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Perfection in proceeds under the Personal Property Security Act

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Perfection in proceeds under the Personal Property Security Act

 

AT A GLANCE:

Security interest in personal property shall extend to its identifiable or traceable proceeds. Proceeds are any property received upon sale, lease or other disposition of collateral, or whatever is collected on or distributed with respect to collateral, claims arising out of the loss or damage to the collateral, as well as a right to insurance payment or other compensation for loss or damage of the collateral.

 

Proceeds are any property received upon sale, lease or other disposition of collateral, or whatever is collected on or distributed with respect to collateral, claims arising out of the loss or damage to the collateral, as well as a right to insurance payment or other compensation for loss or damage of the collateral.  

A security interest in personal property shall extend to its identifiable or traceable proceeds.

Where proceeds in the form of funds credited to a deposit account or money are commingled with other funds or money: 1) the security interest, shall extend to the commingled money or funds, notwithstanding that the proceeds have ceased to be identifiable to the extent they remain traceable; 2) the security interest in the commingled funds or money shall be limited to the amount of the proceeds immediately before they were commingled; and 3) if at any time after the commingling, the balance credited to the deposit, account or the amount of the commingled money is less than the amount of the proceeds immediately before they were commingled, the security interest against the commingled funds or money shall be limited to the lowest amount of the commingled funds or money between the time when the proceeds were commingled and the time the security interest in the proceeds is claimed. 

How then can a security interest in proceeds be perfected?

Sec. 14.1 of Republic Act No. 11057 or Personal Property Security Act provides that there is perfection in proceeds:

a) 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.

b) 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.

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding legal services, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/ 09175772207/ 09778050020.

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