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1 IMPLEMENTING RULES AND REGULATIONS

2 OF REPUBLIC ACT NO. 11057 (PERSONAL PROPERTY SECURITY ACT)
3
4
5
6 RULE I - PRELIMINARY PROVISIONS
7
8 Section 1.01 Title. These Rules shall be known and cited as the Implementing Rules and
9 Regulations of Republic Act No. 11057, otherwise known as the “Personal Property
10 Security Act” or the “PPSA.”
11
12 Section 1.02 Purpose. These Rules are hereby promulgated to prescribe the procedures and
13 guidelines for the implementation of the PPSA in order to facilitate compliance therewith
14 and to achieve the objectives thereof.
15
16 Section 1.03 Interpretation Clause. These Rules shall be liberally construed to ensure the
17 fulfillment of the policy objectives of the PPSA.
18
19 Section 1.04. Declaration of Policy. It is the policy of the State to promote economic activity
20 by increasing access to least cost credit, particularly for micro, small, and medium
21 enterprises, by establishing a unified and modern legal framework for securing
22 obligations with personal property.
23
24 Section 1.05. Definition of Terms. As used in these Rules, the following terms shall mean:
25
26 a) Commodity contract — a commodity futures contract, an option on a commodity
27 futures contract, a commodity option, or another contract if the contract or option
28 is:
29 (i) Traded on or subject to the rules of a board of trade that has been
30 designated as a contract market for such a contract; or
31 (ii) Traded on a foreign commodity board of trade, exchange, or market,
32 and is carried on the books of a commodity intermediary for a
33 commodity customer;
34
35 b) Competing claimant - a creditor of a grantor or other person with rights in an
36 encumbered asset that may be in competition with the rights of a secured creditor
37 in the same encumbered asset.
38
39 c) Control agreement — an agreement in writing between the grantor and the secured
40 creditor which perfects the security interests over intangible asset.
41
42 (i) With respect to intermediated securities, the control agreement is among
43 the issuer or the intermediary, the grantor and the secured creditor,
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44 according to which the issuer or the intermediary agrees to follow

45 instructions from the secured creditor with respect to the security, without
46 further consent from the grantor;
47
48 (ii) With respect to rights to a deposit account, the control agreement is among
49 the deposit-taking institution, the grantor and the secured creditor,
50 according to which the deposit-taking institution agrees to follow
51 instructions from the secured creditor with respect to the payment of funds
52 credited to the deposit account without further consent from the grantor;
53
54 (iii) With respect to commodity contracts, the control agreement is among the
55 grantor, secured creditor, and intermediary, according to which the
56 commodity intermediary will apply any value distributed on account of the
57 commodity contract as directed by the secured creditor without further
58 consent by the commodity customer or grantor;
59
60 d) Consumer goods - Goods that are used or acquired for use primarily for personal,
61 family or household purposes;
62
63 e) Default - the failure of a debtor to pay or otherwise perform a secured obligation,
64 and any other event that constitutes default under the terms of an agreement
65 between the grantor and the secured creditor;
66
67 f) Deposit account - consists of deposits in deposit-taking institutions;
68
69 g) Deposit-taking institution - refers to a bank as defined under Republic Act No. 8791,
70 otherwise known as the General Banking Law.
71
72 h) Equipment - means a tangible asset other than inventory or consumer goods that is
73 primarily used or intended to be used by the grantor in the operation of its
74 business;
75
76 i) Fixtures - property attached to an immovable or a movable;
77
78 j) Grantor —
79 (i) The person who grants a security interest in collateral to secure its own
80 obligation or that of another person;
81 (ii) A buyer or other transferee of a collateral that acquires its right subject to
82 a security interest;
83 (iii) A transferor in an outright transfer of an accounts receivable; or
84 (iv) A lessee of goods;
85
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86 k) Intangible asset - means any movable property other than a tangible asset including,
87 but not limited to, investment property, deposit accounts, commodity contracts
88 and receivables.
89
90 l) Intellectual property – shall refer to “intellectual property rights” defined in Section
91 4.1 of the Intellectual Property Code. It shall include copyright, trademarks,
92 service marks, patents, industrial designs and trade secrets.
93
94 m) Intermediary - a person, including, but not limited to, a bank, trust entity,
95 depositary, or broker, that in the ordinary course of business or in connection with
96 a financial transaction has custody of securities or other financial assets, or
97 maintains an account for such securities or assets, for another person, and is acting
98 in that capacity.
99
100 n) Intermediated securities – means securities credited to a securities account and rights
101 in securities resulting from the credit of securities to a securities account;
102
103 o) Inventory - means tangible assets held by the grantor for sale or lease in the
104 ordinary course of the grantor’s business, including raw materials and work in
105 process;
106
107 p) Investment property - means any property right arising from an investment. The
108 term shall include but will not be limited to property in securities and commodity
109 contracts;
110
111 q) Lien - a qualified right or a propriety interest, which may be exercised over the
112 property of another.
113
114 r) Non-intermediated securities — means securities other than Intermediated
115 Securities;
116
117 s) Notice — a statement of information that is registered in the Registry relating to a
118 security interest or lien. The term includes an initial notice, amendment notice, and
119 termination notice;
120
121 t) Operating lease - an agreement by which the owner temporarily grants the use of
122 his property to another who undertakes to pay rent therefor. ;
123
124 u) Perfection - any act authorized by the PPSA and these Rules that makes a security
125 interest binding as against third parties.
126
127 v) Possession - the holding of a thing or the enjoyment of a right.
128
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129 w) Priority - the right of a person in an encumbered asset in preference to the right of
130 a competing claimant;
131
132 x) Proceeds — any property received upon sale, lease or other disposition of collateral,
133 or whatever is collected on or distributed with respect to collateral, claims arising
134 out of the loss or damage to the collateral, as well as a right to insurance payment
135 or other compensation for loss or damage of the collateral;
136
137 y) Product - a tangible asset which results when a tangible asset is so physically
138 associated or united with one or more other tangible asset of a different kind, or
139 when one or more tangible assets are so manufactured, assembled or processed,
140 that they have lost their separate identities;
141
142 z) Purchase money security interest — a security interest in goods taken by the seller to
143 secure the price or by a person who gives value to enable the grantor to acquire
144 the goods to the extent that the credit is used for that purpose;
145
146 aa) Receivable - means a right to payment of a monetary obligation, excluding a right
147 to payment evidenced by a negotiable instrument, a right to payment of funds
148 credited to a bank account and a right to payment under a non-intermediated
149 security;
150
151 bb) Recognized market - an organized market in which large volumes of similar assets
152 are bought and sold between many different sellers and buyers, and accordingly
153 one in which prices are set by the market and not negotiated between individual
154 sellers and buyers.
155
156 cc) Registration - the process of filing a notice as defined under these Rules with the
157 Registry.
158
159 dd) Registry — the centralized and nationwide electronic registry established in the
160 Land Registration Authority (LRA) where notice of a security interest and a lien
161 in personal property may be registered;
162
163 ee) Secured creditor — a person that has a security interest. For the purposes of
164 registration and priority only, it includes a buyer of an account receivable and a
165 lessor of goods under an operating lease for not less than one (1) year;
166
167 ff) Securities account - an account maintained by an intermediary to which securities
168 may be credited or debited;
169
170 gg) Security – shares, participation or interests in a corporation or in a commercial
171 enterprise or profit-making venture and evidenced by a certificate, contract,
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172 instruments, whether written or electronic in character. It includes but is not

173 limited to:
174 (i) Shares of stocks, bonds, debentures, notes evidences of indebtedness, asset-
175 backed securities;
176 (ii) Investment contracts, certificates of interest or participation in a profit-
177 sharing agreement, certificates of deposit for a future subscription;
178 (iii) Fractional undivided interests in oil, gas or other mineral rights;
179 (iv) Derivatives like options and warrants;
180 (v) Certificates of assignments, certificates of participation, trust certificates,
181 voting trust certificates or similar instruments
182 (vi) Proprietary or nonproprietary membership certificates in corporations; and
183 (vii) Other instruments as may in the future be determined by the Securities
184 Exchange Commission;
185
186 hh) Security interest — a property right in collateral that secures payment or other
187 performance of an obligation, regardless of whether the parties have denominated
188 it as a security interest, and regardless of the type of asset, the status of the grantor
189 or secured creditor, or the nature of the secured obligation; including the right of
190 a buyer of accounts receivable and a lessor under an operating lease for not less
191 than one (1) year;
192
193 ii) Tangible asset - means any tangible movable asset. Except in Rules 3.07, 3.08, 4.09,
194 6.05, and 6.06, this term includes money, negotiable instruments, negotiable
195 documents and certificated non-intermediated securities but only if the mere
196 possession of such instruments results in the ownership of the underlying rights
197 or property embodied by them, in accordance with the laws governing such
198 instruments
199
200 jj) Writing — for the purpose of the PPSA and these Rules, includes electronic
201 records.
202
203 RULE II - SCOPE OF APPLICATION
204
205 Section 2.01 Scope. These rules shall apply to all transactions of any form that secure an
206 obligation with personal property movable collateral, whether it is a tangible or an
207 intangible asset, except interests in aircraft subject to Republic Act No. 9497, or the "Civil
208 Aviation Authority Act of 2008," and interests in ships subject to Presidential Decree No.
209 1521, or the "Ship Mortgage Decree of 1978."
210
211 Section 2.02 Forms of Security Arrangements. Contracting parties are free to enter into any
212 form of security arrangements over movable property, as long as the security
213 arrangement covering the same is not inconsistent with the PPSA or these Rules.
214
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215 Section 2.03 Security Interests in Personal Property. — A security interest may be created
216 over all forms of tangible or intangible asset or personal property as defined by the Civil
217 Code, including but not limited to:
218
219 (a) Securities
220 (b) Commodity contracts
221 (c) Lease of goods including financial leases and operating leases for a period of
222 not less than one (1) year)
223 (d) Equipment
224 (e) Inventory
225 (f) Deposit accounts
226 (g) Negotiable instruments
227 (h) Negotiable documents of title
228 (i) Consumer goods
229 (j) Intellectual property
230 (k) Livestock
231 (l) Fixtures, accessions, and commingled goods,
232 (m) Future property or after-acquired assets, and
233 (n) Other functional equivalents of security interest, including fiduciary transfers
234 of title, financial lease; assignment or transfer of receivables; and sale with
235 retention of title.
236
237
238
239
240 RULE III - CREATION OF SECURITY INTEREST
241
242 Creation of a Security Interest
243
244 Section 3.01. Creation of Security Interest. A security interest shall be created by either a
245 security agreement, the sale of an account receivable, or the lease of an operating lease
246 for not less than one (1) year.
247
248 Section 3.02 Continuity of Security Interest. — A security interest created under the PPSA
249 shall continue in the collateral notwithstanding sale, lease, license, exchange, or other
250 disposition of the collateral, except as otherwise provided in these rules, or agreed upon
251 by the parties.
252
253 Form of the Security Agreement
254
255 Section 3.03. Form of Security Agreement. — A security agreement must be contained in a
256 written contract signed by the parties. It may consist of one or more writings that, taken
257 together, establish the intent of the parties to create a security interest.
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258
259 The security agreement shall likewise provide for the language to be used in agreements
260 and notices. The grantor shall be given the option to have the agreement and notices in
261 Filipino. The Department of Finance (DOF) shall prepare model security agreements in
262 plain English and Filipino are provided in Annex “A” of these Rules.
263
264 Section 3.04 Description of Collateral. — A description of collateral in the security agreement
265 and/or in registration notices shall be considered sufficient if it reasonably identifies the
266 collateral. A specific description of the collateral shall not be required in constituting the
267 security right. A description such as "all personal property," "all equipment," "all
268 inventory," or "all personal property within a generic category" of the grantor shall be
269 sufficient.
270
271
272 Asset-Specific Rules
273
274 Section 3.05 Security Interests Over Future Property
275
276 (a) A security agreement may provide for the creation of a security interest in future
277 property or after-acquired assets, but the security interest in that property is
278 created only when the grantor acquires rights in it or the power to encumber it.
279
280 (b) A security agreement may provide that a security right in a tangible asset that is
281 transformed into a product extends to the product. A security right that extends
282 to a product is limited to the value of the encumbered asset immediately before
283 it became part of the product.
284
285 Section 3.06 Security Interests Over Right to Proceeds and Commingled Funds
286
287 (a) A security interest in personal property shall extend to its identifiable or
288 traceable proceeds;
289
290 (b) Where proceeds in the form of funds credited to a deposit account or money are
291 commingled with other funds or money:
292
293 (i) The security interest shall extend to the commingled money or funds,
294 notwithstanding that the proceeds have ceased to be identifiable to the
295 extent they remain traceable;
296
297 (ii) The security interest in the commingled funds or money shall be limited to
298 the amount of the proceeds immediately before they were commingled;
299 and
300
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301 (iii) If at any time after the commingling, the balance credited to the deposit
302 account or the amount of the commingled money is less than the amount
303 of the proceeds immediately before they were commingled, the security
304 interest against the commingled funds or money shall be limited to the
305 lowest amount of the commingled funds or money between the time when
306 the proceeds were commingled and the time the security interest in the
307 proceeds is claimed.
308
309 Section 3.07 Security Interest Over Tangible Assets Commingled in a Mass
310
311 (a) A security right in a tangible asset that is commingled in a mass extends to the
312 mass.
313
314 (b) A security right that extends to a mass is limited to the same proportion of the
315 mass as the quantity of the encumbered asset bore to the quantity of the entire
316 mass immediately after the commingling.
317
318 Section 3.08 Accounts Receivable. —
319
320 (a) A security interest in an account receivable shall be effective notwithstanding
321 any agreement between the grantor and the account debtor or any secured
322 creditor limiting in any way the grantor's right to create a security interest;
323 Provided: Nothing in this section affects the right of a buyer to create a security
324 interest over the account receivable.
325
326 (b) Nothing in this section shall affect any obligation or liability of the grantor for
327 breach of the agreement in subsection (a).
328
329 (c) Any stipulation limiting the grantor's right to create a security interest shall be
330 void.
331
332 (d) This section shall apply only to accounts receivable arising from:
333
334 (i) A contract for the supply or lease of goods or services other than financial
335 services;
336 (ii) A construction contract or contract for the sale or lease of real property;
337 and
338 (iii) A contract for the sale, lease or license of intellectual property.
339
340 Section 3.09 Protection of Account Debtor - Except as otherwise provided in this Law, the
341 creation of a security right in a receivable does not, without the consent of the debtor of
342 the receivable, affect its rights and obligations, including the payment terms contained
343 in the contract giving rise to the receivable.
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344
345 Section 3.10. Rights to Payment of Funds Credited to a Bank Account - A security right in a
346 right to payment of funds credited to a bank account is effective notwithstanding an
347 agreement between the grantor and the deposit-taking institution limiting in any way the
348 grantor’s right to create a security right.
349
350 Section 3.11 Tangible Assets with Respect to which Intellectual Property Is Used –– A security
351 right in a tangible asset with respect to which intellectual property is used does not extend
352 to the intellectual property and a security right in the intellectual property does not
353 extend to the tangible asset.
354
355 Extinguishment of Security Interest
356
357 Section 3.12 Extinguishment of Security Interest. — A security interest is extinguished when
358 all secured obligations have been discharged and there are no outstanding commitments
359 to extend credit secured by the security right.
360
361
362 RULE IV
363 PERFECTION OF SECURITY INTERESTS
364
365 Perfection of Security Interest
366
367 Section 4.01 Perfection of Security Interest. —
368
369 (a) On perfection, a security interest becomes effective against third parties.
370
371 (b) A security interest shall be perfected when it has been created and the secured
372 creditor has taken one of the actions in accordance with these rules.
373
374 Means of Perfection
375
376 Section 4.02 Means of Perfection – Tangible Assets — A security interest in tangible assets
377 may be perfected by either:
378
379 (a) Registration of a notice as defined under these Rules within the Registry: Provided,
380 that a security that is not registered remains valid between the parties; or
381
382 (b) Possession, whether actual or constructive, of the tangible asset either by the
383 secured creditor or a depositary acting for the secured creditor.
384
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385 If a security right in a tangible asset is effective against third parties, a security right in a
386 mass to which the security right extends is effective against third parties without any
387 further act.
388
389 Section 4.03 Means of Perfection – Intangible Assets. –– A security interest in intangible assets
390 may be perfected by either:
391
392 (a) Registration of a notice as defined under these Rules within the Registry: Provided,
393 that a security that is not registered remains valid between the parties; or
394
395 (b) Conclusion of a control agreement.
396
397 Section 4.04 Perfection of Security Interest in Intermediated Securities or Deposit Accounts. ––
398 A security interest in intermediated securities or deposit accounts may be perfected by:
399
400 (a) Registration of a notice as defined under these Rules within the Registry: Provided,
401 that a security that is not registered remains valid between the parties;
402
403 (b) Creation of a security interest in favor of the deposit-taking institution or the
404 intermediary; or
405
406 (c) Conclusion of a control agreement.
407
408 Nothing in these rules shall require a deposit-taking institution or an intermediary under
409 sub-section (b) to enter into a control agreement, even if the grantor so requests. A
410 deposit-taking institution or an intermediary that has entered into such an agreement
411 shall not be required to confirm the existence of the agreement to another person unless
412 requested to do so by the grantor.
413
414 Section 4.05 Perfection of Security Interest in Electronic Securities –– A security interest in
415 electronic securities not held with an intermediary may be by:
416
417 (a) Registration of a notice as defined under these Rules within the Registry:
418 Provided, that a security that is not registered remains valid between the parties;
419
420 (b) The execution of a control agreement between the grantor and secured creditor;
421 or,
422
423 (c) Notation of a security interest in the books maintained by or on behalf of the
424 issuer for the purpose of recording the name of the holder of the securities.
425
426 Section 4.06 Parties to, Form and Contents of a Control Agreement. ––
427
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428 (a) With respect to intermediated securities, a control agreement shall:

429 (i) Be executed in writing by the issuer or the intermediary, the grantor and
430 the secured creditor;
431 (ii) Stipulate that the issuer or the intermediary agrees to follow instructions
432 from the secured creditor with respect to the security, without further
433 consent from the grantor;
434
435 (b) With respect to rights to deposit account, a control agreement shall:
436 (i) Be executed in writing among the deposit-taking institution, the grantor
437 and the secured creditor;
438 (ii) Stipulate that the deposit-taking institution agrees to follow instructions
439 from the secured creditor with respect to the payment of funds credited
440 to the deposit account without further consent from the grantor;
441
442 (c) With respect to commodity contracts, a control agreement shall:
443 (i) Be executed in writing among the grantor, secured creditor, and
444 intermediary;
445 (ii) Stipulate that the commodity intermediary will apply any value
446 distributed on account of the commodity contract as directed by the
447 secured creditor without further consent by the commodity customer or
448 grantor.
449
450 Continuity of Perfected Security Rights
451
452 Section 4.07 Change in Means of Perfection. — A security interest shall remain perfected
453 despite a change in the means for achieving perfection: Provided, that there was no time
454 when the security interest was not perfected.
455
456 Section 4.08 Disposition of Perfected Security Interest Before Default. —
457
458 (a) Transferee Exceptions. — Any party who obtains, in the ordinary course of
459 business, any movable property containing a security interest shall take the same
460 free of such security interest provided he was in good faith. No such good faith
461 shall exist if the security interest in the movable property was registered prior to
462 his obtaining the property.
463
464 (b) Perfection in Proceeds. —
465 (i) Before default, upon disposition of the collateral, a security interest shall
466 extend to proceeds of the collateral without further act and be
467 continuously perfected, if the proceeds are in the form of money, accounts
468 receivable, negotiable instruments or deposit accounts.
469 (ii) Before default, upon disposition of the collateral, if the proceeds are in a
470 form different from money, accounts receivable, negotiable instruments
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471 or deposit accounts, the security interest in such proceeds must be

472 perfected by one of the means applicable to the relevant type of collateral
473 within fifteen (15) days after the grantor receives such proceeds;
474 otherwise, the security interest in such proceeds shall not be effective
475 against third parties.
476
477 Section 4.09. Fixtures, Accessions, and Commingled Goods. –– A perfected security interest in
478 a movable property which has become a fixture, or has undergone accession or
479 commingling shall continue provided the movable property involved can still be
480 reasonably traced. In determining ownership over fixtures, accessions, and commingled
481 goods, the provisions of Book II of Republic Act No. 386 or the "Civil Code of the
482 Philippines" shall apply.
483
484 RULE V
485 THE REGISTRY
486
487 Operation of Registry
488
489 Section 5.01. Establishment. The LRA, within ninety (90) days from the publication of these
490 Rules, shall establish and administer the centralized, nationwide Registry, which shall
491 contain, among others, the following information:
492
493 (a) Initial notice of security interest and lien in personal property;
494
495 (b) Amendment notice providing new information or continuing the period of
496 effectiveness of an initial notice;
497
498 (c) Termination notice.

499 The Registry shall provide electronic means for registration and searching of notices.
500
501 Section 5.02. Sourcing of Funds. — The funds needed for the implementation of these Rules
502 shall be taken from the Special Account arising from revenues collected by the LRA under
503 Section 111 of Presidential Decree No. 1529, without need for any further government
504 approval.
505
506 Section 5.03. Fees Set by Regulation. — The fees for registering a notice and for requesting
507 a certified search report shall be set by regulations issued by the DOF for the recovery of
508 reasonable costs of establishing and operating the Registry. Such regulations must take
509 into consideration the following requirements:
510
511 (a) Fees imposed must not be burdensome to either lender or grantor.
512
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513 (b) There shall be no fee for electronic searches of the Registry records or for the
514 registration of termination notices.
515
516 (c) The Registry may charge fees for services not mentioned above.
517
518 Section 5.04. Registry Duties. —
519
520 (a) The Registry shall, for each registered notice:
521 (i) assign a unique registration number;
522 (ii) create a record that bears the number assigned to the initial notice and the
523 date and time of registration; and
524 (iii) maintain the record for public inspection.
525
526 (b) The Registry shall index notices by the identification number of the grantor, except
527 for notices containing a serial number of a motor vehicle, which shall be indexed
528 by serial number.
529
530 (c) The Registry shall provide a copy of the electronic record of the notice, including
531 the registration number and the date and time of registration to the person who
532 submitted it.
533
534 (d) The Registry shall maintain the capability to retrieve a record by the identification
535 number of the grantor, and by serial number of a motor vehicle.
536
537 (e) The Registry shall maintain records of lapsed notices for a period of ten (10) years
538 after the lapse.
539
540 (f) The duties of the Registry shall be merely administrative in nature. By registering
541 a notice or refusing to register a notice, the Registry does not determine the
542 determine the sufficiency, correctness, authenticity or validity of any information
543 contained in the notice, or the validity of the security agreement.
544
545 Registration of Notice
546
547 Section 5.05. Sufficiency of Notice. —
548
549 (a) An initial notice of security interest shall not be rejected:
550 (i) If it identifies the grantor by an identification number, as further prescribed
551 in the regulations;
552 (ii) If it identifies the secured creditor or an agent of the secured creditor by
553 name;
554 (iii) If it provides an address for the grantor and secured creditor or its agent;
555 (iv) If it describes the collateral
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556 (v) If it states the duration of effectivity of the security interest; and
557 (vi) If the prescribed fee has been tendered, or an arrangement has been made
558 for payment of fees by other means.
559
560 (b) If the Registry rejects to register a notice, it shall promptly communicate to the
561 person who submitted the notice, within three (3) days from the rejection, the fact
562 of and the reason for its rejection.
563
564 (c) Each grantor must authorize the registration of an initial notice by signing a
565 security agreement or otherwise in writing.
566
567 (d) A notice may be registered before a security agreement is concluded. Once a
568 security agreement is concluded, the date of registration of the notice shall be
569 reckoned from the date the notice was registered.
570
571 (e) A notice of lien may be registered by a lien holder without the consent of the
572 person against whom the lien is sought to be enforced.
573
574 (f) Description of the collateral in a notice shall be entered in English.
575
576 Section 5.06. One Notice Sufficient for Security Interests Under Multiple Security Agreements.
577 — The registration of a single notice may relate to security interests created by the grantor
578 under one (1) or more than one security agreement.
579
580 Section 5.07. Effectiveness of Notice. — A notice shall be effective at the time it is
581 discoverable on the records of the Registry and for the duration of the term indicated in
582 the notice, unless a continuation notice is registered before the term lapses. A notice is
583 discoverable from the date and time when the information in the notice is entered into
584 the Registry record so that it is accessible to searchers of the public registry record. The
585 copy of the electronic record of the notice provided to the person who submitted it
586 indicating the date and time of effectivity shall be conclusive.
587
588 A notice substantially complying with the requirements of this Rule shall be effective
589 unless it is seriously misleading. Seriously misleading notices include notices which do
590 not provide the identification number of the grantor.
591
592 A notice that may not be retrieved in a search of the Registry against the correct identifier
593 of the grantor shall be ineffective with respect to that grantor.
594
595 The registration of a notice shall neither expand nor diminish the security interest beyond
596 the terms of the security agreement, except as otherwise provided by the PPSA or these
597 rules. Any error or misrepresentation in the notice with respect to the description of the
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598 security interest shall not affect any rights beyond those granted in the original security
599 agreement.
600
601 Amendment and Termination of Notice
602
603 Section 5.08. Amendment of a Notice. — A notice may be amended by the registration of an
604 amendment notice that identifies the initial notice by its registration number and
605 provides new information.

606 The amendment notice to be valid may be filed:

607 (a) By the secured creditor alone, if the changes to the security interest can be effected
608 with the sole consent of the secured creditor; or
609
610 (b) By the grantor, if the changes to the security interest requires the grantor’s consent.
611
612 A secured creditor who files the amendment notice necessarily attests that no other
613 consent is necessary for the amendment to take effect.
614
615 If the amendment notice adds collateral that is not proceeds, it must be authorized by the
616 grantor in writing. If the amendment notice adds a grantor, it must be authorized by the
617 added grantor in writing. Such amendment notices shall be effective as to the added
618 collateral or grantor from the date of its registration and shall be effective only as to each
619 secured creditor who authorizes it.
620
621 If a secured creditor assigns a perfected security interest, an amendment notice may be
622 registered to reflect the assignment.
623
624 Section 5.09. Continuation of Notice. — The period of effectiveness of a notice may be
625 continued for an additional xx days by registering an amendment notice that identifies
626 the initial notice by its registration number. It must be registered within six (6) months
627 before the expiration of the effective period of the notice.
628
629 Section 5.10. Compulsory Amendment by Court Order. — The court may, on application by
630 the grantor, issue an order that the notice be amended in accordance with the demand,
631 which order shall be conclusive and binding on the LRA: Provided, that the secured
632 creditor who disagrees with the order of the court may appeal the order.
633
634 The court may make any other order it deems proper for the purpose of giving effect to
635 an issued compulsory amendment order.
636
637 The LRA shall amend a notice in accordance with a court order made under this section
638 as soon as reasonably practicable.
639
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640 Any person who, without negligence on his part, sustains loss or damage, or is deprived
641 of his priority right in consequence of an erroneous or false description in the notice made
642 by the filing party may bring an action in any court of competent jurisdiction for the
643 recovery of damages from the responsible party. The same court may also order the
644 correction of the error or false description in the notice.
645
646 Section 5.11. Termination of Effectiveness of a Notice. — The effectiveness of a notice may be
647 terminated by registering a termination notice that identifies the initial notice by its
648 registration number and each secured creditor who authorizes the registration of the
649 termination notice. The notice is terminated from the date and time when the information
650 in the notice is no longer accessible to searchers of the public registry record.
651
652 A termination notice terminates effectiveness of the notice as to each authorizing secured
653 creditor.
654
655 Section 5.12. Compulsory Termination by Court Order. — The court may, on application by
656 the grantor, issue an order that the notice be terminated in accordance with the demand,
657 which order shall be conclusive and binding on the LRA: Provided, that the secured
658 creditor who disagrees with the order of the court may appeal the order.
659
660 The court may make any other order it deems proper for the purpose of giving effect to
661 an issued compulsory termination order.
662
663 The LRA shall terminate a notice in accordance with a court order made under this
664 section as soon as reasonably practicable.
665
666 Section 5.13. When the Grantor May Demand Amendment or Termination of a Notice. — A
667 grantor may give a written demand to the secured creditor for the amendment or
668 termination of the effectiveness of the notice in the following cases:
669
670 (a) All the obligations under the security agreement to which the registration relates
671 have been performed and there is no commitment to make future advances;
672
673 (b) The secured creditor has agreed to release part of the collateral described in the
674 notice;
675
676 (c) The collateral described in the notice includes an item or kind of property that is
677 not a collateral under a security agreement between the secured creditor and the
678 grantor;
679
680 (d) No security agreement exists between the parties; or
681
682 (e) The security interest is extinguished in accordance with this Rule.
 DRAFT (10 JULY 2019)

683
684 Upon receipt of the demand for amendment submitted by the grantor, the secured
685 creditor must register, within fifteen (15) working days, a notice amending the
686 registration to release some property that is no longer collateral or that was never
687 collateral under a security agreement between the secured creditor and the grantor in a
688 case within subsection (c) of paragraph 1 of this section.
689
690 Upon receipt of the demand for termination submitted by the grantor, the secured
691 creditor must register, within fifteen (15) working days, a notice terminating the
692 registration in a case within subsections (a), (d) or (e) of paragraph 1 of this section.
693
694 Section 5.14. Procedure for Noncompliance with Demand. — If the secured creditor fails to
695 comply with the demand within fifteen (15) working days after its receipt, the person
696 giving the demand under the two preceding sections may ask the proper court to issue
697 an order terminating or amending the notice as appropriate.
698
699 Section 5.15. No Fee for Compliance of Demand. — A secured creditor shall not charge any
700 fee for compliance with a demand received under Section 5.13 of this Rule.
701
702 Public Access and Search
703
704 Section 5.16. Public Record. — The electronic records of the Registry shall be the official
705 records. All notices registered and the information contained in such notices, shall be
706 considered as part of the public record and may be searched and examined by any person:
707 Provided that the processing of all information under these Rules shall be in accordance
708 with the provisions of Republic Act 10173, otherwise known as the “Data Privacy Act of
709 2012”.
710
711 Registration of a notice of the public auction in accordance with Section 7.08 (b) of these
712 Rules is sufficient to comply with the publication requirement therein.
713
714 Section 5.17. Search of Registry Records and Certified Report. — The Registry shall
715 communicate the following information to any person who requests it:
716
717 (a) Whether there are in the Registry any unlapsed notices that indicate the grantor's
718 identification number or vehicle serial number that exactly matches the relevant
719 criterion provided by the searcher;
720
721 (b) The registration number, and the date and time of registration of each notice; and
722
723 (c) All of the information contained in each notice.
724
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725 If requested, the Registry shall issue a certified report of the results of a search. Certified
726 reports of search results shall be treated as official records of the Registry, which shall be
727 admissible into evidence in judicial proceedings without extrinsic evidence of its
728 authenticity.
729
730 Section 5.18. When Registration and Search Constitutes Interference with Privacy of Individual.
731 — A person who submitted a notice for registration or carried out a search of the Registry
732 with a frivolous, malicious or criminal purpose or intent shall be subject to civil and
733 criminal penalties according to the relevant laws.
734
735 Correction of Errors
736
737 Section 5.19. Correction of Errors Made by the Registry. — Without delay after discovering
738 that it made an error or omission in entering into the public record the information
739 contained in a notice submitted for registration or erroneously removed from the public
740 registry record information contained in the registered notice, the Registry must:
741
742 (a) Register a notice to correct the error or omission, or;
743
744 (b) Restore the erroneously removed information, and send a copy of the information
745 in the registered notice to the person identified in the notice as the secured creditor.
746
747 The registration of a notice referred to in letter (a) is effective as of the time the
748 information in the notice becomes accessible to searchers of the public registry record.
749
750 Section 5.20. False or Misleading Information. The entry of false or misleading information
751 in any notice or lien or record entered and made publicly available in the Registry may
752 result in a prosecution for Data Interference, Computer-related Fraud or Computer-
753 related Forgery under Republic Act No. 10175, otherwise known as the “Cybercrime
754 Prevention Act of 2012”.
755
756
757 RULE VI
758 PRIORITY OF SECURITY INTEREST
759
760 General Rule
761
762 Section 6.01 Time of Perfection–– The priority of security interests and liens on the same
763 collateral shall be determined according to the time of registration of a notice or
764 perfection by other means, without regard to the order of creation of the security interests
765 and liens.
766
767 Priority Rules for Intangible Assets
 DRAFT (10 JULY 2019)

768
769 Section 6.02 Priority for Investment Property and Deposit Accounts. –– Subject to Section 6.01,
770 the following rules shall govern when applicable:
771
772 (a) A security interest in a deposit account with respect to which the secured creditor
773 is the deposit-taking institution or the intermediary shall have priority over a
774 competing security interest perfected by any method.
775
776 (b) A security interest in a deposit account or investment property that is perfected by
777 a control agreement shall have priority over a competing security interest except
778 a security interest of the deposit-taking institution or the intermediary.
779
780 (c) The order of priority among competing security interests in a deposit account or
781 investment property that were perfected by the conclusion of control agreements
782 shall be determined on the basis of the time of conclusion of the control
783 agreements.
784
785 (d) Any rights to set-off that the deposit-taking institution may have against a
786 grantor's right to payment of funds credited to a deposit account shall have
787 priority over a security interest in the deposit account.
788
789 (e) A security interest in electronic securities not held with an intermediary perfected
790 by a notation of the security interests in the books maintained for that purpose by
791 or on behalf of the issuer shall have priority over a security interest in the same
792 securities perfected by any other method.
793
794 (f) A security interest in electronic securities not held with an intermediary perfected
795 by the conclusion of a control agreement shall have priority over a security interest
796 in the same securities perfected by registration of a notice in the Registry.
797
798 (g) The order of priority among competing security interests in electronic securities
799 not held with an intermediary perfected by the conclusion of control agreements
800 is determined on the basis of the time of conclusion of the control agreements.
801
802 Priority Rules for Tangible Assets
803
804 Section 6.03 – Priority for Tangible Assets Embodied in Instruments. –– Subject to Section 6.01,
805 the following rules shall govern when applicable:
 DRAFT (10 JULY 2019)

806
807 (a) A security interest in a security certificate perfected by the secured creditor's
808 possession of the certificate shall have priority over a competing security interest
809 perfected by registration of a notice in the Registry.
810
811 (b) A security interest in an instrument or negotiable document that is perfected by
812 possession of the instrument or the negotiable document shall have priority over
813 a security interest in the instrument or negotiable document that is perfected by
814 registration of a notice in the Registry.
815
816 (c) A perfected security interest in livestock securing an obligation incurred to enable
817 the grantor to obtain food or medicine for the livestock shall have priority over
818 any other security interest in the livestock, except for a perfected purchase money
819 security interest in the livestock, if the secured creditor providing credit for food
820 or medicine gives written notification to the holder of the conflicting perfected
821 security interest in the same livestock before the grantor receives possession of the
822 food or medicine.
823
824 Priority Rules for Specific Cases
825
826 Section 6.04 By Operation of Law. ––
827
828 (a) Priority and Right of Retention. –– A person who provides services or materials with
829 respect to the goods, in the ordinary course of business, and retains possession of
830 the goods shall have priority over a perfected security interest in the goods until
831 payment thereof.
832
833 (b) Effect of Grantor’s Insolvency. –– Subject to the applicable insolvency law, a security
834 interest perfected prior to the commencement of insolvency proceedings in respect
835 of the grantor shall remain perfected and retain the priority it had before the
836 commencement of the insolvency proceedings.
837
838 During insolvency proceedings, the perfected security interest shall constitute a
839 lien over the collateral.
840
841 Section 6.05 Priority of Purchase Money Security Interest. ––
842
843 (a) A purchase money security interest in equipment and its proceeds shall have
844 priority over a conflicting security interest, if a notice relating to the purchase
845 money security interest is registered within three (3) business days after the
846 grantor receives possession of the equipment.
 DRAFT (10 JULY 2019)

847
848 (b) A purchase money security interest in consumer goods that is perfected by
849 registration of notice not later than three (3) business days after the grantor obtains
850 possession of the consumer goods shall have priority over a conflicting security
851 interest.
852
853 (c) A purchase money security interest in inventory, intellectual property or livestock
854 shall have priority over a conflicting perfected security interest in the same
855 inventory, intellectual property or livestock if:
856
857 (i) The purchase money security interest is perfected when the grantor
858 receives possession of the inventory or livestock, or acquires rights to
859 intellectual property; and
860 (ii) Before the grantor receives possession of the inventory or livestock, or
861 acquires rights in intellectual property, the purchase money secured
862 creditor gives written notification to the holder of the conflicting perfected
863 security interest in the same types of inventory, livestock, or intellectual
864 property. The notification sent to the holder of the conflicting security
865 interest may cover multiple transactions between the purchase money
866 secured creditor and the grantor without the need to identify each
867 transaction.
868
869 (d) The purchase money security interest in equipment or consumer goods perfected
870 timely in accordance with subsections (a) and (b), shall have priority over the
871 rights of a buyer, lessee, or lien holder which arise between delivery of the
872 equipment or consumer goods to the grantor and the time the notice is registered.
873
874
875 RULE VII
876 ENFORCEMENT OF SECURITY INTEREST AND SECURED CREDITOR'S
877 RIGHTS
878
879 Section 7.01 Enforcement With or Without Judicial Process - The secured creditor may enforce
880 its security right whether through a judicial process or through an extra-judicial process,
881 including the sale of the secured assets through either a public or private disposition. Any
882 judicial enforcement of security rights, including the disposition of collateral, shall be
883 governed by rules promulgated by the Supreme Court.
884
885 Section 7.02 Expedited Repossession of the Collateral (Without Judicial Process) – The secured
886 creditor may take possession of the collateral without judicial process if the security
887 agreement so stipulates: Provided, that possession can be taken without a breach of the
888 peace. Breach of the peace shall include entering the private residence of the grantor
 DRAFT (10 JULY 2019)

889 without permission, resorting to physical violence or intimidation, or being accompanied

890 by a law enforcement officer when taking possession or confronting the grantor.
891
892 If the collateral is a fixture, the secured creditor, if it has priority over all owners and
893 mortgagees, may remove the fixture from the real property to which it is affixed without
894 judicial process. The secured creditor shall exercise due care in removing the fixture.
895
896 Section 7.03 Expedited Repossession of the Collateral (With Judicial Process) – If, upon default,
897 the secured creditor cannot take possession of collateral without breach of the peace, the
898 secured creditor may proceed as follows:
899
900 (a) The secured creditor shall be entitled to an expedited hearing upon application for
901 an order granting the secured creditor possession of the collateral. Such
902 application shall include a statement by the secured creditor, under oath, verifying
903 the existence of the security agreement attached to the application and identifying
904 at least one event of default by the debtor under the security agreement;
905
906 (b) The secured creditor shall provide the debtor, grantor, and, if the collateral is a
907 fixture, any real estate mortgagee, a copy of the application, including all
908 supporting documents and evidence for the order granting the secured creditor
909 possession of the collateral; and
910
911 (c) The secured creditor is entitled to an order granting possession of the collateral
912 upon the court finding that a default has occurred under the security agreement
913 and that the secured creditor has a right to take possession of the collateral. The
914 court may direct the grantor to take such action as the court deems necessary and
915 appropriate so that the secured creditor may take possession of the collateral.
916
917
918 Section 7.04 Right of Higher-Ranking Secured Creditor to Take Over Enforcement –
919
920 (a) Even if another secured creditor or alien holder has commenced enforcement, a
921 secured creditor whose security interest has priority over that of the enforcing
922 secured creditor or lien holder shall be entitled to take over the enforcement
923 process.
924
925 (b) The right referred to in subsection (a) of this section may be invoked at any time
926 before the collateral is sold or otherwise disposed of, or retained by the secured
927 creditor or until the conclusion of an agreement by the secured creditor for that
928 purpose.
929
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930 (c) The right of the higher-ranking secured creditor to take over the enforcement
931 process shall include the right to enforce the rights by any method available to a
932 secured creditor under this Rule.
933
934 Section 7.05. Recovery in Special Cases – Upon default, the secured creditor may without
935 judicial process:
936
937 (a) Instruct the account debtor of an accounts receivable to make payment to the
938 secured creditor, and apply such payment to the satisfaction of the obligation
939 secured by the security interest after deducting the secured creditor's reasonable
940 collection expenses. On request of the account debtor, the secured creditor shall
941 provide evidence of its security interest to the account debtor when it delivers the
942 instruction to the account debtor;
943
944 (b) In a negotiable document where the security interest is perfected by possession,
945 proceed as to the negotiable document or goods covered by the negotiable
946 document;
947
948 (c) In a deposit account maintained by the secured creditor, apply the balance of the
949 deposit account to the obligation secured by the deposit account; and
950
951 (d) In other cases of a security interest in a deposit account perfected by a control
952 agreement, instruct the deposit-taking institution to pay the balance of the deposit
953 account to the secured creditor's account by providing:
954
955 (i) a copy of the security agreement that creates or provides for a security
956 interest; and
957 (ii) the secured party's affidavit stating that a default has occurred, and that the
958 secured party is entitled to enforce the security interest non-judicially.
959
960 Section 7.06 Right to Dispose of Collateral — After default, a secured creditor may sell or
961 otherwise dispose of the collateral, publicly or privately, in its present condition or
962 following any commercially reasonable preparation or processing.
963
964 Section 7.07. Commercial Reasonableness Required. —
965
966 (a) In disposing of collateral, the secured creditor shall act in a commercially
967 reasonable manner.
968
969 (b) A disposition is commercially reasonable if the secured creditor disposes of the
970 collateral in conformity with commercial practices among dealers in that type of
971 property.
972
 DRAFT (10 JULY 2019)

973 (c) A disposition is not commercially unreasonable merely because a better price
974 could have been obtained by disposition at a different time or by a different
975 method from the time and method selected by the secured creditor.
976
977 Section 7.08. Notification Requirements Prior to Disposition. —
978
979 (a) Not later than ten (10) days before disposition of the collateral, the secured creditor
980 shall notify:
981
982 (i) The grantor:
983 (ii) Any other secured creditor or lien holder who, five (5) days before
984 the date notification is sent to the grantor, held a security interest or
985 lien in the collateral that was perfected by registration; and
986 (iii) Any other person from whom the secured creditor received
987 notification of a claim of an interest in the collateral if the notification
988 was received before the secured creditor gave notification of the
989 proposed disposition to the grantor.
990
991 (b) The grantor may, after default, waive the right to be notified.
992
993 (c) A notification of disposition is sufficient if it identifies the grantor and the secured
994 creditor; describes the collateral; states the method of intended disposition; and
995 states the time and place of a public disposition or the time after which other
996 disposition is to be made.
997
998 (d) The secured creditor shall notify the persons entitled to notification via registered
999 mail, private courier, electronically, or through any means where receipt of the
1000 notice can be established by a disinterested third party.
1001
1002 (e) The requirement to send a notification under this section shall not apply if the
1003 collateral is perishable or threatens to decline speedily in value or is of a type
1004 customarily sold on a recognized market.
1005
1006 Section 7.09. Guidelines on Private or Public Disposition -
1007
1008 (a) The secured creditor may dispose of the collateral through a sale open to
1009 participation by the general public.
1010
1011 (b) In case of extra-judicial disposition, the secured creditor may, subject to the
1012 guidelines below, select the method, manner, time, place and other aspects of the
1013 sale or other disposition, lease or license, including whether to sell or otherwise
1014 dispose of, lease or license encumbered assets individually, in groups or
1015 altogether: Provided, that the disposition is undertaken in good faith and satisfies
 DRAFT (10 JULY 2019)

1016 the commercial reasonableness requirement under Section 7.07. Judicial

1017 dispositions shall be governed by rules promulgated by the Supreme Court.
1018
1019 (c) The secured creditor shall, no later than ten (10) days before the extra-judicial
1020 disposition of the collateral, cause the posting with the Registry of a notice that
1021 sufficiently describes the collateral to be sold and specifies the method, manner,
1022 time, place and other details of the sale. The Registry shall ensure that all such
1023 notices posted are publicly accessible and searchable. In adherence with the
1024 commercial reasonableness requirement, the secured creditor may also cause the
1025 advertisement of the disposition through any other means or medium as the
1026 secured creditor may deem as suitable, to maximize awareness of the sale among
1027 dealers in the type of property to which the collateral belongs.
1028
1029 (d) All collateral shall be disposed through public auction and the following
1030 indicators may be taken into account in determining whether the sale satisfies the
1031 good faith and commercial reasonableness requirement:
1032 (i) that the person or entity who presides over the auction is an experienced
1033 dealer in the type of property sold;
1034 (ii) that the participating bidders do not engage in collusive practices that
1035 prevent free and open competition;
1036 (iii) that the records of the proceedings, including the identities and respective
1037 submissions of the bidders, are documented in writing and subsequently
1038 maintained, and;
1039 (iv) that the highest bidder is duly awarded the collateral.
1040
1041 The winning bidder must fully pay the bid price at the conclusion of the
1042 auction. Otherwise, the collateral may be awarded to the next highest
1043 bidder.
1044
1045 (e) Any government agency that regularly undertakes public auctions in the course
1046 of its regular activities may be engaged by any secured creditor to preside over
1047 public auctions over securitized movable collateral under this Section, through
1048 rules and regulations that must be submitted to the Department of Finance for
1049 prior approval. Private entities such as auction houses, industry groups of secured
1050 creditors, or organizations of recognized dealers of specific movables may likewise
1051 adopt rules and regulations for the conduct of public auctions, subject to the
1052 approval of the Department of Finance. Any public auction of movable collateral
1053 conducted by any government agency or private entity under rules duly approved
1054 by the Department of Finance shall be conclusively presumed to be commercially
1055 reasonable.
1056 (f) The secured creditor may buy the collateral at any public disposition, or at a
1057 private disposition but only if the collateral is of a kind that is customarily sold on
1058 a recognized market or the subject of widely distributed standard price quotations.
 DRAFT (10 JULY 2019)

1059 (g) If a method of disposition of collateral has been approved in any legal proceeding,
1060 whether judicial or administrative, it is conclusively commercially reasonable.
1061
1062 Section 7.10. Right of Redemption. —
1063
1064 (a) Any person who is entitled to receive a notification of disposition in accordance
1065 with these Rules is entitled to redeem the collateral by paying or otherwise
1066 performing the secured obligation in full, including the reasonable cost of
1067 enforcement.
1068
1069 (b) The right of redemption may be exercised, unless:
1070 (i) The person entitled to redeem has, after the default, waived in writing the
1071 right to redeem;
1072 (ii) The collateral is sold or otherwise disposed of, acquired or collected by the
1073 secured creditor, or when an agreement with those effects on the collateral
1074 is concluded by the secured creditor; or,
1075 (iii) The secured creditor has retained the collateral.
1076
1077
1078 Section 7.11. Application of Proceeds. —
1079
1080 (a) The proceeds of disposition shall be applied in the following order:
1081 (i) The reasonable expenses of taking, holding, preparing for disposition, and
1082 disposing of the collateral, including reasonable attorneys' fees and legal
1083 expenses incurred by the secured creditor;
1084 (ii) The satisfaction of the obligation secured by the security interest of the
1085 enforcing secured creditor; and
1086 (iii) The satisfaction of obligations secured by any subordinate security interest
1087 or lien in the collateral if a written demand and proof of the interest are
1088 received before distribution of the proceeds is completed.
1089
1090 (b) The secured creditor shall account to the grantor for any surplus, and, unless
1091 otherwise agreed, the debtor is liable for any deficiency.
1092
1093 (c) The reasonable expenses of holding the collateral shall include all expenses
1094 incurred by the secured creditor in the preservation and care of the collateral in
1095 his possession with the diligence of a good father of a family.
1096
1097 (d) The secured creditor shall be liable to the grantor for the value of the loss and
1098 deterioration that may be suffered due to his failure to preserve and care for the
1099 collateral.
1100
1101
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1102 Section 7.12. Rights of Buyers and Other Third Parties. —

1103
1104 (a) If a secured creditor sells the collateral under this Chapter, the buyer shall acquire
1105 the grantor's right in the asset free of the rights of any secured creditor or lien
1106 holder.
1107
1108 (b) If a secured creditor leases or licenses the collateral under this Chapter, the lessee
1109 or licensee shall be entitled to the benefit of the lease or license during its term.
1110
1111 (c) If a secured creditor sells, leases or licenses the collateral not in compliance with
1112 this Chapter, the buyer, lessee or licensee of the collateral shall acquire the rights
1113 or benefits described in subsections (a) and (b) of this section: Provided, that it had
1114 no knowledge of a violation of this Chapter that materially prejudiced the rights
1115 of the grantor or another person.
1116
1117 Section 7.13. Retention of Collateral by Secured Creditor. —
1118
1119 (a) After default, the secured creditor may propose to the debtor and grantor to take
1120 all or part of the collateral in total or partial satisfaction of the secured obligation,
1121 and shall send a proposal to:
1122
1123 (i) The debtor and the grantor;
1124 (ii) Any other secured creditor or lien holder who, five (5) days before the
1125 proposal is sent to the debtor and the grantor, perfected its security interest
1126 or lien by registration; and
1127 (iii) Any other person with an interest in the collateral who has given a written
1128 notification to the secured creditor before the proposal is sent to the debtor
1129 and the grantor.
1130
1131 (b) The secured creditor may retain the collateral in the case of:
1132
1133 (i) A proposal for the acquisition of the collateral in full satisfaction of the
1134 secured obligation, unless the secured creditor receives an objection in
1135 writing from any person entitled to receive such a proposal within twenty
1136 (20) days after the proposal is sent to that person; or
1137 (ii) A proposal for the acquisition of the collateral in partial satisfaction of the
1138 secured obligation, only if the secured creditor receives the affirmative
1139 consent of each addressee of the proposal in writing within twenty (20)
1140 days after the proposal is sent to that person.
1141
1142 (c) A proposal for the retention of the collateral is sufficient if it includes:
1143
 DRAFT (10 JULY 2019)

1144 (i) A statement of the amount required at the time the proposal is given to
1145 satisfy the secured obligation, including interest and the reasonable cost of
1146 enforcement, and the amount of the secured obligation that is proposed to
1147 be satisfied;
1148 (ii) A statement that the secured creditor proposes to acquire the encumbered
1149 asset described in the proposal in total or partial satisfaction of the secured
1150 obligation;
1151 (iii) A statement of the date after which the secured creditor will acquire the
1152 encumbered asset.
1153
1154 Section 7.14. Remedies for Secured Party’s Failure to Comply with the Rules —
1155
1156 (a) Judicial orders concerning noncompliance- If it is established that a secured party is
1157 not proceeding in accordance with these rules, a court may order or restrain
1158 collection, enforcement, or disposition of collateral on appropriate terms and
1159 conditions.
1160
1161 (b) Damages for noncompliance- A party or interested person who fails to comply with
1162 the provisions of these Rules shall be liable in the amount of any loss resulting
1163 from such failure. Loss caused by a failure to comply may include loss resulting
1164 from the debtor's inability to obtain, or increased costs of, alternative financing.
1165
1166 (c) Person entitled to recover damages- A person that, at the time of the failure, was a
1167 debtor, a grantor, or held a security interest in or other lien on the collateral may
1168 recover damages under subsection (b) for its loss.
1169
1170
1171 RULE VIII
1172 PRIOR INTERESTS AND THE TRANSITIONAL PERIOD
1173
1174 Section 8.01. Interpretation of Transitional Provisions. — For this Rule, unless the context
1175 otherwise requires:
1176 (a) Existing secured creditor — means a secured creditor with a prior security interest;
1177
1178 (b) Prior law — means any law that existed or in force before the effectivity of the
1179 PPSA;
1180
1181 (c) Prior interest — means a security interest created or provided for by an agreement
1182 or other transaction that was made or entered into before the effectivity of the
1183 PPSA and that had not been terminated before the effectivity of the PPSA, but
1184 excludes a security interest that is renewed or extended by a security agreement
1185 or other transaction made or entered into on or after the effectivity of the PPSA;
 DRAFT (10 JULY 2019)

1186
1187 (d) Transitional period — means the period from the date of effectivity of the PPSA
1188 until the date when the Registry has been established and operational.
1189
1190 Before the Effectivity of the PPSA
1191 Section 8.02. Creation of Prior Interest. —
1192 (a) Creation of prior interest shall be determined by prior law.
1193
1194 (b) A prior interest remains effective, subject to Section 8.03 of these Rules, between
1195 the parties notwithstanding that its creation did not comply with the creation
1196 requirements of the Personal Property Security Act and these Rules.
1197
1198 Section 8.03. Perfection of Prior Interest. —
1199 (a) A prior interest that was perfected under prior law continues to be deemed
1200 perfected under the PPSA and these rules until the earlier of:
1201
1202 (i) The time the prior interest would cease to be perfected under prior law;
1203 and
1204
1205 (ii) The beginning of full implementation of the PPSA.
1206
1207 Section 8.04. Priority of Prior Interest. — The priority of a prior interest as against the
1208 rights of a competing claimant is determined by the prior law if:
1209
1210 (a) The priority of a prior interest as against the rights of a competing claimant is
1211 determined by the prior law if:
1212
1213 (i) The security interest and the rights of all competing claimant arose before
1214 the effectivity of the PPSA; and
1215 (ii) The priority status of these rights has not changed since the effectivity of
1216 the PPSA.
1217
1218 (b) For purposes of subsection (a)(2) of this Rule, the priority status of a prior interest
1219 has changed only if:
1220
1221 (i) It was perfected when the PPSA took effect, but ceased to be perfected; or
1222 (ii) It was not perfected under prior law when the PPSA took effect, and was
1223 only perfected under the PPSA.
1224
1225 Section 8.05. Enforcement of Prior Interest. —
 DRAFT (10 JULY 2019)

1226 (a) If any step or action has been taken to enforce a prior interest before the
1227 effectivity of the PPSA and these Rules, and such prior interest falls within
1228 Section 8.02(b) also of these Rules, enforcement may continue under the prior
1229 law or may proceed under the PPSA and these Rules.
1230
1231 (b) Subject to subsection (a) of this Rule, prior law shall apply to a matter that is the
1232 subject of proceedings before a court before the effectivity of the PPSA.
1233
1234 During the Transitional Period
1235
1236 Section 8.06. Date of Effectivity of the Transitional Period. — The transitional period shall
1237 begin on February 9, 2019, which is the date of effectivity of the PPSA pursuant to
1238 Section 67 thereof.
1239
1240 Section 8.07. Creation of Security Interest. — All security interests created during the
1241 Transitional Period are governed by the PPSA.
1242
1243 Section 8.08. Perfection of Security Interest. — The perfection of all existing security
1244 interests created during the Transitional Period shall be governed by the PPSA.
1245
1246 (a) A written agreement between a grantor and a secured creditor creating a prior
1247 interest is sufficient to constitute authorization by the grantor of the registration
1248 of a notice covering assets described in that agreement under these Rules.
1249
1250 (b) If the perfection requirements of these Rules are satisfied before the perfection of
1251 a prior interest ceases in accordance with Rule 8.03, the prior interest continues
1252 to be perfected under these Rules from the time when it was perfected under the
1253 prior law.
1254
1255 (c) If a prior interest referred to in subsection (b) of this section was perfected by the
1256 registration in the registry of a notice under prior law, the time of registration
1257 under the prior law shall be the time to be used for purposes of applying the
1258 priority rules of these Rules.
1259
1260 (d) If the perfection requirements of these Rules are not satisfied before the
1261 perfection of a prior interest ceases in accordance with Rule 8.03, the prior
1262 interest is perfected only from the time it is perfected under these Rules.
1263
1264 Section 8.09. Priority of Security Interest. — The priority of competing security interests
1265 shall be determined during the Transitional Period by applying the PPSA.
1266 Section 8.10. Enforcement of Security Interest. — The enforcement of all existing security
1267 interests during the Transitional Period shall be governed by the PPSA.
 DRAFT (10 JULY 2019)

1268
1269 Section 8.11. Rules on Enforcement Procedure. — Subject to Section 47 of the PPSA and its
1270 corresponding Chapter in these Rules, the expedited hearing/proceedings shall be
1271 conducted in a summary manner consistent with the declared policies of the law and
1272 these Rules and in accordance with the rules of procedure that the Supreme Court may
1273 promulgate.
1274

1275 RULE IX
1276 LAWS REPEALED AND AMENDED
1277
1278 Section 9.01. Repealing Clause. —
1279 (a) The following laws are hereby repealed:
1280
1281 (i) Sections 1 to 16 of Act No. 1508, otherwise known as "The Chattel
1282 Mortgage Law";
1283 (ii) Articles 2085-2092 of the “Civil Code of the Philippines”, insofar as
1284 movable property is concerned;
1285 (iii) Articles 2093-2123 and 2140-2141 of the Civil Code of the Philippines;
1286 (iv) Section 13 of Republic Act No. 5980, as amended by Republic Act No.
1287 8556, otherwise known as the "Financing Company Act of 1998";
1288 (v) Sections 114-116 of Presidential Decree No. 1529, otherwise known as the
1289 "Property Registration Decree";
1290 (vi) Section 5(e) of Republic Act No. 4136, otherwise known as the "Land
1291 Transportation and Traffic Code."
1292
1293 (b) The following laws are hereby amended insofar as the provisions thereof are
1294 inconsistent with these Rules;
1295
1296 (i) Section 10 of Presidential Decree No. 1529
1297 (ii) Article 2127 of the Civil Code of the Philippines;
1298 (iii) Articles 2241, 2243, and 2246-2247 of Civil Code of the Philippines, insofar
1299 as the preferences created by these provisions are inconsistent with the
1300 priority rights of the secured creditor perfected pursuant to these Rules;
1301
1302 (c) All laws, decrees, orders, and issuances or portions thereof, which are
1303 inconsistent with the provisions of the PPSA, are hereby repealed, amended, or
1304 modified accordingly.
1305
1306 Section 9.02. Interpretation. — If there is any conflict between a provision of these Rules
1307 and a provision of any other law and its rules, these Rules shall govern unless the other
1308 law or its rules specifically cites or amends the conflicting provisions of these Rules.
 DRAFT (10 JULY 2019)

1309
1310 RULE X
1311 EFFECTIVITY
1312
1313 Section 10.01. Congressional Oversight and Periodic Review. — A Congressional Oversight
1314 Committee shall be created that will conduct a periodic review every five (5) years
1315 commencing from the effectivity of these Rules. The Congressional Oversight
1316 Committee shall be composed of the Chairperson of the Senate Committee on Banks,
1317 Financial Institutions and Currencies, the Chairperson of the House of Representatives
1318 Committee on Banks and Financial Intermediaries, and representatives of other
1319 relevant congressional committees.
1320 Section 10.02. Separability Clause. — Should any provision herein be declared
1321 unconstitutional or contrary to law, the same shall not affect the validity of the other
1322 provisions of these Rules.
1323 Section 10.03. Effectivity. — These Rules shall take effect fifteen (15) days after
1324 publication in at least two (2) newspapers of general circulation.
1325 Section 10.04. Implementation. — Notwithstanding the entry into force of these Rules
1326 under Section 10.03, the implementation of the Act shall be conditioned upon the
1327 Registry being established and operational under Rule IV.