Distinctions between PPSA and Civil Code Provisions

From the Lectures of Atty. Jazzie Sarona-Lozare

Notes by: Elaizza Concepcion

CIVIL CODE PPSA Atty. JSL’s discussion

It covers the contracts of pledge or mortgage This only involves security interests as well as
Contracts involved as well as those which involve the terms security agreement, the term grantor and
mortgagor, pledgor, pledgee or mortgagee. secured creditor.

No express provision as to the requirement of

ownership on the part of the grantor. However,
The pledgor or mortgagor must be the
Ownership it is still an essential requisite in relation to
absolute ownership.
disposition or transfer of property to another
person.

Future Property can be a valid security interest

Future Property cannot be pledged or
Future Property provided that the grantor will have a right over
mortgaged
these future properties

A grantor under PPSA could be a person who

Third persons who are not parties to the grants a security interest in collateral to secure
Third Persons principal obligation may secure the latter by its own obligation or that of another person.
pledging or mortgaging their own property. Otherwise stated, the grantor can be a person
who is not the prinicipal debtor.

It is provided in the PPSA that creditor is

authorized to retain the property (automatic
"Art. 2088. The creditor cannot
possession) but there is a requirement that he
appropriate the things given by way of
Prohibition on automatic has to notify and get the consent of the debtor
pledge or mortgage, or dispose of them.
appropriation and the other parties. So this still cannot be
Any stipulation to the contrary is null and
considered as automatic
void."-Automatic appropriation is prohibited.
possession/appropriation since there is a
requirement of notification.

Under Section 4.04, aside from Registration, we also

have there the conclusion of control agreement and
Under the PPSA, delivery for perfection of the
creation of a security interest in favor of a deposit-
Requirement of delivery for Delivery of the subject matter (e.g. certificate security interest is not anymore needed for the
taking institution. But take note under Section 4.04, for
validity/perfection (INTANGIBLE of stock) is required for validity/perfection of perfection. You can have Registration,
determining the perfection of the security interest, the
ASSETS) the pledge Conclusion of control agreement, and etc. (Refer
security or control agreement shall be executed under
to Sections 4.03, 4.04 and 4.05)
oath and shall include the time and date of its
execution.
 Distinctions between PPSA and Civil Code Provisions
From the Lectures of Atty. Jazzie Sarona-Lozare
Notes by: Elaizza Concepcion

CIVIL CODE PPSA Atty. JSL’s discussion

Under PPSA, With regard to registration, it’s still valid
Delivery of the subject matter is only one of the
between the parties if it is not registered. The
modes for its validity/perfection, but its term is
minimum requirement is the security agreement,
"Possession" under the PPSA. Under PPSA,
written agreement, or in written form as provided
delivery/possession is not the only mode for
Requirement of delivery for under Section 3.03. With regard to possession, it is
Delivery of the subject matter is required for perfection of the contract. Even if it is not
validity/perfection (TANGIBLE not stated there that one must execute a security
validity/perfection of the pledge delivered, the asset or subject matter of the
ASSETS) agreement. But if we apply Section 3.03, it appears
security interest can still be perfected. The
possession or delivery is not sufficient. So, at the very
security interest can still be perfected by way of
least there must be that written agreement between
registration or a security agreement. (Refer to
the parties and it appears that it must also be duly
Sections 4.01, 4.02, 3.03)
notarized.

Art. 2089 - Pledge is indivisible.

"Section 39(b)-The secured creditor has
Therefore, partial release is not allowed.
agreed to release part of the collateral
Partial release of the subject EXCEPTION: There being several things
described in the notice" You can ask for partial
property of the obligation given in pledge, each one of them
release of the subject property of the obligation
guarantees only a determinate portion of
as long as the creditor will give his consent.
the credit.

Take note under Section 4.04, for determining the

perfection of the security interest, the security or
Art. 2096 - A pledge shall not take effect
GENERAL RULE: Perfection is equivalent to control agreement shall be executed under oath and
against third persons if a description of the
To bind third parties binding third parties. EXCEPTION: Absence of shall include the time and date of its execution. Take
thing pledged and the date of the pledge do
registration is still valid between the parties note also of the form of the security agreement under
not appear in a public instrument.
Section 3.03, it is provided there that the collateral
and secured obligation shall be identified.

In PPSA, there is no expressed provision

Consent of the pledgee is required if pledgor regarding consent of the pledgee in case of
wants to alienate the thing pledged. If there alienation. What is clear is that the grantor would
is NO consent, it will not affect the validity of of course still remain the owner thereof and as a
Consent of the creditor/pledgee
the alienation provided all the essential rule he is still entitled to the sale rights available
in case of alienation
requisites are present but it will not be to an owner including eliminating, disposing,
binding against the pledgee who did not subjecting it to in encumbrance and selling the
give his consent to the alienation. property even without the consent of the secured
creditor.

Art.2110 - If the thing pledged is returned The grantor can remain in possession of the
Retention of possession by the pledgee to the pledgor or owner, property, nevertheless, there is perfected security
the pledge is extinguished xxx interest.
 Distinctions between PPSA and Civil Code Provisions
From the Lectures of Atty. Jazzie Sarona-Lozare
Notes by: Elaizza Concepcion

CIVIL CODE PPSA Atty. JSL’s discussion

Art. 2112. The creditor to whom the credit

has not been satisfied in due time, may
proceed before a Notary Public to the sale
of the thing pledged. This sale shall be
Under PPSA, Section 7.06 is one of the rights
made at a public auction, and with
Section 7.06. Right to Dispose of Collateral – After available to the secured creditor because take note,
notification to the debtor and the owner
default, a secured creditor may sell or otherwise he is also given the right to retain under PPSA but he
of the thing pledged in a proper case,
dispose of the collateral, publicly or privately, in also has the right to sell or otherwise dispose the
Right to Dispose stating the amount for which the public
its present condition or following any collateral publicly or privately in its present condition
sale is to be held. If at the first auction the
commercially reasonable preparation or or following any commercially reasonable reparation
thing is not sold, a second one with the
processing. or processing. So that’s Section 7.06. Refer also to
same formalities shall be held; and if at
Section 7.08 for the notification requirements.
the second auction there is no sale either,
the creditor may appropriate the thing
pledged. In this case he shall be obliged
to give an acquittance for his entire claim.

The highest bidder must pay and if he cannot

Art. 2114. All bids at the public auction shall pay, the next highest bidder must be given the
offer to pay the purchase price at once. If right as to the purchase of the property. So that’s
Full payment of purchase price any other bid is accepted, the pledgee is under Section 7.09, last paragraph under (d). The
at bids deemed to have been received the purchase winning bidder must fully pay the bid price at the
price, as far as the pledgor or owner is conclusion of the auction. Otherwise, the
concerned. collateral may be awarded to the next highest
bidder. So that’s the rule under PPSA.

As to Excess, General Rule: Creditor is

entitled to the excess. Exception: Debtor is
As to Excess and Deficiency in As to Excess, Grantor is entitled to the excess. As
entitled if there is an agreement. As to
the proceeds of the sale of the to Deficiency, Debtor is liable for the deficiency
Deficiency: Debtor will not be liable for any
thing pledged unless otherwise agreed
deficiency notwithstanding any agreement
to the contrary