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). Section 726 limits judicial actions to recover a debt secured by real property. A creditor with a deed of trust containing a power of sale may instead use the nonjudicial sale process under Cal. Civ. Code § 2924, subject to its notice and timing requirements. Where collateral is mixed (real and personal property), counsel must coordinate UCC enforcement with real-property remedies and applicable deficiency limits.

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 §§ 9611–9612). Send any required notification within a reasonable time before disposition. For a transaction other than a consumer transaction, notice sent at least 10 days before the earliest disposition date is deemed reasonable under § 9612(b); 10 days is a safe harbor, not a universal minimum.

6. Strict Foreclosure (§ 9620). In any consumer transaction, acceptance of collateral in partial satisfaction is prohibited, regardless of the collateral type. Any acceptance must satisfy the other conditions of § 9620. If the secured party has taken possession of consumer goods after the debtor has paid 60% of the applicable cash price or secured principal, § 9620(e)–(f) generally requires disposition within 90 days, subject to the statutory waiver and extension rules.

7. Usury Limits (Cal. Const. art. XV, § 1). For a nonexempt loan used primarily for personal, family, or household purposes, the written contract rate generally cannot exceed 10% annually. A loan used primarily to purchase, construct, or improve real property is outside that category. For other nonexempt loans, the ceiling is the higher of 10% annually or 5% plus the Federal Reserve Bank of San Francisco advance rate specified in Article XV. Review fees and late charges that may count as compensation for the loan, and confirm any lender or transaction exemption before choosing a rate.

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 security interest in the Collateral. The parties must confirm attachment, perfection and priority from the actual collateral, filings, control or possession, and competing-interest record under the selected law.

3.2 Attachment Record. The identified value given is [DESCRIPTION / DATE], Debtor's rights or transfer power in each collateral item are [FACTS / RECORD], and the signed collateral description is [SCHEDULE / DATE]. The parties will confirm attachment under the selected law from these actual facts; execution alone is not an assertion that every condition has occurred.

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 (§§ 9611–9612). After default, send any required notice of disposition to Debtor and the other persons entitled to notice under § 9611. For a non-consumer transaction, notice sent after default at least ten (10) days before the earliest disposition time stated in the notice is treated as sent within a reasonable time under § 9612(b). Outside that safe harbor, reasonableness depends on the facts.

(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). Subject to § 9620's consent, notice, objection, and other conditions, Secured Party may accept Collateral in full or partial satisfaction of the Obligations after default. In a consumer transaction, Secured Party may accept Collateral only in full satisfaction, not partial satisfaction, regardless of collateral type (§ 9620(g)).

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 Fixtures and Real Property Remedies. This Agreement may cover fixtures. If the Obligations are also secured by an interest in real property, Secured Party must evaluate the available enforcement routes under Cal. Com. Code § 9604 and coordinate any real-property remedy with Cal. Code Civ. Proc. § 726 and applicable deficiency limits. This Agreement does not determine in advance whether § 726 applies to a particular enforcement action.

7.5 Cumulative Remedies. Secured Party may exercise available rights and remedies in any order permitted by applicable law, subject to Section 7.4 and the limits on deficiency recovery.

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) and 9610, the right to request an accounting of unpaid obligations under § 9210, and the right to an accounting for or payment of surplus proceeds under § 9615(d).

8.2 Right of Redemption (§ 9623). Debtor may redeem Collateral by tendering fulfillment of all obligations it secures plus the reasonable expenses and attorney fees described in Cal. Com. Code § 9615(a)(1). Redemption must occur before Secured Party collects the Collateral under § 9607, disposes of it or contracts for its disposition under § 9610, or accepts it in full or partial satisfaction under § 9622. Cal. Com. Code § 9623(b)–(c).

8.3 Right to Demand Accounting (§ 9210). Debtor may request an accounting of unpaid Obligations under Cal. Com. Code § 9210. After disposition in a consumer-goods transaction, § 9616 governs an explanation of any surplus or deficiency.

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 California State-Court Jury Rights. This Agreement does not itself waive a jury trial in a California state court. After an action is filed there, a party may waive that right only through a method permitted by applicable law. Any proposed federal-court waiver requires separate review under the procedural law governing that forum.

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. The parties may sign this Agreement electronically. Cal. Com. Code § 1201(b)(37) includes an electronic symbol, sound, or process attached to or logically associated with a record in the definition of "sign." Under § 9203(b), enforceability also requires value, the debtor's rights in the collateral, and a signed security agreement describing the collateral or another statutory basis for attachment. Complete the applicable Division 9 perfection steps separately. California UETA does not apply to transactions subject to Division 9 (Cal. Civ. Code § 1633.3(b)(3)).

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 (loan-purpose usury limits and exemptions)