CONTRACTUAL LIMITATION ON CREATION OF SECURITY INTEREST

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Any stipulation limiting the grantor’s right to create a security interest shall be void.
A security interest in an account receivable shall be effective notwithstanding any agreement between the grantor and the account debtor.
The creation of a security interest in a receivable does not, without the consent of the debtor of the receivable, affect its rights and obligations, including the payment terms contained in the contract giving rise to the receivable.

Under Republic Act No. 11057 or Personal Property Security Act (PPSA), parties are free to enter into any form of security arrangements over moveable property. The creation of security interest however has some contractual limitation.

REPUBLIC ACT No. 11057 or Personal Property Security Act provides that:

(a) A security interest in an account receivable shall be effective notwithstanding any agreement between the grantor and the account debtor or any secured creditor limiting in any way the grantor’s right to create a security interest.

(b) Nothing shall affect any obligation or liability of the grantor for breach of the agreement in subsection (a).

(d) It shall apply only to accounts receivable arising from:

A contract for the supply or lease of goods or services other than financial services;
A construction contract or a contract for the sale or lease of real property; and
A contract for the sale, lease or license of intellectual property.

The creation of a security interest in a receivable does not, without the consent of the debtor of the receivable, affect its rights and obligations, including the payment terms contained in the contract giving rise to the receivable. A payment instruction may change the person, address or account to which the debtor of the receivable is required to make payment.

Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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Any stipulation limiting the grantor’s right to create a security interest shall be void.

A security interest in an account receivable shall be effective notwithstanding any agreement between the grantor and the account debtor.

The creation of a security interest in a receivable does not, without the consent of the debtor of the receivable, affect its rights and obligations, including the payment terms contained in the contract giving rise to the receivable.