When entering into a security agreement, it is important to have a clear and accurate description of the collateral being pledged as security. This collateral description should provide enough detail to allow for easy identification and valuation of the collateral in case of default. In this article, we will provide a sample collateral description for a security agreement and explain some key considerations for creating an effective description.
Sample Collateral Description
The following is a sample collateral description for a security agreement involving equipment:
The “Collateral” shall refer to the following equipment:
1. One (1) 2019 John Deere 330G Compact Track Loader, Serial Number: XXXXXX
2. One (1) 2017 Caterpillar 308E2 CR SB Hydraulic Excavator, Serial Number: XXXXXX
3. One (1) 2018 Bobcat E35i Compact Excavator, Serial Number: XXXXXX
4. One (1) 2016 Komatsu WA270-8 Wheel Loader, Serial Number: XXXXXX
When creating a collateral description, it`s important to keep in mind the purpose of the description and the needs of the lender. Here are some key considerations:
1. Be specific: The description should be as specific as possible, including make, model, and serial number, to avoid confusion or disputes over which assets are covered by the security agreement.
2. Consider the future: If the collateral is likely to include future assets, such as inventory or accounts receivable, the description should include language that covers these items.
3. Be comprehensive: The description should cover all relevant assets that are being pledged as collateral, including any accessories, parts, or attachments.
4. Avoid ambiguity: The description should avoid vague terms or general categories that could be interpreted in different ways. For example, “all office equipment” could include a wide range of assets, making it difficult to determine exactly what is covered.
5. Use language that is easy to understand: The collateral description should be written in plain language that is easy for all parties to understand. Legal jargon or technical terms should be avoided.
A clear and comprehensive description of collateral is an essential component of a security agreement. By following these key considerations and using the sample collateral description provided, you can ensure that your security agreement is effective and enforceable.