds must be perfected by one of the
means applicable to the 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 partie:

SEC. 15. Change in Means of Perfection. ~ A security

interest shall remain perfected despite a change in the



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means for achieving perfection: Provided, That there was
no time when the security interest was not perfected.

SEC. 16. Assignment of Security Interest. — If a secured
creditor assigns a perfected security interest, an
amendment notice may be registered to reflect the
assignment.

CHAPTER 4
PRIORITY OF SECURITY INTEREST

SEC. 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.

SEC. 18. Priority for Perfection by Control, —

(@) A security interest in a deposit account with
respect to which the secured creditor is the deposit-taking
institution or the intermediary shall have priority over a
competing security interest perfected by any method.

(b) A security interest in a deposit account or

investment property that is perfected by a control



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agreement shall have priority over a competing security
interest except a security interest of the deposit-taking
institution or the intermediary.

(© The order of priority among competing security
interests in a deposit account or investment property that
were perfected by the conclusion of control agreements
shall be determined on the basis of the time of conclusion
of the control agreements.

(@ Any rights to set-off that the deposit-taking
institution may have against a grantor's right to payment
of funds credited to a deposit account shall have priority
over a security interest in the deposit account.

(&) A security interest in a security certificate
perfected by the secured creditor's possession of the
certificate shall have priority over a competing security
interest perfected by registration of a notice in the
Registry.

( 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



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by or on behalf of the issuer shall have priority over a
security interest in the same securities perfected by any
other method.

(@) A security interest in electronic securities not held
with an intermediary perfected by the conclusion of a
control agreement shall have priority over a security
interest in the same securities perfected by registration of
‘a notice in the Registry.

(h) The order of priority among competing security
interests in electronic securities not held with an
intermediary perfected by the conclusion of control
agreements is determined on the basis of the time of
conclusion of the control agreements.

SEC. 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
document that is perfected by registration of a notice in the

Registry.



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SEC. 20. Priority and Right 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 possession of the goods shall have priority over
a perfected security interest in the goods until payment
thereof.

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 interests 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.

Ske. 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 insolvency proceedings in respect of the
grantor shall remain perfected and retain the priority it
had before the commencement of the insolvency

proceedings.



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SEC. 23. Purchase Money Security Interest. —

(a) A purchase money security interest in equipment
and its proceeds shall have priority over a conflicting
security interest, if a notice relating to the purchase money
security interest is registered within three (3) business
days after the grantor receives possession of the
equipment.

(b) A purchase money security interest in consumer
goods that is perfected by registration of notice not later
than three (3) business days after the grantor obtains
possession of the consumer goods shall have priority over a
conflicting security interest.

(©) A purchase money security interest in inventory,
intellectual property or livestock shall have priority over a
conflicting perfected security interest in the same
inventory, intellectual property or livestock if:

(1) the purchase money security interest is perfected
when the grantor receives possession of the inventory or

livestock, or acquires rights to intellectual property; and



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@) before the grantor receives possession of the
inventory or livestock, or acquires rights in intellectual
property, the purchase money secured creditor gives
written notification to the holder of the conflicting
perfected security interest in the same types of inventory,
livestock, or intellectual property. ‘The notification sent to
the holder of the conflicting security interest may cover
multiple transactions between the purchase money secured
creditor and the grantor without the need to identify each
transaction.

(@ The purchase money security interest in
equipment or consumer goods perfected timely in
accordance with subsections (a) and (b), shall have priority
over the rights of a buyer, lessee, or lien holder which arise
between delivery of the equipment or consumer goods to
the grantor and the time the notice is registered.

SEC. 24. Livestock. — A perfected security interest in
livestock securing an obligation incurred to enable the
grantor to obtain food or medicine for the livestock shall

have priority over any other security interest in the



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livestock, except for a perfected purchase money security
interest in the livestock, if the secured creditor providing
credit for food or medicine gives written notification to the
holder of the conflicting perfected security interest in the
same livestock before the grantor receives possession of the
food or medicine.

SEC. 25. Fixtures, Accessions, and Commingled
Goods. - A perfected security interest in a movable
property which has become a fixture, or has undergone
‘accession or commingling shall continue provided the
movable property involved can still be reasonably traced.
In determining ownership over fixtures, accessions, and
commingled goods, the provisions of Book II of Republic
Act No. 386 or the Civil Code of the Philippines shall
apply.

CHAPTER 5
REGISTRATION ~ REGISTRY
SEC. 26. Establishment of Electronic Registry. —
(a) The Registry shall be established in and

administered by the LRA.



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(b) The Registry shall provide electronic means for
registration and searching of notices.

SEC. 27. Public Record. —

(@) Information contained in a registered notice shall
be considered as a public record.

(b) Any person may search notices registered in the
Registry.

(©) The electronic records of the Registry shall be the
official records.

SEC. 28. Sufficiency of Notice. ~

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

(1) If it identifies the grantor by an identification
number, as further prescribed in the regulations;

(2) If it identifies the secured creditor or an agent of
the secured creditor by name;

(8) If it provides an address for the grantor and
secured creditor or its agent;

(4) If it describes the collateral; and



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(5) If the prescribed fee has been tendered, or an
arrangement has been made for payment of fees by other
means.

() If the Registry rejects to register a notice, it shall
promptly communicate the fact of and reason for its
rejection to the person who submitted the notice.

(© Each grantor must authorize the registration of an
initial notice by signing a security agreement or otherwise
in writing.

@ A notice may be registered before a security
agreement is concluded. Once a security agreement is
concluded, the date of registration of the notice shall be
reckoned from the date notice was registered.

(©) 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.

© Description of the collateral in a notice shall be
entered in English.

SEC. 29. One Notice Sufficient for Security Interests

Under Multiple Security Agreements. ~ The registration of



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a single notice may relate to security interests created by
the grantor under one (1) or more than one security
agreement.

SEC. 30. Effectiveness of Notice. —

(a) A notice shall be effective at the time it is
discoverable on the records of the Registry.

(b) A notice shall be effective for the duration of the
term indicated in the notice unless a continuation notice is
registered before the term lapses.

© A notice substantially complying with the
requirements of this Chapter shall be effective unless it is
seriously misleading.

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

SEC. 31. Seriously Misleading Notice. — A notice that
does not provide the identification number of the grantor
shall be seriously misleading.

SEC. 32. Amendment of Notice. ~



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(a) A notice may be amended by the registration of an
amendment notice that:

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

(2) provides the new information.

(b) An amendment notice that adds collateral that is
not proceeds must be authorized by the grantor in writing.

(©) An amendment notice that adds a grantor must be
authorized by the added grantor in writing.

(@) An amendment notice shall be effective only as to
each secured creditor who authorizes it,

() An amendment notice that adds collateral or a
grantor shall be effective as to the added collateral or
grantor from the date of its registration.

SEC. 33. Continuation of Notice. —

(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.



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(b) Continuation of notice may be registered only
within six (6) months before the expiration of the effective
period of the notice.

SEC. 34, Termination of Effectiveness of a Notice. ~

(a) The effectiveness of a notice may be terminated by
registering a termination notice that:

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

(2) identifies each secured creditor who authorizes the
registration of the termination notice.

(©) A termination notice terminates effectiveness of
the notice as to each authorizing secured creditor.

SEC. 35. Registry Duties. —

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

(1) assign a unique registration number;

(2) create a record that bears the number assigned to
the initial notice and the date and time of registration; and

(8) maintain the record for public inspection.

() The Registry shall index notices by the

identification number of the grantor and, for notices



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containing a serial number of a motor vehicle, by serial
number.

(©) The Registry shall provide a copy of the electronic
record of the notice, including the registration number and
the date and time of registration to the person who
submitted it.

(@ 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.

(© The Registry shall maintain records of lapsed
notices for a period of ten (10) years after the lapse.

( ‘The duties of the Registry shall be merely administrative
in nature. By registering a notice or refusing to register a
notice, the Registry does not determine the sufficiency,
correctness, authenticity, or validity of any information
contained in the notice.

SEC. 36. Search of Registry Records and Certified
Report. ~

(a) The Registry shall communicate the following

information to any person who requests it:



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(1) whether there are in the Registry any unlapsed
notices that indicate the grantor's identification number or
vehicle serial number that exactly matches the relevant
criterion provided by the searcher;

(2) the registration number, and the date and time of
registration of each notice; and

(3) all of the information contained in each notice.

(b) If requested, the Registry shall issue a certified
report of the results of a search that is an official record of
the Registry and shall be admissible into evidence in
judicial proceedings without extrinsic evidence of its
authenticity.

SEC. 37. Disclosure of Information. —

(a) The secured creditor must provide to the grantor
at its request:

(1) the current amount of the unpaid secured
obligation; and

(2) a list of assets currently subject to a security

interest.



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(b) The secured creditor may require payment of a fee
for each request made by the grantor in subsection (a) in
this section, but the grantor is entitled to a reply without
charge once every six (6) months.

(©) A security interest in a deposit account shall not:

(1) Affect the rights and obligations of the deposit-
taking institution without its consent; or

(2) Require the deposit-taking institution to provide
any information about the deposit account to third parties.

‘SEC. 38. Fees Set by Regulation. —

(a) The fees for registering a notice and for requesting
a certified search report shall be set by regulation issued
by the DOF for the recovery of reasonable costs of
establishing and operating the Registry.

() The fee structure or any change thereof under
subsection (a) shall further consider that the same shall
not be burdensome to either lender or grantor.

(©) There shalll be no fee for electronic searches of the

Registry records or for the registration of termination notices.



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(@ The Registry may charge fees for services not
mentioned above.

‘SEC. 39. When the Grantor May Demand Amendment
or Termination of Notice. - A grantor may give a written
demand to the secured creditor to amend or terminate the
effectiveness of the notice if:

(@) all the obligations under the security agreement to
which the registration relates have been performed and

there is no commitment to make future advance:

(b) the secured creditor has agreed to release part of
the collateral described in the notice;

(©) the collateral described in the notice includes an
item or kind of property that is not a collateral under a
security agreement between the secured creditor and the grantor;

(@) no security agreement exists between the parties; or

(@) the security interest is extinguished in accordance
with this Act.

SEC. 40. Matters that may be Required by Demand. ~

Upon receipt of the demand submitted under Section 39,



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the secured creditor must register, within fifteen (15)
working days, an amendment or termination notice:

(a) terminating the registration in a case within
subsections (a), (d) or (e) of Section 39;

(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 agreement between the secured creditor
and the grantor in a case within subsection (c) of Section 39.

SEC. 41. Procedure for Non-compliance 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 under Section 39 may ask the
proper Court to issue an order terminating or amending
the notice as appropriate.

SEC. 42. Compulsory Amendment or Termination by
Court Order. ~

(@) The Court may, on application by the grantor,
issue an order that the notice be terminated or amended in

accordance with the demand, which order shall be



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conclusive and binding on the LRA: Provided, That the
secured creditor who 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 effect to an order under
subsection (a) of this section.

(© 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 the order.

SEC. 43. No Fee for Compliance of Demand. - A
secured creditor shall not charge any fee for compliance
with a demand received under Section 39.

SEC. 44. When Registration and Search Constitutes
Interference with Privacy of Individual. — A person who
submitted a notice for registration or carried out a search
of the Registry with a frivolous, malicious or criminal
purpose or intent shall be subject to civil and criminal

penalties according to the relevant laws.



Non a

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CHAPTER 6
ENFORCEMENT OF SECURITY INTEREST SECURED
CREDITOR’S RIGHTS:

SEC. 45. Right of Redemption. ~

(a) Any person who is entitled to receive a notification
of disposition in accordance with this Chapter is entitled to
redeem the collateral by paying or otherwise performing
the secured obligation in full, including the reasonable cost
of enforcement.

(b) The right of redemption may be exercised, unless:

(1) the person entitled to redeem has not, after the
default, waived in writing the right to redeem;

(2) the collateral is sold or otherwise disposed of,
acquired or collected by the secured creditor or until the
conclusion of an ageement by the secured creditor for that
purpose; and

(8) the secured creditor has retained the collateral.

SEC. 46. Right of Higher-Ranking Secured Creditor to

Take Over Enforcement. ~



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(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
secured creditor or lien holder shalll be entitled to take over
the enforcement process.

(>) The right referred to in subsection (a) of this
section may be invoked at any time before the collateral is
sold or otherwise disposed of, or retained by the secured
creditor or until the conclusion of an agreement by the
secured creditor for that purpose.

(©) The right of the higher-ranking secured creditor to
take over the enforcement process shall include the right
to enforce the rights by any method available to a secured
creditor under this Act.

SEC. 47. Expedited Repossess

1n of the Collateral, ~

(a) The secured creditor may take possession of the
collateral without judicial process if the security agreement
so stipulates: Provided, That possession can be taken

without a breach of the peace.


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(b) If the collateral is a fixture, the secured creditor, if
it has priority over all owners and mortgagees, may
remove the fixture from the real property to which it is
affixed without judicial process. The secured creditor shall
exercise due care in removing the fixture.

(©) If, upon default, the secured creditor cannot take
possession of collateral without breach of the peace the
secured creditor may proceed as follows:

(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
creditor, under oath, verifying the existence of the security
agreement attached to the application and identifying at
least one event of default by the debtor under the security
agreement;

(2) The secured creditor shall provide the debtor,
grantor, and, if the collateral is a fixture, any real estate

mortgagee, a copy of the application, including all



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supporting documents and evidence for the order granting
the secured creditor possession of the collateral; and

(3) The secured creditor is entitled to an order
granting possession of the collateral upon the court finding
that a default has occurred under the security agreement
and that the secured creditor has a right to take 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 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 accompanied by a law enforcement officer when
taking possession or confronting the grantor.

SEC. 48. Recovery in Special Cases. - Upon default,
the secured creditor may without judicial process:

(@) instruct the account debtor to make payment to
the secured creditor, and apply such payment to the
satisfaction of the obligation secured by the security

interest after deducting the secured creditor's reasonable



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collection expenses. On request of 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 negotiable document or goods
covered by the negotiable document;

(©) in a deposit account maintained by the secured
creditor, apply the balance of the deposit account to the
obligation secured by the deposit account; and

(@) in other cases of security interest in a deposit
account perfected by control, instruct the deposit-taking
institution to pay the balance of the deposit account to the
secured creditor's account.

SEC. 49. Right to Dispose of Collateral. ~

(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.



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(b) The secured creditor may buy the collateral at any
public disposition, or at a 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.

SEC. 50. Commercial Reasonableness Required. —

(a) In disposing of collateral, the secured creditor
shall act in a commercially reasonable manner.

() A disposition is commercially reasonable if the
secured creditor disposes of the collateral in conformity
with commercial practices among dealers in that type of
Property.

(© A disposition is not commercially unreasonable
merely because a better price could have been obtained by
disposition at a different time or by a different method
from the time and method selected by the secured creditor.

@ If a method of disposition of collateral has been
approved in any legal proceeding, it is conclusively

commercially reasonable.



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SEC. 51. Notification of Disposition. —

(a) Not later than ten (10) days before disposition of
the collateral, the secured creditor shall notify:

(1) the grantor;

(2) any other secured creditor or lien holder who, five
(6) days before the date notification is sent to the grantor,
held a security interest or lien in the collateral that was
perfected by registration; and

(8) any other person from whom the secured creditor
received notification of a claim of an interest in the
collateral if the notification was received before the secured
creditor gave notification of the proposed disposition to the grantor.

(b) The grantor may waive the right to be notified.

(© A notification of disposition is sufficient if it
identifies the grantor and the secured creditor; describes
the 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.

(@) The requirement to send a notification under this

section shall not apply if the collateral is perishable or



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threatens to decline speedily in value or is of a type
customarily sold on a recognized market.

SEC. 52. Application of Proceeds. —

(@) The proceeds of disposition shall be applied in the
following order:

(1) The reasonable expenses of taking, holding,
preparing for disposition, and disposing of the collateral,
including reasonable attorneys’ fees and legal expenses
incurred by the secured creditor;

(2) The satisfaction of the obligation secured by the
security interest of the enforcing secured creditor;

(3) The satisfaction of obligations secured by any
subordinate security interest or lien in the collateral if a
written demand and proof of the interest are received
before distribution of the proceeds is completed.

(b) The secured creditor shall account to the grantor
for any surplus, and, unless otherwise agreed, the debtor is

liable for any deficiency.



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SEC. 53. Rights of Buyers and Other Third Parties. ~

(a) Ifa 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.

(b) If a secured creditor leases or licenses the
collateral under this Chapter, the lessee or licensee shall
be entitled to the benefit of the lease or license during its
term.

(©) If a secured creditor sells, leases or licenses the
collateral not in compliance with 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
grantor or another person.

SEC. 54, Retention of Collateral by Secured Creditor. -

(a) After default, the secured creditor may propose to

the debtor and grantor to take all or part of the collateral



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in total or partial satisfaction of the secured obligation, and
shall send a proposal to:

(1) the debtor and the grantor;

(2) any other secured creditor or lien holder who, five
(6) days before the proposal is sent to the debtor and
grantor, perfected its security interest or lien by registration;
and

(8) 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 debtor and grantor.

(b) The secured creditor may retain the collateral in

the case

(1) a proposal for the acquisition of the collateral in
full satisfaction of the secured 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 is sent to that person; or

(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



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addressee of the proposal in writing within twenty (20)
days after the proposal is sent to that person.
CHAPTER 7
‘TRANSITIONAL PROVISIONS

SEC. 55. Interpretation of Transitional Provisions. —
For this Chapter, unless the context otherwise requires:

(a) Existing secured creditor - means a secured
creditor with a prior security interest;

(©) Prior law — means any law that existed or in force
before the effectivity of this Act;

(©) Prior interest ~ means a security interest created
or provided for by an agreement 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 security interest that is renewed or
extended by a security agreement or other transaction
made or entered into on or after the effectivity of this Act;

and



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(@) Transitional period ~ means the period from the
date of effectivity of this Act until the date when the
Registry has been established and operational.

SEC. 56. Creation of Prior Interest. ~

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

(b) A prior interest remains effective between the
parties notwithstanding its creation did not comply with
the creation requirements of this Act.

SEC. 57. Perfection of Prior Interest, —

(a) A prior interest that was perfected under prior law
continues to be perfected under this Act until the earlier of:

(1) the time the prior interest would cease to be
perfected under prior law; and

(2) the expiration of the transitional period.

(b) If the perfection requirements of this Act are
satisfied before the perfection of a 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 under the prior law.



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(©) If the perfection requirements of this Act are not
satisfied before the perfection of 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.

(@ A written agreement between a grantor and a
secured creditor creating a prior interest is sufficient to
constitute authorization by the grantor of the registration
of @ notice covering assets described in that agreement
under this Act.

© Ifa prior interest referred to in subsection (b) of
this section was perfected by the 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.

SEC. 58. Priority of Prior Interest. —

(a) The priority of a prior interest as against the
rights of a competing claimant is determined by the prior

law ift



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(1) The security interest and the rights of all
competing claimant arose before the effectivity of this Act;
and

(2) The priority status of these rights has not changed
since the effectivity of this Act.

(b) For purposes of subsection (a) (2) of this section,
the priority status of a prior interest has changed only if:

(1) It was perfected when this Act took effect, but
ceased to be perfected; or

(2) It was not perfected under prior law when this Act
took effect, and was only perfected under this Act.

SEC. 59. Enforcement of Prior Interest. —

(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 under this
Act.

(b) Subject to subsection (a) of this section, prior law
shall apply to a matter that is the subject of proceedings

before a court before the effectivity of this Act.



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CHAPTER 8

CONGRESSIONAL OVERSIGHT AND MISCELLANEOUS,
PROVISIONS

‘SEC. 60. Congressional Oversight and Periodic Review.
~ A Congressional Oversight Committee shall be created
that will conduct a periodic review every five (5) years
‘commencing from 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 Chairperson of the House of
Representatives Committee on Banks and Other Financial
Intermediaries, and representatives of other relevant
congressional committees.

SEC. 61. Interpretation. ~ 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 provision of this law.

SEC. 62. Implementing Rules and Regulations, -
Within six (6) months from the passage of this Act, the

DOF in coordination with the Department of Justice


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through the LRA shall promulgate the necessary rules and
regulations for the effective implementation of this Act.

SEC. 63. Rules on Enforcement Procedure. ~ Subject to
Section 47, the expedited hearing/proceedings shall be
conducted in a summary manner consistent with the
declared policies of this Act and in accordance with the
rules of procedure that the Supreme Court may
promulgate,

‘The funds needed for

SEC. 64. Sourcing of Funds.
the implementation of this Act shall be 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.

SEC. 65. Separability Clause. ~ Should any provision
herein be declared unconstitutional, the same shall not
affect the validity of the other provisions of this Act.

SEC. 66. Repeal of Conflicting Laws. - This Act
repeals the following:

(@) Sections 1 to 16 of Act No. 1508, otherwise known

as the “Chattel Mortgage Law”;



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(b) Articles 1484-1486, 2085-2123, 2127, 2140-2141,
2241, 2243, and 2246-2247 of Republic Act No. 386,
otherwise known as the “Civil Code of the Philippines”;

(©) Section 13 of Republic Act No. 5980, as amended
by Republic Act No. 8556, otherwise known as “Financing
Company Act of 1998";

(@) Section 10 and Sections 114-116 of Presidential
Decree No. 1529, otherwise known as “Property Registration
Decree”; and

(©) Section 5(e) of Republic Act No. 4136, otherwise
known as “Land Transportation and Traffic Code”.

SEC. 67. Effectivity. ~ This Act shalll take effect fifteen
(15) days after publication in at least two (2) newspapers of
general circulation.

‘SEC. 68. Implementation. — 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.

Approved,