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PERSONAL PROPERTY SECURITY ACT
Scope of the PPSA
The PPSA 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.” (Sec. 4, PPSA)
Security Interest
A property right in collateral that:
1) 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;
2) Including the right of a buyer of accounts receivable; and
3) A lessor under an operating lease for not less than one (1) year. (Sec. 3 [j], PPSA)
Creation of 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. (Sec. 5, PPSA)
What is a 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. (Sec. 6, PPSA)
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How should collateral be described
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. 7, PPSA)
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.
b) On perfection, a security interest becomes effective against third parties. (Sec. 11, PPSA)
Means of Perfection of Security Interest
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 (c) 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. 12, PPSA)
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 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
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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. (Sec. 3
[b], PPSA)
Grantor
A grantor is:
1) The person who grants a security interest in collateral to secure its own obligation or that
of another person;
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. (Sec. 3 [c], PPSA)
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. (Sec. 3 [f], PPSA)
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.
(Sec. 3 [g], PPSA)
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Continuity of Security Interest
A security interest shall continue in collateral notwithstanding sale, lease, license, exchange, or
other disposition of the collateral, except as: (1) otherwise provided in Section 21 of this Act, or
(2) agreed upon by the parties. (Sec. 9, PPSA)
When can future property be subject to security interest
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. (Sec. 5 [b], PPSA)
How perfection by control occur
A security interest in a deposit account or investment property may be perfected by control
through:
1) The creation of the security interest in favor 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 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. 13,
PPSA)
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Electronic Registry
a) The Registry shall be established in and administered by the Land Registration Authority
(LRA).
b) The Registry shall provide electronic means for registration and searching of notices. (Sec.
26, PPSA)
It must be noted that the information provided in the registered notice shall be a public record.
(Sec. 27, PPSA)
Priority of Security Interests
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. 17, PPSA)
Priority for Perfection by Control
a) A security interest in a deposit account with respect to which the secured creditor is the
deposit-taking institution or the intermediary shall have priority over a competing
security interest perfected by any method.
b) A security interest in a deposit account or investment property that is perfected by a
control agreement shall have priority over a competing security interest except a security
interest of the deposit-taking institution or the intermediary.
c) 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.
d) 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.
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e) 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.
f) A security interest in electronic securities not held with an intermediary perfected by a
notation of the security interests in the books maintained for that purpose by or on behalf
of the issuer shall have priority over a security interest in the same securities perfected
by any other method.
g) 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. 18, PPSA)
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.
(Sec. 19, PPSA)
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. (Sec. 22,
PPSA)
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Enforcement of Security Interests
The secured creditor may enforce its security interest whether through a judicial process or
through an extra-judicial process, including the sale of the secured assets through either a public
or private disposition. Any judicial enforcement of security interests, including the disposition of
collateral shall be governed by rules promulgated by the Supreme Court. (Sec. 7.01, IRR)
Extrajudicial Process
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 peace.
Breach of 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.
If the collateral is a fixture, the secured creditor, if it has priority over all owners and mortgages,
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. (Sec. 7.02, IRR)
Right of Redemption; General Rule: Allowed
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 agreement by the secured creditor for that
purpose; and
3) The secured creditor has retained the collateral. (Sec. 45, PPSA)
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Disposal by the secured creditor of the 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.
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. 49, PPSA)
Application of proceeds of the disposed collateral
a) 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; and
3) The satisfaction of obligations secured by any subordinate security interest or
when 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. (Sec. 52, PPSA)
REAL ESTATE MORTGAGE
The validity of an accommodation mortgage is allowed under Article 2085 of the New Civil Code
which provides that third persons who are not parties to the principal obligation may secure
the latter by pledging or mortgaging their own property.
We find that Rosalina is liable as an accommodation mortgagor. In Belo v. PNB, 353 SCRA 359
(2001), we had the occasion to declare: An accommodation mortgage is not necessarily void
simply because the accommodation mortgagor did not benefit from the same. The validity of an
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accommodation mortgage is allowed under Article 2085 of the New Civil Code which provides
that (t)hird persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property. An accommodation mortgagor, ordinarily, is not
himself a recipient of the loan, otherwise that would be contrary to his designation as such.
Carodan vs. China Bank Corporation, 785 SCRA 179, G.R. No. 210542 February 24, 2016
If the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of
mortgage, the mortgagee is entitled to claim the deficiency from the debtor.
A mortgage is simply a security for, and not a satisfaction of indebtedness. If the proceeds of the
sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the mortgagee
is entitled to claim the deficiency from the debtor. We have already recognized this rule: While
Act No. 3135, as amended, does not discuss the mortgagee’s right to recover the deficiency,
neither does it contain any provision expressly or impliedly prohibiting recovery. If the legislature
had intended to deny the creditor the right to sue for any deficiency resulting from the
foreclosure of a security given to guarantee an obligation, the law would expressly so provide.
Absent such a provision in Act No. 3135, as amended, the creditor is not precluded from taking
action to recover any unpaid balance on the principal obligation simply because he chose to
extrajudicially foreclose the real estate mortgage. Carodan vs. China Bank Corporation, 785
SCRA 179, G.R. No. 210542 February 24, 2016
As an accessory contract, a mortgage contract’s validity depends on the loan contract’s validity.
It is, thus, imperative for this Court to determine if the contract of loan between petitioners and
private respondent is valid.
This Court held in Pentacapital Investment Corporation v. Mahinay, 623 SCRA 284 (2010), that
“[l]ike any other contract, a contract of loan is subject to the rules governing the requisites and
validity of contracts in general.” Luntao vs. BAP Credit Guaranty Corporation, 840 SCRA 294,
G.R. No. 204412 September 20, 2017
The registration of a real estate mortgage (REM) deed is not essential to its validity.
The following requisites are essential to the contracts of pledge and mortgage:
1) That they be constituted to secure the fulfillment of a principal obligation;
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2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
3) That the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property. In relation thereto, Article 2125 provides: In addition to the
requisites stated in Article 2085, it is indispensable, in order that a mortgage may be validly
constituted, that the document in which it appears be recorded in the Registry of Property. If the
instrument is not recorded, the mortgage is nevertheless binding between the parties.
Thus, as between the parties to a mortgage, the non-registration of a REM deed is immaterial to
its validity. In the case of Paradigm Development Corporation of the Philippines v. Bank of the
Philippine Islands, 826 SCRA 267 (2017), the mortgagee allegedly represented that it will not
register one of the REMs signed by the mortgagor. In upholding the validity of the questioned
REM between the said parties, the Court ruled that “with or without the registration of the REMs,
as between the parties thereto, the same is valid and the mortgagor is bound thereby.” Coca-
Cola Bottlers Phils., Inc. vs. Soriano, 861 SCRA 93, G.R. No. 211232 April 11, 2018
SURETY & GUARANTY
A contract of suretyship is an agreement whereby a party, called the surety, guarantees the
performance by another party, called the principal or obligor, of an obligation or undertaking
in favor of another party, called the obligee.
Although the contract of a surety is secondary only to a valid principal obligation, the surety
becomes liable for the debt or duty of another although it possesses no direct or personal interest
over the obligations nor does it receive any benefit therefrom. This was explained in the case of
Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation, 492 SCRA 179 (2006),
where it was written: The surety’s obligation is not an original and direct one for the performance
of his own act, but merely accessory or collateral to the obligation contracted by the principal.
Nevertheless, although the contract of a surety is in essence secondary only to a valid principal
obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and
absolute; in other words, he is directly and equally bound with the principal. xxx Thus, suretyship
arises upon the solidary binding of a person deemed the surety with the principal debtor for the
purpose of fulfilling an obligation. A surety is considered in law as being the same party as the
debtor in relation to whatever is adjudged touching the obligation of the latter, and their
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liabilities are interwoven as to be inseparable. Lim vs. Security Bank Corporation, 718 SCRA 709,
G.R. No. 188539 March 12, 2014
Surety vs. Guaranty
A contract of suretyship (second paragraph of Article 2047) has been juxtaposed against a
contract of guaranty (first paragraph of Article 2047) as follows: A surety is an insurer of the debt,
whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an undertaking
that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. Stated
differently, a surety promises to pay the principal’s debt if the principal will not pay, while a
guarantor agrees that the creditor, after proceeding against the principal, may proceed against
the guarantor if the principal is unable to pay.
A surety binds himself to perform if the principal does not, without regard to his ability to do so.
A guarantor, on the other hand, does not contract that the principal will pay, but simply that he
is able to do so. In other words, a surety undertakes directly for the payment and is so responsible
at once if the principal debtor makes default, while a guarantor contracts to pay if, by the use of
due diligence, the debt cannot be made out of the principal debtor. Carodan vs. China Bank
Corporation, 785 SCRA 179, G.R. No. 210542 February 24, 2016
The obligations of the surety to the principal under the surety bond are different from the
obligations of the contractor to the client under the principal contract.
The surety guarantees the performance of the contractor’s obligations. Upon the contractor’s
default, its client may demand against the surety bond even if there was no privity of contract
between them. This is the essence of a surety agreement. People's Trans-East Asia Insurance
Corporation vs. Doctors of New Millennium Holdings, Inc., 732 SCRA 631, G.R. No. 172404
August 13, 2014
Continuing Surety Agreements
A bank or financing company which anticipates entering into a series of credit transactions with
a particular company, normally requires the projected principal debtor to execute a continuing
surety agreement along with its sureties. In this case, what petitioner executed was a Continuing
Suretyship, which the Court described in Saludo, Jr. v. Security Bank Corporation, 633 SCRA 247
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(2010), as follows: The essence of a continuing surety has been highlighted in the case of Totanes
v. China Banking Corporation, 576 SCRA 323 (2009), in this wise: Comprehensive or continuing
surety agreements are, in fact, quite commonplace in present day financial and commercial
practice. A bank or financing company which anticipates entering into a series of credit
transactions with a particular company, normally requires the projected principal debtor to
execute a continuing surety agreement along with its sureties. By executing such an agreement,
the principal places itself in a position to enter into the projected series of transactions with its
creditor; with such suretyship agreement, there would be no need to execute a separate surety
contract or bond for each financing or credit accommodation extended to the principal debtor.
Lim vs. Security Bank Corporation, 718 SCRA 709, G.R. No. 188539 March 12, 2014
A suretyship consists of two different contracts: (1) the surety contract and (2) the principal
contract which it guarantees.
Since the insurer’s liability is strictly based only on the terms stated in the surety contract in
relation to the principal contract, any change in the principal contract, which materially alters the
principal’s obligations would, in effect, constitute an implied novation of the surety contract: [A]
surety is released from its obligation when there is a material alteration of the contract in
connection with which the bond is given, such as a change which imposes a new obligation on
the promising party, or which takes away some obligation already imposed, or one which changes
the legal effect of the original contract and not merely its form. A surety, however, is not released
by a change in the contract which does not have the effect of making its obligation more onerous.
People's Trans-East Asia Insurance Corporation vs. Doctors of New Millennium Holdings, Inc.,
732 SCRA 631, G.R. No. 172404 August 13, 2014
The surety is presumed to have acquiesced to the terms and conditions embodied in the
principal contract when it issued its surety bond.
Accordingly, petitioner cannot argue that the insertion of the clause in the signed agreement
constituted an implied novation of the obligation which extinguished its obligations as a surety
since there was nothing to novate: [I]n order that an obligation may be extinguished by another
which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that
the old and new obligation be in every point incompatible with each other. Novation of a contract
is never presumed. In the absence of an express agreement, novation takes place only when the
old and the new obligations are incompatible on every point. People's Trans-East Asia Insurance
Corporation vs. Doctors of New Millennium Holdings, Inc., 732 SCRA 631, G.R. No. 172404
August 13, 2014
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The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the
property of the debtor and resorted to all the legal remedies against the debtor.
Under a normal contract of guarantee, the guarantor binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so. The guarantor who pays
for a debtor, in turn, must be indemnified by the latter. However, the guarantor cannot be
compelled to pay the creditor unless the latter has exhausted all the property of the debtor and
resorted to all the legal remedies against the debtor. This is what is otherwise known as the
benefit of excussion. Conversely, if this benefit of excussion is waived, the guarantor can be
directly compelled by the creditor to pay the entire debt even without the exhaustion of the
debtor’s properties. Trade and Investment Development Corporation of the Philippines also
known as Philippine Export-Import Credit Agency vs. Philippine Veterans Bank, 907 SCRA 66,
G.R. No. 233850 July 1, 2019
A guarantor who engages to directly shoulder the debt of the debtor, waiving the benefit of
excussion and the requirement of prior presentment, demand, protest or notice of any kind,
undoubtedly makes himself/herself solidarily liable to the creditor.
Under the Civil Code, by virtue of Article 2047, which states that a contract is called a suretyship
when a person binds himself solidarily with the principal debtor, when the guarantor binds
himself solidarily with the debtor, the contract ceases to be a guaranty and becomes
suretyship.—Recognized Civil Law Commentator, former Court of Appeals Justice Eduardo P.
Caguioa also explained that one of the hallmarks of a contract of guaranty is its subsidiary
character — “that the guarantor only answers if the debtor cannot fulfill his obligation; hence
the benefit of excussion in favor of the guarantor.” Trade and Investment Development
Corporation of the Philippines vs. Philippine Veterans Bank, 907 SCRA 66, G.R. No. 233850 July
1, 2019
The determination of whether an obligation is a suretyship is not a matter of nomenclature and
semantics. That an obligor is designated as a “guarantor” or that the contract is denominated
as a “guarantee agreement” does not automatically mean that the obligor is a guarantor or
that the contract entered into is a contract of guarantee.
As previously held by the Court, even assuming that a party was expressly made liable only as a
“guarantor” in an agreement, he/she can be held immediately liable directly and immediately if
the benefit of excussion was waived. Trade and Investment Development Corporation of the
Philippines vs. Philippine Veterans Bank, 907 SCRA 66, G.R. No. 233850 July 1, 2019
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