a. Creation, Perfection, and Priority of Security Interest

CREATION OF SECURITY INTEREST

A security interest shall be created by a security agreement.

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. (R.A. 11057, Section 6)

Description of Collateral

Description of collateral is required in the security agreement. A description of collateral shall be considered sufficient, whether it is specific or general, if it reasonably identifies the collateral.

NOTE: A security agreement may provide for the creation of 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. (R.A. 11057, Section 5)

PERFECTION OF INTEREST

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

Means of Perfection

A security interest may be perfected by:

• Registration of a notice with the Registry;
• Possession of the collateral by the secured creditor; and
• 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.

Perfection of Security Interest in any Tangible Assets, Investment, and Deposit account

Perfection by Control

• A security interest in a deposit account or investment property may be perfected by control through:
• The creation of the security interest in favor of the deposit-taking institution or the intermediary;
• The conclusion of a control agreement; or
• 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.

Perfection in Proceeds

• Upon disposition of collateral, a security interest shall extend to proceeds of the collateral without further act and be continuously perfected, if the proceeds are in the form of money, accounts receivable, negotiable instruments or deposit accounts.
• Upon disposition of the collateral, if the proceeds are in a form different from money, accounts receivable, negotiable instruments or deposit accounts, the security interest in such proceeds must be perfected by one of the means applicable to the relevant type of collateral within fifteen (15) days after the grantor receives such proceeds; otherwise, the security interest in such proceeds shall not be effective against third parties.

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.

Compulsory Amendment or Termination by Court Order

The court may, on application by the grantor, issue an order that the notice be terminated or amended in accordance with the demand, which order shall be conclusive and binding on the LRA: Provided, That the secured creditor who disagrees with the order may appeal the order.

The court may make any other order it deems proper for the purpose of giving effect to the order made under the first paragraph.

The LRA shall amend or terminate a notice in accordance with a court order as soon as reasonably practicable after receiving the order. (R.A. 11057, Section 42)

Security interest shall be perfected when it has been created and the secured creditor has taken one of the actions mentioned above. On perfection, a security interest becomes effective against third parties. (R.A. 11057, Section 11)

Existing Secured Creditor

A secured creditor with a prior security interest. The creation of Prior interest shall be determined by prior law. It remains effective between the parties notwithstanding its creation did not comply with the creation requirement of this Act. Section 57 provides modes of perfecting prior interest.