Title XI. - LOAN Art. 1939.

Commodatum is purely personal in

GENERAL PROVISIONS character. Consequently:

Art. 1933. By the contract of loan, one of the (1) The death of either the bailor or the
parties delivers to another, either something not bailee extinguishes the contract;
consumable so that the latter may use the same (2) The bailee can neither lend nor lease
for a certain time and return it, in which case the the object of the contract to a third
contract is called a commodatum; or money or person. However, the members of the
other consumable thing, upon the condition that bailee's household may make use of the
the same amount of the same kind and quality thing loaned, unless there is a
shall be paid, in which case the contract is stipulation to the contrary, or unless the
simply called a loan or mutuum. nature of the thing forbids such use. (n)

Commodatum is essentially gratuitous. Art. 1940. A stipulation that the bailee may
make use of the fruits of the thing loaned is
Simple loan may be gratuitous or with a valid. (n)
stipulation to pay interest.
SECTION 2. - Obligations of the Bailee
In commodatum the bailor retains the ownership
of the thing loaned, while in simple loan, Art. 1941. The bailee is obliged to pay for the
ownership passes to the borrower. (1740a) ordinary expenses for the use and preservation
of the thing loaned. (1743a)
Art. 1934. An accepted promise to deliver
something by way of commodatum or simple Art. 1942. The bailee is liable for the loss of the
loan is binding upon parties, but the thing, even if it should be through a fortuitous
commodatum or simple loan itself shall not be event:
perfected until the delivery of the object of the
contract. (n) (1) If he devotes the thing to any
purpose different from that for which it
CHAPTER 1 has been loaned;
COMMODATUM (2) If he keeps it longer than the period
SECTION 1 - Nature of Commodatum stipulated, or after the accomplishment
of the use for which the commodatum
Art. 1935. The bailee in commodatum acquires has been constituted;
the used of the thing loaned but not its fruits; if (3) If the thing loaned has been
any compensation is to be paid by him who delivered with appraisal of its value,
acquires the use, the contract ceases to be a unless there is a stipulation exemption
commodatum. (1941a) the bailee from responsibility in case of
a fortuitous event;
Art. 1936. Consumable goods may be the (4) If he lends or leases the thing to a
subject of commodatum if the purpose of the third person, who is not a member of his
contract is not the consumption of the object, as household;
when it is merely for exhibition. (n) (5) If, being able to save either the thing
borrowed or his own thing, he chose to
Art. 1937. Movable or immovable property may
save the latter. (1744a and 1745)
be the object of commodatum. (n)
Art. 1943. The bailee does not answer for the
Art. 1938. The bailor in commodatum need not
deterioration of the thing loaned due only to the
be the owner of the thing loaned. (n)
use thereof and without his fault. (1746)
Art. 1944. The bailee cannot retain the thing If the extraordinary expenses arise on the
loaned on the ground that the bailor owes him occasion of the actual use of the thing by the
something, even though it may be by reason of bailee, even though he acted without fault, they
expenses. However, the bailee has a right of shall be borne equally by both the bailor and the
retention for damages mentioned in Article 1951. bailee, unless there is a stipulation to the
(1747a) contrary. (1751a)

Art. 1945. When there are two or more bailees Art. 1950. If, for the purpose of making use of
to whom a thing is loaned in the same contract, the thing, the bailee incurs expenses other than
they are liable solidarily. (1748a) those referred to in Articles 1941 and 1949, he is
not entitled to reimbursement. (n)
SECTION 3. - Obligations of the Bailor
Art. 1951. The bailor who, knowing the flaws of
Art. 1946. The bailor cannot demand the return the thing loaned, does not advise the bailee of
of the thing loaned till after the expiration of the the same, shall be liable to the latter for the
period stipulated, or after the accomplishment of damages which he may suffer by reason thereof.
the use for which the commodatum has been (1752)
constituted. However, if in the meantime, he
should have urgent need of the thing, he may Art. 1952. The bailor cannot exempt himself
demand its return or temporary use. from the payment of expenses or damages by
abandoning the thing to the bailee. (n)
In case of temporary use by the bailor, the
contract of commodatum is suspended while the CHAPTER 2
thing is in the possession of the bailor. (1749a) SIMPLE LOAN OR MUTUUM

Art. 1947. The bailor may demand the thing at Art. 1953. A person who receives a loan of
will, and the contractual relation is called a money or any other fungible thing acquires the
precarium, in the following cases: ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and
(1) If neither the duration of the contract quality. (1753a)
nor the use to which the thing loaned
should be devoted, has been stipulated; Art. 1954. A contract whereby one person
or transfers the ownership of non-fungible things to
(2) If the use of the thing is merely another with the obligation on the part of the
tolerated by the owner. (1750a) latter to give things of the same kind, quantity,
and quality shall be considered a barter. (n)
Art. 1948. The bailor may demand the
immediate return of the thing if the bailee Art. 1955. The obligation of a person who
commits any act of ingratitude specified in borrows money shall be governed by the
Article 765. (n) provisions of Articles 1249 and 1250 of this
Code.
Art. 1949. The bailor shall refund the
extraordinary expenses during the contract for If what was loaned is a fungible thing other than
the preservation of the thing loaned, provided money, the debtor owes another thing of the
the bailee brings the same to the knowledge of same kind, quantity and quality, even if it should
the bailor before incurring them, except when change in value. In case it is impossible to
they are so urgent that the reply to the deliver the same kind, its value at the time of the
notification cannot be awaited without danger. perfection of the loan shall be paid. (1754a)
Art. 1956. No interest shall be due unless it has Be it enacted by the Senate and House of
been expressly stipulated in writing. (1755a) Representatives of the Philippine Congress
Assembled:
Art. 1957. Contracts and stipulations, under any
cloak or device whatever, intended to circumvent Section 1. Title. -This Act shall be known as the
the laws against usury shall be void. The "Personal Property Security Act".
borrower may recover in accordance with the
laws on usury. (n) Section 2. Declaration of Policy. -It is the policy
of the State to promote economic activity by
Art. 1958. In the determination of the interest, if increasing access to least cost credit,
it is payable in kind, its value shall be appraised particularly for micro, small, and medium
at the current price of the products or goods at enterprises (MSMEs), by establishing a unified
the time and place of payment. (n) and modern legal framework for securing
obligations with personal property.
Art. 1959. Without prejudice to the provisions of
Article 2212, interest due and unpaid shall not CHAPTER 1
earn interest. However, the contracting parties DEFINITIONS AND SCOPE
may by stipulation capitalize the interest due and
unpaid, which as added principal, shall earn new Section 3. Definition of Terms. -As used in this
interest. (n) Act, the following terms shall mean:

Art. 1960. If the borrower pays interest when (a) Commodity contract – a commodity
there has been no stipulation therefor, the futures contract, an option on a
provisions of this Code concerning solutio commodity futures contract, a
indebiti, or natural obligations, shall be applied, commodity option, or another contract if
as the case may be. (n) the contract or option is:

Art. 1961. Usurious contracts shall be governed (1) Traded on or subject to the
by the Usury Law and other special laws, so far rules of a board of trade that
as they are not inconsistent with this Code. (n) has been designated as a
contract market for such a
contract; or

REPUBLIC ACT No. 11057 (2) Traded on a foreign

commodity board of trade,
An Act Strengthening the Secured exchange, or market, and is
Transactions Legal Framework in the carried on the books of a
Philippines, Which Shall Provide for the commodity intermediary for a
Creation, Perfection, Determination of commodity customer;
Priority, Establishment of a Centralized
Notice Registry, and Enforcement of Security (b) Control agreement –
Interests in Personal Property, and for Other
Purposes (1) With respect to securities,
means an agreement in writing
Begun and held in Metro Manila, on Monday, the among the issuer or the
twenty-fourth day of July, two thousand intermediary, the grantor and
seventeen. the secured creditor, according
to which the issuer or the
intermediary agrees to follow
instructions from the secured
 creditor with respect to the to a securities account and rights in
security, without further consent securities resulting from the credit of
from the grantor; securities to a securities account;

(2) With respect to rights to (e) Notice – a statement of information

deposit account, means an that is registered in the Registry relating
agreement in writing among the to a security interest or lien. The term
deposit-taking institution, the includes an initial notice., amendment
grantor and the secured notice, and termination notice;
creditor, according to which the
deposit-taking institution agrees (f) Proceeds – any property received
to follow instructions from the upon sale, lease or other disposition of
secured creditor with respect to collateral, or whatever is collected on or
the payment of funds credited to distributed with respect to collateral,
the deposit account without claims arising out of the loss or damage
further consent from the grantor; to the collateral, as well as a right to
insurance payment or other
(3) With respect to commodity compensation for loss or damage of the
contracts, means an agreement collateral;
in writing among the grantor,
secured creditor, and (g) Purchase money security interest – a
intermediary, according to which security interest in goods taken by the
the commodity intermediary will seller to secure the price or by a person
apply any value distributed on who gives value to enable the grantor to
account of the commodity acquire the goods to the extent that the
contract as directed by the credit is used for that purpose;
secured creditor without further
consent by the commodity (h) Registry – the centralized and
customer or grantor; nationwide electronic registry
established in the Land Registration
(c) Grantor – Authority (LRA) where notice of a
security interest and a lien in personal
(1) The person who grants a property may be registered;
security interest in collateral to
secure its own obligation or that (i) Secured creditor – a person that has
of another person; a security interest. For the purposes of
registration and priority only, it includes
(2) A buyer or other transferee a buyer of account receivable and a
of a collateral that acquires its lessor of goods under an operating
right subject to a security lease for not less than one (1) year;
interest;
(j) Security interest – a property right in
(3) A transferor in an outright collateral that secures payment or other
transfer of an accounts performance of an obligation, regardless
receivable; or of whether the parties have
denominated it as a security interest,
(4) A lessee of goods; and regardless of the type of asset, the
status of the grantor or secured creditor,
(d) Non-inter mediated securities – or the nature of the secured obligation;
securities other than securities credited including the right of a buyer of accounts
 receivable and a lessor under an "all inventory", or "all personal property within a
operating lease for not less than one (1) generic category" of the grantor shall be
year; and sufficient.

(k) Writing – for the purpose of this Act Section 8. Right to Proceeds and Commingled
includes electronic records. Funds and Money.—

Section 4. Scope of the Act.— This Act shall (a) A security interest in personal
apply to all transactions of any form that secure property shall extend to its identifiable or
an obligation with movable collateral, except traceable proceeds.
interests in aircrafts subject to Republic Act No.
9497, or the "Civil Aviation Authority Act of (b) Where proceeds in the form of funds
2008", and interests in ships subject to credited to a deposit account or money
Presidential Decree No. 1521, or the "Ship are commingled with other funds or
Mortgage Decree of 1978". money:

CHAPTER 2 (1) The security interest shall

CREATION OF SECURITY INTEREST extend to the commingled
money or funds, notwithstanding
Section 5. Creation of a Security Interest.— that the proceeds have ceased
to be identifiable to the extent
(a) A security interest shall be created they remain traceable:
by a security agreement,
(2) The security interest in the
(b) A security agreement may provide commingled funds or money
for the creation of a security interest in a shall be limited to the amount of
future property, but the security interest the proceeds immediately
in that property is created only when the before they were commingled:
grantor acquires rights in it or the power and
to encumber it.
(3) If at any time after the
Section 6. Security Agreement.— A security commingling, the balance
agreement must be contained in a written credited to the deposit account
contract signed by the parties. It may consist of or the amount of the
one or more writings that, taken together, commingled money is less than
establish the intent of the parties to create a the amount of the proceeds
security interest. immediately before they were
commingled, the security
The security agreement shall likewise provide interest against the commingled
for the language to be used in agreements and funds or money shall be limited
notices. The grantor shall be given the option to to the lowest amount of the
have the agreement and notices in Filipino. The commingled funds or money
Department of Finance (DOF) shall prepare between the time when the
model agreements in plain English and Filipino. proceeds were commingled and
the time the security interest in
Section 7. Description of Collateral.— A
the proceeds is claimed.
description of collateral shall be considered
sufficient, whether it is specific or general, if it Section 9. Continuity of Security Interest.— A
reasonably identifies the collateral. A description security interest shall continue in collateral
such as "all personal property", "all equipment", notwithstanding sale, lease, license, exchange,
or other disposition of the collateral, except as Section 12. Means of Perfection.— A security
otherwise provided in Section 21 of this Act, or interest may be perfected by:
agreed upon by the parties.
(a) Registration of a notice with the
Section 10. Contractual Limitation on the Registry;
Creation of a Security Interest.—
(b) Possession of the collateral by the
(a) A security interest in an account secured creditor; and
receivable shall be effective
notwithstanding any agreement between (c) Control of investment property and
the grantor and the account debtor or deposit account.
any secured creditor limiting in any way
the grantor’s right to create a security A security interest in any tangible asset may be
interest. perfected by registration or possession. A
security interest in investment property and
(b) Nothing in this section shall affect deposit account may be perfected by registration
any obligation or liability of the grantor or control.
for breach of the agreement in
subsection (a). Section 13. Perfection by Control.—

(c) Any stipulation limiting the grantor’s (a) A security interest in a deposit
right to create a security interest shall be account or investment property may be
void. perfected by control through:

(d) This section shall apply only to (1) The creation of the security
accounts receivable arising from: interest in favor of the
deposit-taking institution or the
(1) A contract for the supply or intermediary;
lease of goods or services other
than financial services; (2) The conclusion of a control
agreement; or
(2) A construction contract or a
contract for the sale or lease of (3) For an investment property
real property; and that is an electronic security not
held with an intermediary, the
(3) A contract for the sale, lease notation of the security interest
or license of intellectual in the books maintained by or
property. on behalf of the issuer for the
purpose of recording the name
CHAPTER 3 of the holder of the securities.(b)
PERFECTION OF SECURITY INTEREST Nothing in this Act shall require
a deposit-taking institution or an
Section 11. Perfection of Security Interest.— intermediary to enter into a
control agreement, even if the
(a) A security interest shall be perfected grantor so requests. A
when it has been created and the deposit-taking institution or an
secured creditor has taken one of the intermediary that has entered
actions in accordance with Section 12. into such an agreement shall
not be required to confirm the
(b) On perfection, a security interest
existence of the agreement to
becomes effective against third parties.
 another person unless (a) A security interest in a deposit
requested to do so by the account with respect to which the
grantor. secured creditor is the deposit-taking
institution or the intermediary shall have
Section 14. Perfection in Proceeds.— priority over a competing security
interest perfected by any method.
(a) Upon disposition of collateral, a
security interest shall extend to (b) A security interest in a deposit
proceeds of the collateral without further account or investment property that is
act and be continuously perfected, if the perfected by a control agreement shall
proceeds are in the form of money, have priority over a competing security
accounts receivable, negotiable interest except a security interest of the
instruments or deposit accounts. deposit-taking institution or the
intermediary.
(b) Upon disposition of the collateral, if
the proceeds are in a form different from (c) The order of priority among
money, accounts receivable, negotiable competing security interests in a deposit
instruments or deposit accounts, the account or investment property that
security interest in such proceeds must were perfected by the conclusion of
be perfected by one of the means control agreements shall be determined
applicable to the relevant type of on the basis of the time of conclusion of
collateral within fifteen (15) days after the control agreements.
the grantor receives such proceeds;
otherwise, the security interest in such (d) Any rights to set-off that the
proceeds shall not be effective against deposit-taking institution may have
third parties. against a grantor’s right to payment of
funds credited to a deposit account shall
Section 15. Change in Means of Perfection.— A have priority over a security interest in
security interest shall remain perfected despite a the deposit account.
change in the means for achieving perfection:
Provided, That there was no time when the (e) A security interest in a security
security interest was not perfected. certificate perfected by the secured
creditor’s possession of the certificate
Section 16. Assignment of Security Interest.— If shall have priority over a competing
a secured creditor assigns a perfected security security interest perfected by
interest, an amendment notice may be registration of a notice in the Registry.
registered to reflect the assignment.
(f) A security interest in electronic
CHAPTER 4 securities not held with an intermediary
PRIORITY OF SECURITY INTEREST perfected by a notation of the security
interests in the books maintained for
Section 17. Priority Rules.— The priority of that purpose by or on behalf of the
security interests and liens in the same collateral issuer shall have priority over a security
shall be determined according to time of interest in the same securities perfected
registration of a notice or perfection by other by any other method.
means, without regard to the order of creation of
the security interests and liens. (g) A security interest in electronic
securities not held with an intermediary
Section 18. Priority for Perfection by Control.— perfected by the conclusion of a control
agreement shall have priority over a
 security interest in the same securities (a) A purchase money security interest
perfected by registration of a notice in in equipment and its proceeds shall
the Registry. have priority over a conflicting security
interest, if a notice relating to the
(h) The order of priority among purchase money security interest is
competing security interests in registered within three (3) business days
electronic securities not held with an after the grantor receives possession of
intermediary perfected by the conclusion the equipment.
of control agreements is determined on
the basis of the time of conclusion of the (b) A purchase money security interest
control agreements. in consumer goods that is perfected by
registration of notice not later than three
Section 19. Priority for Instruments and (3) business days after the grantor
Negotiable Documents. -A security interest in an obtains possession of the consumer
instrument or negotiable document that is goods shall have priority over a
perfected by possession of the instrument or the conflicting security interest.
negotiable document shall have priority over a
security interest in the instrument or negotiable (c) A purchase money security interest
document that is perfected by registration of a in inventory, intellectual property or
notice in the Registry. livestock shall have priority over a
conflicting perfected security interest in
Section 20. Priority and Plight of Retention by the same inventory, intellectual property
Operation of Law. -A person who provides or livestock if:
services or materials with respect to the goods,
in the ordinary course of business, and retains (1) The purchase money
possession of the goods shall have priority over security interest is perfected
a perfected security interest in the goods until when the grantor receives
payment thereof. possession of the inventory or
livestock, or acquires rights to
Section 21. Transferee Exceptions. -Any party intellectual property; and
who obtains, in the ordinary course of business,
any movable property containing a security (2) Before the grantor receives
interest shall take the same free of such security possession of the inventory or
interest provided he was in good faith. No such livestock, or acquires rights in
good faith shall exist if the security interest in the intellectual property, the
movable property was registered prior to his purchase money secured
obtaining the property. creditor gives written notification
to the holder of the conflicting
Section 22. Effect of the Grantor’s Insolvency perfected security interest in the
on the Priority of a Security Interest. -Subject to same types of inventory,
the applicable insolvency law, a security interest livestock, or intellectual
perfected prior to the commencement of property. The notification sent to
insolvency proceedings in respect of the grantor the holder of the conflicting
shall remain perfected and retain the priority it security interest may cover
had before the commencement of the insolvency multiple transactions between
proceedings. the purchase money secured
creditor and the grantor without
Section 23. Purchase Money Security the need to identify each
Interest.— transaction.
 (d) The purchase money security (a) Information contained in a registered
interest in equipment or consumer notice shall be considered as a public
goods perfected timely in accordance record.
with subsections (a) and (b), shall have
priority over the rights of a buyer, (b) Any person may search notices
lessee, or lien holder which arise registered in the Registry.
between delivery of the equipment or
consumer goods to the grantor and the (c) The electronic records of the
time the notice is registered. Registry shall be the official records.

Section 24. Livestock. -A perfected security Section 28. Sufficiency of Notice.—

interest in livestock securing an obligation
(a) An initial notice of security interest
incurred to enable the grantor to obtain food or
shall not be rejected:
medicine for the livestock shall have priority over
any other security interest in the livestock, (1) If it identifies the grantor by
except for a perfected purchase money security an identification number, as
interest in the livestock, if the secured creditor further prescribed in the
providing credit for food or medicine gives regulations;
written notification to the holder of the conflicting
perfected security interest in the same livestock (2) If it identifies the secured
before the grantor receives possession of the creditor or an agent of the
food or medicine. secured creditor by name;

Section 25. Fixtures, Accessions, and (3) If it provides an address for

Commingled Goods. -A perfected security the grantor and secured creditor
interest in a movable property which has or its agent;
become a fixture, or has undergone accession
or commingling shall continue provided the (4) If it describes the collateral:
movable property involved can still be and
reasonably traced. In determining ownership
over fixtures, accessions, and commingled (5) If the prescribed fee has
goods, the provisions of Book II of Republic Act been tendered, or an
No. 386 or the "Civil Code of the Philippines" arrangement has been made for
shall apply. payment of fees by other
means.
CHAPTER 5
REGISTRATION – REGISTRY (b) If the Registry rejects to register a
notice, it shall promptly communicate
Section 26. Establishment of Electronic the fact of and reason for its rejection to
Registry.— the person who submitted the notice.

(a) The Registry shall be established in (c) Each grantor must authorize the
and administered by the LRA. registration of an initial notice by signing
a security agreement or otherwise in
(b) The Registry shall provide electronic writing.
means for registration and searching of
notices. (d) A notice may be registered before a
security agreement is concluded. Once
Section 27. Public Record.— a security agreement is concluded, the
date of registration of the notice shall be
 reckoned from the date the notice was (2) Provides the new
registered. information.

(e) A notice of lien may be registered by (b) An amendment notice that adds
a lien holder without the consent of the collateral that is not proceeds must be
person against whom the lien is sought authorized by the grantor in writing.
to be enforced.
(c) An amendment notice that adds a
(f) Description of the collateral in a grantor must be authorized by the
notice shall be entered in English. added grantor in writing.

Section 29. One Notice Sufficient for Security (d) An amendment notice shall be
Interests Under Multiple Security Agreements. effective only as to each secured
-The registration of a single notice may relate to creditor who authorizes it.
security interests created by the grantor under
one (1) or more than one security agreement. (e) An amendment notice that adds
collateral or a grantor shall be effective
Section 30. Effectiveness of Notice.— as to the added collateral or grantor
from the date of its registration.
(a) A notice shall be effective at the time
it is discoverable on the records of the Section 33. Continuation of Notice.—
Registry.
(a) The period of effectiveness of a
(b) A notice shall be effective for the notice may be continued by registering
duration of the term indicated in the an amendment notice that identifies the
notice unless a continuation notice is initial notice by its registration number.
registered before the term lapses.
(b) Continuation of notice may be
(c) A notice substantially complying with registered only within six (6) months
the requirements of this Chapter shall before the expiration of the effective
be effective unless it is seriously period of the notice.
misleading.
Section 34. Termination of Effectiveness of a
(d) A notice that may not be retrieved in Notice.—
a search of the Registry against the
correct identifier of the grantor shall be (a) The effectiveness of a notice may be
ineffective with respect to that grantor. terminated by registering a termination
notice that:
Section 31. Seriously Misleccding Notice. -A
notice that does not provide the identification (1) Identifies the initial notice by
number of the grantor shall be seriously its registration number; and
misleading.
(2) Identifies each secured
Section 32. Amendment of Notice.— creditor who authorizes the
registration of the termination
(a) A notice may be amended by the notice.
registration of an amendment notice
that: (b) A termination notice terminates
effectiveness of the notice as to each
(1) Identifies the initial notice by authorizing secured creditor.
its registration number; and
Section 35. Registry Duties.— (a) The Registry shall communicate the
following information to any person who
(a) For each registered notice, the requests it:
Registry shall:
(1) Whether there are in the
(1) Assign a unique registration Registry any unlapsed notices
number; that indicate the grantor's
identification number or vehicle
(2) Create a record that bears serial number that exactly
the number assigned to the matches the relevant criterion
initial notice and the date and provided by the searcher;
time of registration; and
(2) The registration number, and
(3) Maintain the record for public the date and time of registration
inspection. of each notice; and
(b) The Registry shall index notices by (3) All of the information
the identification number of the grantor contained in each notice.
and, for notices containing a serial
number of a motor vehicle, by serial (b) If requested, the Registry shall issue
number. a certified report of the results of a
search that is an official record of the
(c) The Registry shall provide a copy of Registry and shall be admissible into
the electronic record of the notice, evidence in judicial proceedings without
including the registration number and extrinsic evidence of its authenticity.
the date and time of registration to the
person who submitted it. Section 37. Disclosure of Information.—

(d) The Registry shall maintain the (a) The secured creditor must provide to
capability to retrieve a record by the the grantor at its request:
identification number of the grantor, and
by serial number of a motor vehicle. (1) The current amount of the
unpaid secured obligation; and
(e) The Registry shall maintain records
of lapsed notices for a period of ten (10) (2) A list of assets currently
years after the lapse. subject to a security interest.

(f) The duties of the Registry shall be (b) The secured creditor may require
merely administrative in nature. By payment of a fee for each request made
registering a notice or refusing to by the grantor in subsection (a) in this
register a notice, the Registry does not section, but the grantor is entitled to a
determine the sufficiency, correctness, reply without charge once every six (6)
authenticity, or validity of any information months.
contained in the notice.
(c) A security interest in a deposit
Section 36. Search of Registry Records and account shall not:
Certified Report.—
(1) Affect the rights and
obligations of the deposit-taking
institution without its consent; or
 (2) Require the deposit-taking (d) No security agreement exists
institution to provide any between the parties; or
information about the deposit
account to third parties. (e) The security interest is extinguished
in accordance with this Act.
Section 38. Fees Set by Regulation.—
Section 40. Matters That May be Required by
(a) The fees for registering a notice and Demand. -Upon receipt of the demand
for requesting a certified search report submitted under Section 39, the secured creditor
shall be set by regulation issued by the must register, within fifteen (15) working days,
DOF for the recovery of reasonable an amendment or termination notice:
costs of establishing and operating the
Registry. (a) Terminating the registration in a case
within subsections (a), (d) or (e) of
(b) The fee structure or any change Section 39;
thereof under subsection (a) shall
further consider that the same shall not (b) Amending the registration to release
be burdensome to either lender or some property that is no longer
grantor. collateral in a case within subsection

(c) There shall be no fee for electronic (c) of Section 39 or that was never
searches of the Registry records or for collateral under a security agreement
the registration of termination notices. between the secured creditor and the
grantor in a case within subsection (c) of
(d) The Registry may charge fees for Section 39.
services not mentioned above.
Section 41. Procedure for Noncompliance with
Section 39. When the Grantor May Demand Demand. -If the secured creditor fails to comply
Amendment or Termination of Notice. -A grantor with the demand within fifteen (15) working days
may give a written demand to the secured after its receipt, the person giving the demand
creditor to amend or terminate the effectiveness under Section 39 may ask the proper court to
of the notice if: issue an order terminating or amending the
notice as appropriate.
(a) All the obligations under the security
agreement to which the registration Section 42. Compulsory Amendment or
relates have been performed and there Termination by Court Order.—
is no commitment to make future
advances; (a) The court may, on application by the
grantor, issue an order that the notice be
(b) The secured creditor has agreed to terminated or amended in accordance
release part of the collateral described with the demand, which order shall be
in the notice; conclusive and binding-on the LRA:
Provided, That the secured creditor
(c) The collateral described in the notice wrho disagrees with the order of the
includes an item or kind of property that court may appeal the order.
is not a collateral under a security
agreement between the secured creditor (b) The court may make any other order
and the grantor; it deems proper for the purpose of giving
effect to an order under subsection (a)
of this section.
 (c) The LRA shall amend or terminate a Section 46. Right of Higher-Ranking Secured.
notice in accordance with a court order Creditor to Take Over Enforcement.—
made under subsection (a) of this
section as soon as reasonably (a) Even if another secured creditor or a
practicable after receiving the order. lien holder has commenced
enforcement, a secured creditor whose
Section 43. No Fee for Compliance of Demand. security-interest has priority over that of
-A secured creditor shall not charge any fee for the enforcing secured creditor or lien
compliance with a demand received under holder shall be entitled to take over the
Section 39. enforcement process.

Section 44. When Registration and Search (b) The right referred to in subsection (a)
Constitutes Interference with Privacy of of this section may be invoked at any
Individual. -A person who submitted a notice for time before the collateral is sold or
registration or carried out a search of the otherwise disposed of, or retained by
Registry with a frivolous, malicious or criminal the secured creditor or until the
purpose or intent shall be subject to civil and conclusion of an agreement by the
criminal penalties according to the relevant laws. secured creditor for that purpose.

CHAPTER 6 (c) The right of the higher-ranking

ENFORCEMENT OF SECURITY INTEREST secured creditor to take over the
SECURED CREDITOR’S RIGHTS enforcement process shall include the
right to enforce the rights by any method
Section 45. Right of Redemption.— available to a secured creditor under
this Act.
(a) Any person who is entitled to receive
a notification of disposition in Section 47. Expedited Repossession of the
accordance with this Chapter is entitled Collateral.—
to redeem the collateral by paying or
otherwise performing the secured (a) The secured creditor may take
obligation in full, including the possession of the collateral without
reasonable cost of enforcement. judicial process if the security
agreement so stipulates: Provided, That
(b) The right of redemption may be possession can be taken without a
exercised, unless: breach of the peace.

(1) The person entitled to (b) If the collateral is a fixture, the

redeem has not, after the secured creditor, if it has priority over all
default, waived in writing the owners and mortgagees, may remove
right to redeem; the fixture from the real property to
which it is affixed without judicial
(2) The collateral is sold or process. The secured creditor shall
otherwise disposed of, acquired exercise due care in removing the
or collected by the secured fixture.
creditor or until the conclusion of
an agreement by the secured (c) If, upon default, the secured creditor
creditor for that purpose; and cannot take possession of collateral
without breach of the peace, the
(3) The secured creditor has secured creditor may proceed as
retained the collateral. follows:
(1) The secured creditor shall be Section 48. Recovery in Special Cases.— Upon
entitled to an expedited hearing default, the secured creditor may without judicial
upon application for an order process:
granting the secured creditor
possession of the collateral. (a) Instruct the account debtor to make
Such application shall include a payment to the secured creditor, and
statement by the secured apply such payment to the satisfaction
creditor, under oath, verifying of the obligation secured by the security
the existence of the security interest after deducting the secured
agreement attached to the creditor’s reasonable collection
application and identifying at expenses. On request of the account
least one event of default by the debtor, the secured creditor shall
debtor under the security provide evidence of its security interest
agreement; to the account debtor when it delivers
the instruction to the account debtor;
(2) The secured creditor shall
provide the debtor, grantor, and, (b) In a negotiable document that is
if the collateral is a fixture, any perfected by possession, proceed as to
real estate mortgagee, a copy of the negotiable document or goods
the application, including all covered by the negotiable document;
supporting documents and
evidence for the order granting (c) In a deposit account maintained by
the secured creditor possession the secured creditor, apply the balance
of the collateral; and of the deposit account to the obligation
secured by the deposit account; and
(3) The secured creditor is
entitled to an order granting (d) In other cases of security interest in
possession of the collateral a deposit account perfected by control,
upon the court finding that a instruct the deposit-taking institution to
default has occurred under the pay the balance of the deposit account
security agreement and that the to the secured creditor’s account.
secured creditor has a right to
Section 49. Right to Dispose of Collateral.—
take possession of the
collateral. The court may direct (a) After default, a secured creditor may
the grantor to take such action sell or otherwise dispose of the
as the court deems necessary collateral, publicly or privately, in its
and appropriate so that the present condition or following any
secured creditor may take commercially reasonable preparation or
possession of the collateral: processing.
Provided, That breach of the
peace shall include entering the (b) The secured creditor may buy the
private residence of the grantor collateral at any public disposition, or at
without permission, resorting to a private disposition but only if the
physical violence or intimidation, collateral is of a kind that is customarily
or being accompanied by a law sold on a recognized market or the
enforcement officer when taking subject of widely distributed standard
possession or confronting the price quotations.
grantor.
Section 50. Commercial Reasonableness (b) The grantor may waive the right to
Required.— be notified.

(a) In disposing of collateral, the (c) A notification of disposition is

secured creditor shall act in a sufficient if it identifies the grantor and
commercially reasonable manner. the secured creditor; describes the
collateral; states the method of intended
(b) A disposition is commercially disposition; and states the time and
reasonable if the secerned creditor place of a public disposition or the time
disposes of the collateral in conformity after which other disposition is to be
with commercial practices among made.
dealers in that type of property.
(d) The requirement to send a
(c) A disposition is not commercially notification under this section shall not
unreasonable merely because a better apply if the collateral is perishable or
price could have been obtained by threatens to decline speedily in value or
disposition at a different time or by a is of a type customarily sold on a
different method from the time and recognized market.
method selected by the secured
creditor. Section 52. Application of Proceeds.—

(d) If a method of disposition of (a) The proceeds of disposition shall be

collateral has been approved in any applied in the following order:
legal proceeding, it is conclusively
commercially reasonable. (1) The reasonable expenses of
taking, holding, preparing for
Section 51. Notification of Disposition.— disposition, and disposing of the
collateral, including reasonable
(a) Not later than ten (10) days before attorneys’ fees and legal
disposition of the collateral, the secured expenses incurred by the
creditor shall notify: secured creditor;

(1) The grantor; (2) The satisfaction of the

obligation secured by the
(2) Any other secured creditor or security interest of the enforcing
lien holder who, five (5) days secured creditor; and
before the date notification is
sent to the grantor, held a (3) The satisfaction of
security interest or lien in the obligations secured by any
collateral that was perfected by subordinate security interest or
registration; and hen in the collateral if a written
demand and proof of the
(3) Any other person from whom interest are received before
the secured creditor received distribution of the proceeds is
notification of a claim of an completed.
interest in the collateral if the
notification was received before (b) The secured creditor shall account to
the secured creditor gave the grantor for any surplus, and, unless
notification of the proposed otherwise agreed, the debtor is liable for
disposition to the grantor. any deficiency.
Section 53. Rights of Buyers and Other Third (b) The secured creditor may retain the
Parties.— collateral in the case of:

(a) If a secured creditor sells the (1) A proposal for the acquisition
collateral under this Chapter, the buyer of the collateral in full
shall acquire the grantor’s right in the satisfaction of the secured
asset free of the rights of any secured obligation, unless the secured
creditor or lien holder. creditor receives an objection in
writing from any person entitled
(b) If a secured creditor leases or to receive such a proposal
licenses the collateral under this within twenty (20) days after the
Chapter, the lessee or licensee shall be proposal is sent to that person;
entitled to the benefit of the lease or or
license during its term.
(2) A proposal for the acquisition
(c) If a secured creditor sells, leases or of the collateral in partial
licenses the collateral not in compliance satisfaction of the secured
with this Chapter, the buyer, lessee or obligation, only if the secured
licensee of the collateral shall acquire creditor receives the affirmative
the rights or benefits described in consent of each addressee of
subsections (a) and (b) of this section: the proposal in writing within
Provided, That it had no knowledge of a twenty (20) days after the
violation of this Chapter that materially proposal is sent to that person.
prejudiced the rights of the grantor or
another person. CHAPTER 7
TRANSITIONAL PROVISIONS
Section 54. Retention of Collateral by Secured
Creditor.— Section 55. Interpretation of Transitional
Provisions.— For this Chapter, unless the
(a) After default, the secured creditor context otherwise requires:
may propose to the debtor and grantor
to take all or part of the collateral in total (a) Existing secured creditor – means a
or partial satisfaction of the secured secured creditor with a prior security
obligation, and shall send a proposal to: interest;

(1) The debtor and the grantor; (b) Prior law – means any law that
existed or in force before the effectivity
(2) Any other secured creditor or of this Act;
lien holder who, five (5) days
before the proposal is sent to (c) Prior interest – means a security
the debtor and the grantor, interest created or provided for by an
perfected its security interest or agreement or other transaction that was
lien by registration; and made or entered into before the
effectivity of this Act and that had not
(3) Any other person with an been terminated before the effectivity of
interest in the collateral who has this Act, but excludes a security interest
given a written notification to the that is renewed or extended by a
secured creditor before the security agreement or other transaction
proposal is sent to the debtor made or entered into on or after the
and the grantor. effectivity of this Act; and
 (d) Transitional period - means the described in that agreement under this
period from the date of effectivity of this Act.
Act until the date when the Registry has
been established and operational. (e) If a prior interest referred to in
subsection (b) of this section was
Section 56. Creation of Prior Interest.— perfected by the registration of a notice
under prior law, the time of registration
(a) Creation of prior interest shall be under the prior law shall be the time to
determined by prior laws. be used for purposes of applying the
priority rules of this Act.
(b) A prior interest remains effective
between the parties notwithstanding its Section 58. Priority of Prior Interest.—
creation did not comply with the creation
requirements of this Act. (a) The priority of a prior interest as
against the rights of a competing
Section 57. Perfection of Prior Interest.— claimant is determined by the prior law
if:
(a) A prior interest that was perfected
under prior law continues to be (1) The security interest and the
perfected under this Act until the earlier rights of all competing claimant
of: arose before the effectivity of
this Act; and
(1) The time the prior interest
would cease to be perfected (2) The priority status of these
under prior law; and rights has not changed since the
effectivity of this Act.
(2) The expiration of the
transitional period. (b) For purposes of subsection (a)(2) of
this section, the priority status of a prior
(b) If the perfection requirements of this interest has changed only if:
Act are satisfied before the perfection of
a prior interest ceases in accordance (1) It was perfected when this
with subsection (a) of this section, the Act took effect, but ceased to be
prior interest continues to be perfected perfected; or
under this Act from the time when it was
perfected under the prior law. (2) It was not perfected under
prior law when this Act took
(c) If the perfection requirements of this effect, and was only perfected
Act are not satisfied before the under this Act.
perfection of a prior interest ceases in
accordance with subsection (a) of this Section 59. Enforcement of Prior Interest.—
section, the prior interest is perfected
only from the time it is perfected under (a) If any step or action has been taken
this Act. to enforce a prior interest before the
effectivity of this Act, enforcement may
(d) A written agreement between a continue under prior law or may proceed
grantor and a secured creditor creating under this Act.
a prior interest is sufficient to constitute
authorization by the grantor of the (b) Subject to subsection (a) of this
registration of a notice covering assets section, prior law shall apply to a matter
 that is the subject of proceedings before Section 65. Separability Clause.— Should any
a court before the effectivity of this Act. provision herein be declared unconstitutional,
the same shall not affect the validity of the other
CHAPTER 8 provisions of this Act.
CONGRESSIONAL OVERSIGHT AND
MISCELLANEOUS PROVISIONS Section 66. Repealing Clause.— The following
laws, and all laws, decrees, orders, and
Section 60. Congressional Oversight and issuances or portions thereof, which are
Periodic Review.— A Congressional Oversight inconsistent with the provisions of this Act, are
Committee shall be created that will conduct a hereby repealed, amended, or modified
periodic review every five (5) years commencing accordingly:
from the effectivity of this Act. The
Congressional Oversight Committee shall be (a) Sections 1 to 16 of Act No. 1508,
composed of the Chairperson of the Senate otherwise known as "The Chattel
Committee on Banks, Financial Institutions and Mortgage Law";
Currencies, the Chairperson of the House of
Representatives Committee on Banks and (b) Articles 2085-2123, 2127,
Financial Intermediaries, and representatives of 2140-2141, 2241, 2243, and 2246-2247
other relevant congressional committees. of Republic Act No. 386, otherwise
known as the "Civil Code of the
Section 61. Interpretation.— If there is conflict Philippines";
between a provision of this Act and a provision
of any other law, this Act shall govern unless the (c) Section 13 of Republic Act No. 5980,
other law specifically cites or amends the as amended by Republic Act No. 8556,
conflicting provisions of this law. otherwise known as the "Financing
Company Act of 1998";
Section 62. Implementing Rules and
Regulations.— Within six (6) months from the (d) Sections 114-116 of Presidential
passage of this Act, the DOF in coordination Decree No. 1529, otherwise known as
with the Department of Justice, through the LRA, the "Property Registration Decree";
shall promulgate the necessary rules and
regulations for’ the effective implementation of (e) Section 10 of Presidential Decree
this Act. No. 1529, insofar as the provision
thereof is inconsistent with this Act; and
Section 63. Rules on Enforcement
Procedure.— Subject to Section 47, the (f) Section 5(e) of Republic Act No.
expedited hearing/proceedings shall be 4136, otherwise known as the "Land
conducted in a summary manner consistent with Transportation and Traffic Code".
the declared policies of this Act and in
Section 67. Effectivity.— This Act shall take
accordance with the rules of procedure that the
effect fifteen (15) days after publication in at
Supreme Court may promulgate.
least two (2) newspapers of general circulation.
Section 64. Sourcing of Funds.— The funds
Section 68. Implementation.— Notwithstanding
needed for the implementation of this Act shall
the entry into force of this Act under Section 67,
be taken from the Special Account arising from
the implementation of the Act shall be
revenues collected by the LRA under Section
conditioned upon the Registry being established
111 of Presidential Decree No. 1529, without
and operational under
need for any further government approval.
Approved: August 17, 2018.
 REVIEWER: Title XI. - LOAN

General Provisions: ● Obligations of the Bailee:

○ Expenses (Art. 1941): Bailee
● Loan Contract (Art. 1933): covers ordinary expenses for
○ Commodatum: Gratuitous loan use and preservation.
where the borrower returns the ○ Liability for Loss (Art. 1942):
specific non-consumable thing. Bailee liable for loss, even by
○ Mutuum (Simple Loan): fortuitous events, in certain
Borrower must return the cases (e.g., misuse, extending
equivalent amount of the term, lending to others).
consumable goods (e.g., ○ Deterioration (Art. 1943):
money). Bailee not liable for normal wear
○ Ownership: and tear.
■ Commodatum: ● Obligations of the Bailor:
Ownership stays with ○ Return of Loan (Art. 1946):
the lender (bailor). Bailor cannot demand return
■ Simple Loan: before the end of the term
Ownership passes to unless there is urgent need.
the borrower. ○ Extraordinary Expenses (Art.
● Perfection of the Loan (Art. 1934): 1949): Bailor refunds these if
○ A loan is binding upon promise informed beforehand, unless
but is perfected only upon very urgent.
delivery of the object. ○ Liability for Flaws (Art. 1951):
Bailor liable for damages if
aware of flaws in the item but
does not notify the bailee.
Chapter 1: Commodatum

● Nature of Commodatum:
○ Bailee's Rights (Art. 1935): Chapter 2: Simple Loan (Mutuum)
Bailee uses but does not own
the fruits of the loaned thing. ● Ownership Transfer (Art. 1953):
○ Consumable Goods (Art. Borrower gains ownership and must
1936): May be subject to repay in the same amount, kind, and
commodatum if not intended for quality.
consumption (e.g., for display). ● Barter vs. Loan (Art. 1954): If
○ Property Types (Art. 1937): non-fungible goods are loaned with an
Movable or immovable property obligation to return equivalents, it's
may be the object of considered a barter.
commodatum. ● Obligation to Repay (Art. 1955): If the
○ Ownership of Loaned Item loan involves a fungible thing,
(Art. 1938): Bailor need not be repayment must be in the same kind,
the owner. even if the value changes.
○ Personal Nature (Art. 1939): ● Interest and Usury:
Contract ends with death of ○ Interest (Art. 1956): Must be
bailor/bailee or if the bailee expressly stipulated in writing;
lends it to others. otherwise, no interest is due.
 ○ Usury (Art. 1957): Contracts not paid. Any agreement to the
designed to circumvent contrary is null and void.
anti-usury laws are void. 4. Third-Party Pledgors/Mortgagors (Art.
○ Unpaid Interest (Art. 1959): It 2085):
does not earn interest unless ○ Third parties can pledge or
expressly agreed upon. mortgage their own property to
● Usury Law (Art. 1961): Usurious secure someone else's
contracts are subject to the Usury Law obligation.
and other applicable laws. 5. Binding Requirements (Art. 2096,
2125):
○ Pledge: It must appear in a
public instrument and must be
REVIEWER: Title XVI - Pledge, Mortgage, and recorded in order to bind third
Antichresis persons.
○ Mortgage: It must also be in a
I. Similarities Between Pledge and Mortgage public instrument and registered
with the Registry of Property to
1. Requisites: bind third persons.
○ Pledge & Mortgage (Art.
2085): Both require the II. Obligations and Rights of Pledgor and
following essentials: Pledgee
1. They must be
constituted to secure a 1. Pledgor's Obligations:
principal obligation. ○ Deliver possession of the thing
2. The pledgor/mortgagor pledged to the creditor or a third
must be the absolute party (Art. 2093).
owner of the property. ○ Be responsible for the
3. The pledgor/mortgagor preservation of the thing (Art.
must have free disposal 2099).
of the property or be ○ Pay the debt and expenses
legally authorized to incurred by the pledgee before
encumber it. asking for the return of the thing
2. Indivisibility (Art. 2089): pledged (Art. 2105).
○ Both pledge and mortgage are 2. Pledgee's Rights:
indivisible, meaning that the ○ Retain possession of the thing
whole property remains until the debt is fully paid (Art.
encumbered until the full 2098).
obligation is satisfied. This ○ Apply the fruits or earnings of
indivisibility extends to the the pledge to the debt (Art.
successors of both the debtor 2102).
and creditor. ○ If the pledge is in danger of
3. Prohibition of Pactum Commissorium being lost due to the pledgee's
(Art. 2088): negligence, the pledgor can
○ Pactum commissorium is demand it be deposited with a
prohibited in both pledge and third party (Art. 2106).
mortgage. The creditor cannot ○ In case of default, the pledgee
appropriate the thing may sell the thing at public
pledged/mortgaged if the debt is auction after proper notice (Art.
2112-2115).
III. Obligations and Rights of Mortgagor and ■ Full payment of the
Mortgagee obligation.
■ Foreclosure and sale of
1. Mortgagor's Obligations: the mortgaged property.
○ Ensure the document of ■ A written agreement
mortgage is registered to be between the parties
binding against third persons canceling the mortgage.
(Art. 2125).
○ The mortgagor retains V. Chattel Mortgage & Antichresis
ownership of the property
unless foreclosure is initiated 1. Chattel Mortgage (Art. 2140-2141):
(Art. 2126). ○ Similar rules apply to a chattel
○ Pay the obligation secured by mortgage as to a pledge, but
the mortgage, including any movables are involved.
taxes or charges on the property ○ The provisions of the Chattel
if stipulated (Art. 2135). Mortgage Law govern, with the
2. Mortgagee's Rights: Civil Code applying subsidiarily.
○ The mortgage attaches to the 2. Antichresis (Art. 2132-2139):
property, improvements, fruits, ○ Involves immovable property,
and even indemnities from where the creditor is entitled to
insurance claims related to the the fruits of the property.
property (Art. 2127). ○ The creditor must apply the
○ The mortgagee has the right to fruits first to interest, then to the
demand foreclosure if the principal of the obligation.
mortgagor defaults, but cannot ○ The creditor is responsible for
appropriate the property taxes and necessary expenses
themselves (Art. 2137). related to the property.
○ The mortgagee can sell the
property in foreclosure and
claim the proceeds to satisfy the
obligation (Art. 2137). REVIEWER: R.A. No. 11057 - Personal
Property Security Act
IV. Modes of Extinguishment
1. Overview of Security Interest:
1. Pledge (Art. 2110-2112): RA 11057 establishes a modern framework for
○ The pledge is extinguished securing loans using personal property. It
when the thing is returned to the provides mechanisms for creating, perfecting,
pledgor. prioritizing, and enforcing security interests in
○ It can also be extinguished if the personal property. This enables creditors to have
pledgee renounces the pledge a legal claim on personal assets (like equipment,
in writing. inventory, accounts receivable, intellectual
○ The pledge is sold through property) in case of debtor default. Key elements
public auction in case of default, include:
and the proceeds satisfy the
principal debt. ● Creation of security interest: Agreement
2. Mortgage (Art. 2125, 2137): between creditor and debtor to use
○ The mortgage is extinguished personal property as collateral.
by: ● Perfection of security interest: Achieved
through registration in the centralized
 Registry of Security Interests or by ● Facilitates access to credit, especially
taking possession or control of the for SMEs, by enabling the use of various
property. personal properties like receivables,
● Priority of security interest: Establishes equipment, and even future assets.
priority among competing creditors ● It offers protection for secured creditors
based on the order of registration or by ensuring a clear ranking system for
possession. claims, reducing the risk of disputes.
● Enforcement: Creditors can enforce
their claims upon debtor default, through Important Provisions to Remember:
methods such as judicial or extrajudicial
foreclosure, and collection of ● Article 3: Governs what constitutes a
receivables. valid security interest and the types of
personal property it applies to (broad
2. Difference Between Security Interest, coverage of tangible and intangible
Pledge, and Chattel Mortgage: assets).
● Article 4: Discusses how to perfect a
● Security Interest (RA 11057): Applies security interest via registration or
to a broad range of personal property possession, and the role of the Registry.
(tangible and intangible), perfected by ● Article 8: Details enforcement rights
registration or possession. Debtor upon debtor default, including the
retains possession of the property process for public sale or other
unless enforcement occurs. remedies.
● Pledge: Involves transferring
possession of movable property to the This Act modernizes the secured transactions
creditor as collateral. Possession is framework by simplifying processes for creditors
crucial for its validity, which limits the while protecting debtors from unfair practices
debtor’s access to the property during like excessive claims or lack of due process.
the agreement.
● Chattel Mortgage: A contract involving
personal movable property but without
transferring possession to the creditor. It
requires registration with the Chattel
Mortgage Register to be enforceable
against third parties. Unlike security
interests under RA 11057, chattel
mortgages focus on specified movable
items and have stricter formal
requirements.

Key Highlights of RA 11057:

● Establishes the Registry of Security

Interests to provide transparency and
public notice of security agreements.
● Allows for non-possessory security
interests in personal property,
expanding the types of assets that can
secure loans.