Credit Transactions Notes | Atty.

Oyales
UMAK School of Law

SECURING OBLIGATIONS WITH MOVABLE ASSETS: RA 11057 (Personal Property Security Act)
Published 17 September 2018, The Daily Tribune

Do you know that deposit accounts and intellectual property rights may now be used as collateral in
securing loan obligations?

At present, banks and other financial institutions prefer traditional collateral such as realty and other
immovable property making it difficult for small entrepreneurs to obtain loans.

To boost access to credit, especially of micro, small, and medium enterprises (“MSMEs”), farmers and
fisherfolk, Republic Act No. 11057 (“R.A. 11057”), otherwise known as the Personal Property Security Act,
was signed into law last 17 August 2018. It strengthened the secured transactions legal framework in the
Philippines and provided for the creation, perfection, determination of priority, and enforcement of
security interests in personal property. R.A. 11057 also pursued the design, establishment, and operation
of a unified, centralized, online notice-based national collateral registry that will be lodged in Land
Registration Authority (“LRA”) to reduce the risks involved in accepting movable collaterals.

Under R.A. 11057, movable collaterals now include, among others:

1. deposit accounts
2. accounts receivable
3. negotiable instruments
4. security certificate or electronic securities
5. inventory
6. equipment
7. consumer goods
8. livestock and other agricultural products
9. vehicles, and
10. intellectual property rights.

Before, a future property cannot be pledged or mortgaged since a party cannot legally pledge or
mortgage property he does not own. Under the present law, the security agreement can now provide for
the creation of security interest in a future property, subject however to the creation of security interest
when the borrower acquires rights in it or the power to encumber it.

Essentially, R.A. 10157 covers all transactions of any form that secure an obligation with movable
collateral, except:
1. interests in aircrafts which will be subject to Republic Act No. 9497, or the “Civil Aviation Authority Act
of 2008”; and
2. interests in ships subject to Presidential Decree No. 1521, or the “Ship Mortgage Decree of 1978”.

Prior to R.A 11057, pledge or mortgage of a movable collateral would differ in formalities as to creation,
perfection/registration, and enforcement:

In pledge, delivery of the thing pledged is necessary for its validity while in mortgage, delivery is not
necessary.
In pledge, the agreement must be in a public instrument containing the description of the thing pledged
and the date thereof to bind third persons; in mortgage, registration where the property is situated is
necessary to bind third persons.

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Credit Transactions Notes | Atty. Oyales
UMAK School of Law

Now, rules on formalities as to creation, perfection/registration, and enforcement have been

simplified and harmonized.
 A signed written contract is enough to create a security interest.
 Perfection of such security interest may be by registration of a notice with the registry,
possession of the collateral by the secured creditor, or control of investment property and
deposit account.
 Also, a set of priority rules had been provided for to determine the priority of interests and
liens in the same collateral.
 More importantly, the long-standing distinction between a pledge and chattel mortgage on
the right of the lender to recover deficiency has been removed.

Under the old law, the mortgagor is liable to the mortgagee if the proceeds of the foreclosure sale are
not enough to satisfy the loan. Conversely, the foreclosure of the pledge completely extinguishes the
loan obligation and any stipulation allowing the pledgee to recover any deficiency is null and void.

Under the new law, the secured creditor, whether a mortgagee or pledgee, shall account to the
grantor for any surplus, and, unless otherwise agreed, the debtor is liable for any deficiency.

In view of the foregoing, it bears stressing that the following laws, decrees, and issuances and portions
thereof which are inconsistent with the provisions of R.A. 11057, had been repealed, amended, and
modified accordingly:
 Sections 1 to 6 The Chattel Mortgage Law;
 Articles 2085-2123, 2127, 2140-2141, 2243, and 2246-2247 of the Civil Code of the
Philippines;
 Section 13 of the Financing Company Act of 1998;
 Sections 10, 114-116 of the Property Registration Decree; and
 Section 5(e) of the Land Transportation and Traffic Code.

Note, however, that notwithstanding the entry into force of R.A. 11057, the implementation thereof shall
be conditioned upon the Registry in the LRA being established and operational. The implementing
rules and regulations for the effective implementation of the statute will still be promulgated by the
Department of Finance (“DOF”) in coordination with the Department of Justice (“DOJ”) within six (6)
months from its passage. Additional articles will be written on this new law once the implementing
regulations are in place.

DOF posts online draft IRR for personal property security law
Source: https://www.dof.gov.ph/index.php/dof-posts-online-draft-irr-for-personal-property-security-law/ (last
accessed: October 26, 2019)

The Department of Finance (DOF) has posted the draft implementing rules and regulations (IRR) for
Republic Act (RA) No. 11057, otherwise known as the “Personal Property Security Act” (PPSA), on its
website, where stakeholders and interested parties may review and download the proposed IRR and
provide online comments and suggestions.

The draft was posted online ahead of the public hearing that the DOF will hold this Wednesday (July 17)
from 2:00 to 4:30 PM at the University of the Philippines (UP) Law Center in Diliman, Quezon City to
discuss the proposed IRR.

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JurisDrinkers©2018
Credit Transactions Notes | Atty. Oyales
UMAK School of Law

The microsite on the draft IRR for RA 11057 can be accessed at

https://www.dof.gov.ph/index.php/advocacies/personal-property-security-act/

This DOF site contains the full text of the law, the draft IRR, including invites and notices regarding the
upcoming public consultation on PPSA’s implementing rules.

Pursuant to the thrust of the DOF to maximize the use information and communications technology to
ensure widespread dissemination of government policies and interaction with stakeholders, the site will
organize online queries, comments and recommendations on the draft IRR by encouraging stakeholders
and interested parties to submit their comments, queries and recommendations online or through email,
and register in the upcoming events.

For inquiries, comments, and suggestions on the draft IRR for the PPSA, one can email the DOF-Legal
Services Group at ppsairr@dof.gov.ph.

The draft IRR was prepared by the DOF Legal Services Group in consultation with experts, practitioners
and professors in commercial laws and credit transactions of the UP Law Center.

The PPSA aims 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.

It also seeks to increase access to credit of MSMEs, as well as farmers and fisherfolk.

Under the PPSA, MSMEs, farmers and fisherfolks can now secure their borrowings by using non-
traditional collateral such as account receivables, inventory, negotiable instruments, electronic
securities, crops, livestock, consumer goods, machinery, equipment as well as intellectual property rights.

The PPSA likewise provides that future property can now secure a borrower’s financial needs through
the creation of a security interest in the security agreement; however, the security interest in that
property is created only when the borrower acquires rights in it or the power to encumber it.

This new law has simplified the process as:

 security interest may be perfected by registration of a notice with the Registry;
 possession of the collateral by the secured creditor; or
 by control of investment property and deposit account.

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

The centralized notice Registry established under the PPSA shall provide electronic means for
registration and searching of notices. The electronic records shall be considered as public record.

There shall be no fee for electronic searches of the Registry records or for the registration of
termination notices.

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