An Act Strengthening the Secured Transactions Legal Framework in the Philippines, Which Shall Provide for the Creation, Perfection, Determination of Priority, Establishment of a Centralized Notice Registry, and Enforcement of Security Interests in Personal Property, and for Other Purposes

Seventeenth Congress
Second Regular Session

Begun and held in Metro Manila, on Monday, the twenty-fourth day of July, two thousand seventeen.

REPUBLIC ACT No. 11057

An Act Strengthening the Secured Transactions Legal Framework in the Philippines, Which Shall Provide for the Creation, Perfection, Determination of Priority, Establishment of a Centralized Notice Registry, and Enforcement of Security Interests in Personal Property, and for Other Purposes

Be it enacted by the Senate and House of Representatives of the Philippine Congress Assembled:

Section 1. Title. -This Act shall be known as the "Personal Property Security Act".

Section 2. Declaration of Policy. -It is the policy of the State to promote economic activity by increasing access to least cost credit, particularly for micro, small, and medium enterprises (MSMEs), by establishing a unified and modern legal framework for securing obligations with personal property.

CHAPTER 1
DEFINITIONS AND SCOPE

Section 3. Definition of Terms. -As used in this Act, the following terms shall mean:

Section 4. Scope of the Act.— This Act shall apply to all transactions of any form that secure an obligation with movable collateral, except interests in aircrafts subject to Republic Act No. 9497, or the "Civil Aviation Authority Act of 2008", and interests in ships subject to Presidential Decree No. 1521, or the "Ship Mortgage Decree of 1978".

CHAPTER 2
CREATION OF SECURITY INTEREST

Section 5. Creation of a Security Interest.—

Section 6. Security Agreement.— A security agreement must be contained in a written contract signed by the parties. It may consist of one or more writings that, taken together, establish the intent of the parties to create a security interest.

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

Section 7. Description of Collateral.— A description of collateral shall be considered sufficient, whether it is specific or general, if it reasonably identifies the collateral. A description such as "all personal property", "all equipment", "all inventory", or "all personal property within a generic category" of the grantor shall be sufficient.

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

Section 9. Continuity of Security Interest.— A security interest shall continue in collateral notwithstanding sale, lease, license, exchange, or other disposition of the collateral, except as otherwise provided in Section 21 of this Act, or agreed upon by the parties.

Section 10. Contractual Limitation on the Creation of a Security Interest.—

CHAPTER 3
PERFECTION OF SECURITY INTEREST

Section 11. Perfection of Security Interest.—

Section 12. Means of Perfection.— A security interest may be perfected by:

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.

Section 13. Perfection by Control.—

Section 14. Perfection in Proceeds.—

Section 15. Change in Means of Perfection.— A security interest shall remain perfected despite a change in the means for achieving perfection: Provided, That there was no time when the security interest was not perfected.

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

CHAPTER 4
PRIORITY OF SECURITY INTEREST

Section 17. Priority Rules.— The priority of security interests and liens in the same collateral shall be determined according to time of registration of a notice or perfection by other means, without regard to the order of creation of the security interests and liens.

Section 18. Priority for Perfection by Control.—

Section 19. Priority for Instruments and Negotiable Documents. -A security interest in an instrument or negotiable document that is perfected by possession of the instrument or the negotiable document shall have priority over a security interest in the instrument or negotiable document that is perfected by registration of a notice in the Registry.

Section 20. Priority and Plight of Retention by Operation of Law. -A person who provides services or materials with respect to the goods, in the ordinary course of business, and retains possession of the goods shall have priority over a perfected security interest in the goods until payment thereof.

Section 21. Transferee Exceptions. -Any party who obtains, in the ordinary course of business, any movable property containing a security interest shall take the same free of such security interest provided he was in good faith. No such good faith shall exist if the security interest in the movable property was registered prior to his obtaining the property.

Section 22. Effect of the Grantor’s Insolvency on the Priority of a Security Interest. -Subject to the applicable insolvency law, a security interest perfected prior to the commencement of insolvency proceedings in respect of the grantor shall remain perfected and retain the priority it had before the commencement of the insolvency proceedings.

Section 23. Purchase Money Security Interest.—

Section 24. Livestock. -A perfected security interest in livestock securing an obligation incurred to enable the grantor to obtain food or medicine for the livestock shall have priority over any other security interest in the livestock, except for a perfected purchase money security interest in the livestock, if the secured creditor providing credit for food or medicine gives written notification to the holder of the conflicting perfected security interest in the same livestock before the grantor receives possession of the food or medicine.

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

CHAPTER 5
REGISTRATION – REGISTRY

Section 26. Establishment of Electronic Registry.—

Section 27. Public Record.—

Section 28. Sufficiency of Notice.—

Section 29. One Notice Sufficient for Security Interests Under Multiple Security Agreements. -The registration of a single notice may relate to security interests created by the grantor under one (1) or more than one security agreement.

Section 30. Effectiveness of Notice.—

Section 31. Seriously Misleccding Notice. -A notice that does not provide the identification number of the grantor shall be seriously misleading.

Section 32. Amendment of Notice.—

Section 33. Continuation of Notice.—

Section 34. Termination of Effectiveness of a Notice.—

Section 35. Registry Duties.—

Section 36. Search of Registry Records and Certified Report.—

Section 37. Disclosure of Information.—

Section 38. Fees Set by Regulation.—

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

Section 40. Matters That May be Required by Demand. -Upon receipt of the demand submitted under Section 39, the secured creditor must register, within fifteen (15) working days, an amendment or termination notice:

Section 41. Procedure for Noncompliance with Demand. -If the secured creditor fails to comply with the demand within fifteen (15) working days after its receipt, the person giving the demand under Section 39 may ask the proper court to issue an order terminating or amending the notice as appropriate.

Section 42. Compulsory Amendment or Termination by Court Order.—

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

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

CHAPTER 6
ENFORCEMENT OF SECURITY INTEREST SECURED CREDITOR’S RIGHTS

Section 45. Right of Redemption.—

Section 46. Right of Higher-Ranking Secured. Creditor to Take Over Enforcement.—

Section 47. Expedited Repossession of the Collateral.—

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

Section 49. Right to Dispose of Collateral.—

Section 50. Commercial Reasonableness Required.—

Section 51. Notification of Disposition.—

Section 52. Application of Proceeds.—

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

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

Section 53. Rights of Buyers and Other Third Parties.—

Section 54. Retention of Collateral by Secured Creditor.—

CHAPTER 7
TRANSITIONAL PROVISIONS

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

Section 56. Creation of Prior Interest.—

Section 57. Perfection of Prior Interest.—

Section 58. Priority of Prior Interest.—

Section 59. Enforcement of Prior Interest.—

CHAPTER 8
CONGRESSIONAL OVERSIGHT AND MISCELLANEOUS PROVISIONS

Section 60. Congressional Oversight and Periodic Review.— A Congressional Oversight Committee shall be created that will conduct a periodic review every five (5) years commencing from the effectivity of this Act. The Congressional Oversight Committee shall be composed of the Chairperson of the Senate Committee on Banks, Financial Institutions and Currencies, the Chairperson of the House of Representatives Committee on Banks and Financial Intermediaries, and representatives of other relevant congressional committees.

Section 61. Interpretation.— If there is conflict between a provision of this Act and a provision of any other law, this Act shall govern unless the other law specifically cites or amends the conflicting provisions of this law.

Section 62. Implementing Rules and Regulations.— Within six (6) months from the passage of this Act, the DOF in coordination with the Department of Justice, through the LRA, shall promulgate the necessary rules and regulations for’ the effective implementation of this Act.

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

Section 64. Sourcing of Funds.— The funds needed for the implementation of this Act shall be taken from the Special Account arising from revenues collected by the LRA under Section 111 of Presidential Decree No. 1529, without need for any further government approval.

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

Section 66. Repealing Clause.— The following laws, and all laws, decrees, orders, and issuances or portions thereof, which are inconsistent with the provisions of this Act, are hereby repealed, amended, or modified accordingly:

Section 67. Effectivity.— This Act shall take effect fifteen (15) days after publication in at least two (2) newspapers of general circulation.

Section 68. Implementation.— Notwithstanding the entry into force of this Act under Section 67, the implementation of the Act shall be conditioned upon the Registry being established and operational under

Approved,

(Sgd)VICENTE C. SOTTO III
President of the Senate

(Sgd)PANTALEON D. ALVAREZ
Speaker of the House of Representatives

This Act which is a consolidation of House Bill No. 6907 and Senate Bill No. 1459 was passed by the House of Representatives and the Senate on May 30, 2018.

(Sgd) MYRA MARIE D. VILLARICA
Secretary of the Senate

(Sgd) CESAR STRAIT PAREJA
Secretary General
House of Representatives

(Sgd) RODRIGO ROA DUTERTE
President of the Philippines

Approved: August 17, 2018.