Security Agreement (California)

CALIFORNIA SECURITY AGREEMENT

Granted Under California UCC Division 9

CALIFORNIA-SPECIFIC PRACTITIONER NOTES

California's secured transactions statute is California Commercial Code Division 9, Cal. Com. Code §§ 9101–9709 ("Division 9" or "California UCC"). California adopted substantially Revised Article 9, but has several non-uniform provisions worth noting:

1. Filing Office. Financing statements perfecting most personal property security interests are filed with the California Secretary of State, UCC Section, in Sacramento, under Cal. Com. Code § 9501(a)(2). Fixture filings are recorded with the county recorder under § 9501(a)(1).

2. Debtor Location Rule. For a "registered organization" (including a California corporation or LLC), the debtor is deemed located in the state of organization under Cal. Com. Code § 9307(e), which normally dictates the filing office regardless of the debtor's physical location.

3. One-Action Rule (CCP § 726). California's one-action rule (Cal. Code Civ. Proc. § 726) requires a creditor holding a security interest in real property to bring only one action to recover a debt, and that action must be a judicial foreclosure of the real property. Where collateral is mixed (real and personal property), counsel must coordinate UCC enforcement with § 726 to avoid inadvertent loss of rights.

4. Anti-Deficiency Statutes (CCP §§ 580a–580d). California imposes strict anti-deficiency rules after non-judicial foreclosure of real property, but these generally do not restrict Division 9 enforcement on pure personal-property collateral.

5. Disposition Notices (Cal. Com. Code § 9611). California requires at least ten (10) days' notice before disposition of collateral for non-consumer transactions. Consumer transactions require more extensive protections.

6. Strict Foreclosure (§ 9620). Acceptance of collateral in partial satisfaction of a consumer debt is prohibited — acceptance must be in full satisfaction or not at all for consumer goods.

7. Usury Cap (Cal. Const. Art. XV § 1). Interest and late charges must respect California's 10% usury cap unless the lender is an exempt entity (banks, credit unions, licensed finance lenders, etc.).

1. PARTIES AND RECITALS

1.1 Parties. This Security Agreement (this "Security Agreement") is made as of [__/__/____] (the "Effective Date") by and between:

Debtor: [________________________________], a [________________________________] with its chief executive office at [________________________________] ("Debtor"); and

Secured Party: [________________________________], a [________________________________] with its principal office at [________________________________] ("Secured Party").

1.2 Recitals.

A. Debtor is indebted to Secured Party under that certain [Promissory Note / Loan Agreement / Credit Agreement] dated [__/__/____] in the principal amount of $[____________] (the "Credit Agreement") (as amended from time to time).

B. As a condition of Secured Party's extension of credit, Debtor has agreed to grant Secured Party a continuing security interest in the Collateral described below to secure the Obligations, perfected under California Commercial Code Division 9.

C. The interest rate and any other charges imposed under the Credit Agreement comply with California Constitution Article XV, § 1, or an applicable statutory exemption.

2. DEFINITIONS

2.1 "Collateral" means all of Debtor's right, title, and interest in the following personal property, whether now owned or hereafter acquired, and wherever located, together with all Proceeds, Products, and Accessions thereof, consistent with the definitions in Cal. Com. Code § 9102:

☐ (a) Accounts (§ 9102(a)(2));
☐ (b) Chattel Paper, tangible and electronic (§ 9102(a)(11), (31), (78));
☐ (c) Commercial Tort Claims specifically identified on Schedule 1 (§ 9102(a)(13)) — note that general grants do not cover commercial tort claims;
☐ (d) Deposit Accounts (§ 9102(a)(29)) — perfection by control under § 9104;
☐ (e) Documents (§ 9102(a)(30));
☐ (f) Equipment (§ 9102(a)(33));
☐ (g) Fixtures (§ 9102(a)(41)) — subject to fixture filing under § 9502(b);
☐ (h) General Intangibles (§ 9102(a)(42)), including Payment Intangibles and Software;
☐ (i) Goods (§ 9102(a)(44));
☐ (j) Instruments (§ 9102(a)(47));
☐ (k) Inventory (§ 9102(a)(48));
☐ (l) Investment Property (§ 9102(a)(49)) — perfection by control under § 9106;
☐ (m) Letter-of-Credit Rights (§ 9102(a)(51));
☐ (n) Supporting Obligations (§ 9102(a)(77));
☐ (o) all additions, accessions, substitutions, replacements, products, and Proceeds (§ 9102(a)(64)).

Excluded Property. Collateral does not include property excluded by § 9109(c) or (d), including certain governmental claims, or non-assignable licenses to the extent non-assignment is enforceable under non-UCC law.

2.2 "Obligations" means all present and future indebtedness, liabilities, and obligations of Debtor to Secured Party under the Credit Agreement, this Security Agreement, and any related loan documents, whether direct, indirect, primary, secondary, contingent, joint, or several.

2.3 "Proceeds" has the meaning in Cal. Com. Code § 9102(a)(64) and includes whatever is acquired upon sale, exchange, collection, or other disposition of Collateral, and insurance payable by reason of loss or damage.

2.4 "Event of Default" has the meaning set forth in Section 6.

3. GRANT OF SECURITY INTEREST

3.1 Grant. To secure the prompt payment and performance of the Obligations, Debtor hereby grants Secured Party a continuing first-priority security interest in the Collateral, consistent with Cal. Com. Code § 9203 (attachment and enforceability).

3.2 Attachment Elements Satisfied. The parties acknowledge that attachment under § 9203(b) has occurred because (i) value has been given, (ii) Debtor has rights in the Collateral (or the power to transfer rights), and (iii) Debtor has signed (or otherwise authenticated) this Security Agreement which reasonably identifies the Collateral.

3.3 After-Acquired Property and Future Advances (§ 9204). This Security Agreement covers after-acquired Collateral and secures future advances consistent with Cal. Com. Code § 9204.

3.4 Continuing Security Interest. This security interest is continuing and shall remain in effect until the Obligations are indefeasibly paid and performed in full, and the Secured Party has delivered a termination statement under Cal. Com. Code § 9513.

4. PERFECTION AND PRIORITY

4.1 Filing — California Secretary of State. Debtor authorizes Secured Party to file, at any time, one or more UCC-1 financing statements with the California Secretary of State — UCC Section (Sacramento) under Cal. Com. Code § 9501(a)(2), describing the Collateral as set forth in Section 2.1 or as "all assets" or "all personal property" of the Debtor, consistent with Cal. Com. Code § 9504.

4.2 Perfection by Control. Where applicable, Secured Party shall obtain control over:

(a) Deposit Accounts under Cal. Com. Code § 9104 by becoming the account's customer or obtaining a control agreement with the depositary bank;
(b) Investment Property under Cal. Com. Code § 9106 via control agreement with the securities intermediary or becoming the registered owner;
(c) Letter-of-Credit Rights under Cal. Com. Code § 9107 by obtaining consent of the issuer;
(d) Electronic Chattel Paper under Cal. Com. Code § 9105.

4.3 Fixture Filing. If any Collateral constitutes fixtures, Secured Party may file a fixture filing with the recorder of the applicable California county under Cal. Com. Code §§ 9501(a)(1) and 9502(b).

4.4 Debtor Location (§ 9307). Debtor represents that it is a "registered organization" under the laws of the State of [________________________________] and that, for purposes of Cal. Com. Code § 9307(e), its location is its state of organization.

4.5 Further Assurances. Debtor shall execute and deliver any additional documents and take any further actions reasonably requested by Secured Party to perfect, continue perfection of, or protect the security interest, including the delivery of stock certificates, control agreements, and landlord waivers.

5. DEBTOR REPRESENTATIONS, WARRANTIES, AND COVENANTS

5.1 Title. Debtor has good and marketable title to the Collateral, free of any lien except liens in favor of Secured Party and Permitted Liens listed on Schedule 2.

5.2 Authority. Debtor is duly organized under the laws of [________________________________] and has all necessary authority to grant the security interest.

5.3 Accurate Identifying Information. Debtor's exact legal name, jurisdiction of organization, organizational identification number, and chief executive office are accurately stated in Section 1.1 and Schedule 1, consistent with the requirements for a "seriously misleading" financing statement under Cal. Com. Code § 9506(b)–(c).

5.4 No Changes Without Notice. Debtor shall not change its legal name, jurisdiction of organization, or chief executive office without giving Secured Party at least thirty (30) days' prior written notice, so Secured Party may file any amendments needed to maintain perfection under § 9507 or § 9316.

5.5 No Transfer or Encumbrance. Debtor shall not sell, lease, license, or otherwise transfer any Collateral (except inventory sold in the ordinary course of business under § 9320) or create any lien on any Collateral (except Permitted Liens) without Secured Party's prior written consent.

5.6 Insurance. Debtor shall maintain insurance on the Collateral in commercially reasonable amounts, with Secured Party named as loss payee and/or additional insured.

5.7 Maintenance. Debtor shall keep the Collateral in good repair and maintain records sufficient to support Secured Party's enforcement of its rights.

5.8 Taxes. Debtor shall timely pay all taxes, including California property taxes under the Revenue & Taxation Code and sales/use taxes under CDTFA regulations, affecting the Collateral.

5.9 Inspection. Upon reasonable notice, Secured Party may inspect the Collateral at Debtor's premises during normal business hours.

6. EVENTS OF DEFAULT

The occurrence of any of the following shall constitute an "Event of Default":

☐ (a) Debtor's failure to pay any Obligation when due;
☐ (b) Debtor's breach of any covenant in this Security Agreement or the Credit Agreement, which breach, if curable, is not cured within ten (10) days after written notice;
☐ (c) any representation or warranty proving false in any material respect;
☐ (d) Debtor's insolvency, general assignment for the benefit of creditors, or filing of a voluntary or involuntary bankruptcy petition under Title 11 of the U.S. Code;
☐ (e) attachment, levy, or seizure of any material Collateral not released or bonded within thirty (30) days;
☐ (f) a cross-default under the Credit Agreement or any other debt instrument exceeding $[____________];
☐ (g) dissolution, liquidation, or cessation of business by Debtor.

7. REMEDIES UPON DEFAULT

Upon the occurrence of an Event of Default, Secured Party may, without further demand or notice except as required by Division 9:

7.1 Acceleration. Declare all Obligations immediately due and payable.

7.2 Rights Under Division 9. Exercise all rights and remedies of a secured party under Cal. Com. Code §§ 9601–9628, including the following:

(a) Possession (§ 9609). Take possession of the Collateral, without judicial process if it can be done without breach of the peace, or by replevin, claim and delivery under Cal. Code Civ. Proc. § 511.010 et seq., or other judicial process.

(b) Require Assembly (§ 9609(c)). Require Debtor to assemble the Collateral and make it available at a reasonably convenient place in California.

(c) Disposition (§ 9610). Sell, lease, license, or otherwise dispose of the Collateral at public or private sale, for cash or credit, in its present condition or after commercially reasonable preparation, provided the disposition is commercially reasonable under Cal. Com. Code § 9610(b).

(d) Notification (§ 9611). Send Debtor (and any other secondarily-liable party or other secured party with a filed financing statement) at least ten (10) days' written notice of the time and place of any public sale or the time after which any private sale will occur. Notice within 10 days of the disposition is presumptively commercially reasonable in non-consumer transactions.

(e) Collection (§ 9607). Notify Account Debtors to make payment directly to Secured Party, and take control of Deposit Accounts, Investment Property, and Letter-of-Credit Rights.

(f) Strict Foreclosure (§ 9620). With Debtor's consent (authenticated after default), accept Collateral in full or partial satisfaction of the Obligations, except that strict foreclosure in partial satisfaction is prohibited for consumer-goods collateral.

7.3 Application of Proceeds (§ 9615). Proceeds of any disposition shall be applied in the following order:

(i) to reasonable expenses of retaking, holding, preparing for sale, selling, and attorneys' fees and legal expenses incurred by Secured Party;
(ii) to satisfaction of the Obligations secured by this Security Agreement;
(iii) to subordinate security interests in the Collateral;
(iv) any surplus to Debtor.

Debtor shall remain liable for any deficiency, and Secured Party shall pay any surplus to Debtor, all consistent with Cal. Com. Code § 9615(d)–(e).

7.4 No One-Action Rule Violation. The parties acknowledge that this Security Agreement does not involve real property collateral and accordingly Cal. Code Civ. Proc. § 726 (one-action rule) is not implicated. If any real property is later added as collateral, the parties shall amend this Security Agreement to coordinate remedies with § 726 and the real property security rules of Cal. Civ. Code §§ 2924–2924k.

7.5 Cumulative Remedies. All rights and remedies of Secured Party are cumulative and may be exercised in any order.

7.6 Attorneys' Fees (Cal. Civ. Code § 1717). Debtor shall pay Secured Party's reasonable attorneys' fees and costs incurred in enforcement, subject to the reciprocal attorneys'-fees rule of Cal. Civ. Code § 1717.

8. NO IMPAIRMENT OF DEBTOR STATUTORY RIGHTS

8.1 Waivers Limited by § 9602. This Security Agreement does not and cannot waive Debtor's rights under Cal. Com. Code § 9602, which identifies non-waivable protections, including the duty of commercial reasonableness under §§ 9608(a), 9610, and 9615 and the right to an accounting under § 9615.

8.2 Right of Redemption (§ 9623). Debtor retains the right under Cal. Com. Code § 9623 to redeem Collateral by tendering payment of all Obligations plus reasonable expenses of enforcement, at any time before Secured Party has collected or disposed of the Collateral or entered a binding contract for disposition.

8.3 Right to Demand Accounting (§ 9210). Debtor may request an accounting of unpaid Obligations under Cal. Com. Code § 9210.

9. INDEMNIFICATION

Debtor shall indemnify Secured Party against losses, claims, and expenses (including reasonable attorneys' fees) arising from (a) the Collateral, (b) breach of any representation or covenant, or (c) third-party claims relating to Debtor's conduct, except to the extent caused by Secured Party's gross negligence, willful misconduct, or failure to comply with Division 9.

10. GOVERNING LAW; FORUM; USURY

10.1 Governing Law. This Security Agreement shall be governed by the laws of the State of California. Questions of perfection, the effect of perfection or non-perfection, and priority of the security interest shall be governed by the law designated by Cal. Com. Code § 9301 (generally the law of the debtor's location).

10.2 Usury Savings Clause. Notwithstanding any provision herein or in the Credit Agreement, if any interest or charge is deemed to exceed the maximum permitted under California Constitution Article XV, § 1, such excess shall be applied to reduce principal or refunded to Debtor.

10.3 Forum. The parties submit to the exclusive jurisdiction of the Superior Court of California, County of [________________________________], or the U.S. District Court for the [Northern/Central/Southern/Eastern] District of California.

10.4 Jury Waiver. To the fullest extent permitted by California law, each party waives trial by jury. The parties acknowledge that pre-dispute jury waivers are unenforceable in California state court under Grafton Partners, L.P. v. Superior Court, 36 Cal. 4th 944 (2005), and this waiver therefore applies only in federal court or arbitration.

10.5 Statute of Limitations. Actions for breach of this written Security Agreement are subject to the four-year limitation of Cal. Code Civ. Proc. § 337.

11. GENERAL PROVISIONS

11.1 Termination Statement. Upon indefeasible full payment and performance of the Obligations, Secured Party shall promptly file a termination statement (UCC-3) with the California Secretary of State within the timeframes in Cal. Com. Code § 9513.

11.2 Entire Agreement. This Security Agreement, together with the Credit Agreement, constitutes the entire agreement between the parties.

11.3 Amendment. Amendments must be in writing signed by both parties.

11.4 Assignment. Secured Party may assign this Security Agreement and its rights hereunder. Debtor may not assign its obligations without Secured Party's consent.

11.5 Severability. Invalid provisions shall be reformed to the minimum extent necessary.

11.6 Notices. All notices shall be delivered personally, by overnight courier, or by certified mail to the addresses in Section 1.1.

11.7 Electronic Signatures. Signatures and authentications delivered electronically pursuant to Cal. Civ. Code §§ 1633.1–1633.17 (California UETA) and Cal. Com. Code § 9102(a)(7) (definition of "authenticate") are effective to create and perfect the security interest.

12. SIGNATURES

DEBTOR:

[________________________________]

By: [________________________________]

Name: [________________________________]

Title: [________________________________]

Date: [__/__/____]

SECURED PARTY:

[________________________________]

By: [________________________________]

Name: [________________________________]

Title: [________________________________]

Date: [__/__/____]

NOTARY ACKNOWLEDGMENT (if required)

State of California )
County of [____________] )

On [__/__/____], before me, [________________________________], Notary Public, personally appeared [________________________________], who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity, and that by his/her/their signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Notary Signature: [________________________________]

SCHEDULE 1 — Debtor Information, Commercial Tort Claims, Collateral Locations

[________________________________]

SCHEDULE 2 — Permitted Liens

[________________________________]

Sources and References

• California Commercial Code Division 9 — Secured Transactions, Cal. Com. Code §§ 9101–9709: https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=COM&division=9.&title=&part=&chapter=1.&article=
• California Secretary of State UCC Section (Sacramento): https://www.sos.ca.gov/business-programs/ucc
• Cal. Com. Code § 9109 (scope): https://codes.findlaw.com/ca/commercial-code/com-sect-9109/
• Cal. Com. Code § 9607 (collection and enforcement)
• Cal. Com. Code § 9610 (disposition of collateral)
• Cal. Com. Code § 9611 (notification before disposition)
• Cal. Com. Code § 9615 (application of proceeds)
• Cal. Com. Code § 9620 (strict foreclosure)
• Cal. Com. Code § 9623 (right of redemption)
• Cal. Code Civ. Proc. § 726 (one-action rule)
• California Constitution Article XV § 1 (usury)