Security Agreement
Security Agreement
The security agreement which protects the person from the losses. For the business protection signing the security agreement which secures you from loss if incase the other party fails. If “A” person borrowed a sum of money from person B. For the security the person pledged the collateral property of the vehicle. If in case A fails to pay the debt which was borrowed from B. The B has the right to seize the security of A for the consideration of such Debt. so the security agreement grants the special rights and helps to overcome the losses. So for money related transactions the security agreement which protects the business of the parties.
SECURITY AGREEMENT :
The security agreement is the agreement which is drafted between the two parties at the time the loan is advanced along with the security of such debt. The agreements which give the legal claim to the collateral to the creditor, if the borrower fails as per the terms and conditions in the security agreements.
The security agreement must be:
- It must be Signed by both parties.
- Contains the overview about the collateral or the security.
- The limitation period or the time period for the repayment of such debt.
PROMISSORY NOTE VS SECURITY AGREEMENT :
The promissory note is generally used for the business loans such as secured and unsecured.
Secured Promissory Note
The secured promissory note which generally if the particular debt was failure to pay by the money lender or the Borrower. The Creditor directly enjoys the security for the such promissory note for the business recovery without the legal consequences.
Unsecured promissory Note
The unsecured promissory note basically no security should be subjected by the parties. The only way for the creditor is to approach the court with the lawsuit for the recovery of such debt from the borrower.
The security agreement which contains the detailed overview about the conjunction of the secured promissory note. The agreement which specifies the relatable collateral property, values, limitation period, terms and conditions. The creditor directly seize the collateral if in case the debt is failed by the borrower on the specified time period.
NECESSARY DOCUMENTS FOR THE SECURITY AGREEMENTS :
The necessary agreements which are important for the drafting of the security agreement are,
- Proof of the both parties who are entered into the security agreement ( Aadhar card and PAN card )
- Photocopies of both parties.
- Proof of the security that is owned by the borrower.
- Witnesses.
- Terms and conditions.
These are the necessary documents needed for the drafting of the security agreement.
ESSENTIAL ELEMENTS OF THE SECURITY AGREEMENT
There are certain essential elements that should be necessary for the drafting of the good security agreement.
1. Drafting of the security agreement :
The legal validity of the security agreements should contain the description of the collateral property, intention for the security provided, the both parties signature after the acceptance of the terms and conditions behind the security and the warranties. Once the security agreement is drafted, ideally before the witness or the notary.
2. Describing the collateral
The agreement should describe the details of the assets or the property which was being subjected to the security or the collateral to the agreement which should be in the possession of the debtor, it must be in the good condition, which includes in the following category of the collateral.
That should mention what type of collateral is added for the security and the value of the such property should be detailly mentioned. Once the collateral is approved by the creditor or by the agreement. The debtor should not change the collateral in the document.
3. Warranties
The warranties and the covenants should be included in the terms and conditions which were agreed by the both parties. Eg : The Debtor should provide the warranty of the covenant or the collateral which was in the exact value which was mentioned in the agreement. The property can not be violated by the laws. The debtor has the right to collateral and maintains the property intention to grant the security for the creditor.
4. Priority
If multiple parties are presented in the agreement there should be a need to set the priority for the secured parties. In those situations the first secured party should give the priority for the agreement, which was achieved by the selected party should file the financing statement before others. The financing statement helps to alert other parties and prevent the lag between others.
5. Default
The security agreement should outline the conditions that are default of the collateral under certain conditions. Basically the debtor fails to pay the debt on time considered as the default. Other than this certain conditions are specified.
Those are,
- Theft of the secured collateral.
- Damages and the description are false for the property.
- Warranties are expired for the collateral.
- The same property should not be secured for other creditors.
These are the certain defaults which should not be done by the debtor for the secured property.
Remedy for the default :
The remedies which provided for the default of the debtor to recover the losses from the creditor or the business in such ways,
- Repossession: It is one of the best remedies for the creditor to recover the default from the debtor. The repossession which allows the party or the creditor to take a part of value from the investment or the other possession which belongs to the borrower. In every security agreement the repossession is the temporary solution for the default. The only way to redeem the property by the debtor is to repay the loan, otherwise the creditor shall utilise the repossession property.
- Collection: It is one of the simplest ways for the secured loan that increases the debt in case of default in the secured property with some intangible assets.
- Disposition of the collateral: In case the debtor fails to repay the loan or the fund. The creditor should directly dispose of the collateral or the secured property by sale, auction into the market or the private use of his business.
The default is generally a risk to the creditors business as per the agreement. These are the certain essential elements which constitute a perfect security letter.
From Le Intelligensia:
At Le Intelligensia, we can help you create unique and legalised Security agreements and other agreements for your company, business and other professions. Our legal experts will draft according to your requirements. We do all types of drafting from personal to corporate.
BUSINESSES USE SECURITY AGREEMENTS :
Most of the business depended on the secured transaction in order to prevent the business losses. The banks, financial institutions, creditors etc., who provide the loans to their customers were entered into the security agreements with their clients for their business protections. The security agreement provides the legally binding agreement that states all the terms and conditions of the debt and the security for the recovery of the debt and the limitation of the time period, values of the security and remedy.
FAQ
FAQ ON SECURITY AGREEMENT:
WHAT DO YOU MEAN BY SECURITY?
The security which gives protection from the money lenders to the creditor with the security interest over the particular asserts that are pledged. For security, collateral properties are being pledged. If the money lender defaults or fails to pay the particular money, or the assets within the mentioned time period to the creditor. The pledged collateral property or the security for the property should be seized or sold by the creditor.
Eg : “A” person borrowed a sum of money from person B. For the security the person pledged the collateral property of the vehicle. If in case A fails to pay the debt which was borrowed from B. The B has the right to seize the security of A for the consideration of such money.
WHAT IS SECURITY AGREEMENT?
The security agreement is the agreement which is drafted between the two parties at the time the loan is advanced along with the security of such debt. The agreements which give the legal claim to the collateral to the creditor, if the borrower fails as per the terms and conditions in the security agreements.
The security agreement must be:
- It must be Signed by both parties.
- Contains the overview about the collateral or the security
- The limitation period or the time period for the repayment of such debt.
It includes the following properties should be for the collateral for the security agreement. Those are,
- Inventory : Such as machines, which are used for the businesses.
WHAT ARE THE COLLATERALS FOR THE SECURITY AGREEMENT?
- Vehicles : The vehicles which are owned by the borrower/debtor Eg: car, bike, etc..
- Intangible assets : The possession such as software rights, licence for the intangible assets.
- Equipment : Other than the inventory of any equipment with good conditions.
- Accounts, stocks, Bonds
- Any other Personal Possessions.
- Immovable property : Lands
These are the collateral security used for the security agreement.
WHERE THE SECURITY AGREEMENTS ARE USED?
Most of the business depended on the secured transaction in order to prevent the business losses. The banks, financial institutions, creditors etc., who provide the loans to their customers were entered into the security agreements with their clients for their business protections. The security agreement provides the legally binding agreement that states all the terms and conditions of the debt and the security for the recovery of the debt and the limitation of the time period, values of the security and remedy.
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