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Chapter 24

Form 24-23

The following form, which is intended to cover collateral consisting of instruments or investment property, is adapted from one of the four security agreements contained in the Texas Real Estate Forms Manual (State Bar of Texas). Three other forms available in that manual cover other types of collateral: (1) goods, including documents covering goods, equipment, inventory, consumer goods, and farm products; (2) accounts, chattel paper, general intangibles, and commercial tort claims; and (3) an interest in a noncorporate entity. See the practice notes at section 24.31 for important information concerning perfection of the security interest.

Security Agreement

[Instruments, Investment Property]

Basic Information

Date:

Debtor:

Debtor’s Mailing Address: [include county]

Secured Party:

Secured Party’s Mailing Address: [include county]

Classification of Collateral: [Instruments/Investment property/Instruments and investment property]

Collateral:

All of Debtor’s interest in the following personal property and all supporting obliga­tions and proceeds of such property: [describe the specific collateral as follows: that certain [[title of instrument]/note], dated [date], in the original face amount of $[amount], issued by [name] as maker and payable to [name] as payee/all instru­ments or notes acquired by or payable to Debtor arising out of Debtor’s sale of lots in the [name] subdivision otherwise known as [insert legal description]/[number] shares of [describe class or series of preferred or common] stock of [name of cor­poration] represented by certificate number[s] [number[s]], brokerage account number [number], maintained in the name of Debtor with [name of broker or secu­rities intermediary]/instruments, including promissory notes/investment property, including securities] [include if applicable: and all after-acquired collateral of the same classification].

Obligation

Note

Date:

Original principal amount:

Borrower (Obligor):

Include either or both of the following if applicable.

Other debt/Future advances: The security interest also secures all other present and future debts and liabilities of Debtor and/or Obligor to Secured Party, including future advances.

Other obligation[s]:

Continue with the following.

A.Debtor’s Representations Concerning Debtor and Locations:

Include one or more of the following paragraphs as applicable and modify paragraph numbers as appropriate.

A.1.      [Debtor’s place of business/Debtor’s chief executive office] is located at [address, city, state].]

Include the following if the debtor is an individual.

A.2.      Debtor’s residence is located at [address, city, state].

Include the following paragraphs if the debtor is a corporation, limited partnership, or limited liability company.

A.2.      Debtor’s state of organization is [Texas/[state]], and Debtor’s name, as shown in its public organic record, as amended, is exactly as set forth above.

A.3.      Debtor’s records concerning the collateral are located at [address, city, state].

B.Granting Clause

Debtor grants to Secured Party a security interest in the collateral and all its proceeds to secure the obligation and all renewals, modifications, and extensions of the obligation. Debtor authorizes Secured Party to file a financing statement describing the collateral.

C.Debtor Represents the Following:

C.1.      No financing statement covering the collateral is filed in any public office [include if the secured party has prefiled a financing statement or otherwise has a financing statement on file: except any financing statement in favor of Secured Party].

C.2.      Debtor owns the collateral and has the authority to grant this security interest, free from any setoff, claim, restriction, security interest, or encumbrance except liens for taxes not yet due.

C.3.      All information about Debtor’s financial condition is or will be accurate when provided to Secured Party.

C.4.      Each instrument and security, certificated or uncertificated, in the collateral is and will represent the valid, legally enforceable obligation of the issuer thereof.

C.5.      The transaction under which each instrument and security, certificated or uncer­tificated, in the collateral was issued and transferred to Debtor conforms and will conform in all respects to applicable state and federal law, including securities law and consumer credit law.

D.Debtor Agrees to—

D.1.      Defend the collateral against all claims adverse to Secured Party’s interest; pay all taxes imposed on the collateral; keep the collateral free from liens, except for liens in favor of Secured Party or for taxes not yet due; keep the collateral in Debtor’s possession and own­ership except as otherwise provided in this agreement; maintain the collateral in good condi­tion; and protect the collateral against waste, except for ordinary wear and tear.

D.2.      Pay all Secured Party’s expenses, including reasonable attorney’s fees and legal expenses, incurred to (a) obtain, preserve, perfect, defend, and enforce this agreement; (b) retake, hold, prepare for disposition, dispose, collect, or enforce the collateral; and (c) collect or enforce the obligation. These expenses will bear interest from the date of advance at the rate stated in the note for matured, unpaid amounts and are payable on demand at the place where the obligation is payable. These expenses and interest are part of the obligation and are secured by this agreement.

D.3.      Sign and deliver to Secured Party any documents or instruments that Secured Party considers necessary to obtain, maintain, and perfect this security interest in the collateral and take any action requested by Secured Party for Secured Party to obtain control of invest­ment property in the collateral.

D.4.      Notify Secured Party immediately of any event of default and of any material change (a) in the collateral, (b) in Debtor’s mailing address, (c) in the location of any collat­eral, (d) in any other representation or warranty in this agreement, and (e) that may affect this security interest, and of any change (f) in Debtor’s name and (g) of any location set forth above to another state.

D.5.      Use the collateral primarily according to the stated classification.

D.6.      Maintain accurate records of the collateral at the address set forth above; furnish Secured Party any requested information related to the collateral; and permit Secured Party to inspect and copy all records relating to the collateral.

D.7.      If the collateral is not in the possession or control of Secured Party, permit Secured Party to inspect the collateral.

D.8.      Immediately deliver to Secured Party, with an assignment or endorsement, cur­rent and after-acquired instruments and certificated securities in the collateral.

D.9.      Preserve the liability of all obligors on the collateral and preserve the priority of all security for the collateral.

D.10.      On Secured Party’s demand, deposit all payments received as proceeds of the collateral in a special bank account designated by Secured Party, who alone will have power of withdrawal.

D.11.      Cause all obligors on the collateral to pay and perform all their obligations and inform Secured Party immediately of the default in the payment or performance of any collat­eral.

E.Debtor Agrees Not to—

E.1.      Sell, transfer, or encumber any of the collateral [include if applicable: except in the ordinary course of Debtor’s business].

Select one of the following.

Include the following if the debtor is a corporation, limited part­nership, or limited liability company.

E.2.      Change its name or jurisdiction of organization, merge or consolidate with any person, or convert to a different entity without notifying Secured Party in advance and taking action to continue the perfected status of the security interest in the collateral.

Or

Include the following if the debtor is an entity other than a cor­poration, limited partnership, or limited liability company.

E.2.      Change the state in which Debtor’s place of business (or chief executive office if Debtor has more than one place of business) is located, change its name, or convert to a differ­ent entity without notifying Secured Party in advance and taking action to continue the per­fected status of the security interest in the collateral.

Or

Include the following if the debtor is an individual.

E.2.      Change Debtor’s name or state of residence without notifying Secured Party in advance and taking action to continue the perfected status of the security interest in the collat­eral.

Continue with the following.

E.3.      Modify any term of any instrument or security in the collateral.

E.4.      Commingle any payment on the collateral with any of Debtor’s other funds or property.

F.Default and Remedies

F.1.      A default exists if—

a.Debtor, Obligor, or any secondary obligor fails to timely pay or perform any obligation or covenant in any written agreement between Secured Party and any of Debtor, Obligor, or secondary obligor;

b.any representation in this agreement or in any other written agreement between Secured Party and any of Debtor, Obligor, or secondary obligor is materially false when made;

c.a receiver is appointed for Debtor, Obligor, any secondary obligor, or any collateral;

d.any collateral is assigned for the benefit of creditors;

e.a bankruptcy or insolvency proceeding is commenced by Debtor, a partner­ship in which Debtor is a general partner, Obligor, or any secondary obligor;

f.a bankruptcy or insolvency proceeding is commenced against Debtor, a part­nership in which Debtor is a general partner, Obligor, or any secondary obli­gor, and the proceeding continues without dismissal for sixty days, the party against whom the proceeding is commenced admits the material allegations of the petition against it, or an order for relief is entered;

g.any of the following parties is terminated, begins to wind up its affairs, is authorized to terminate or wind up its affairs by its governing body or per­sons, or any event occurs or condition exists that permits the termination or winding up of the affairs of any of the following parties: Debtor; a partner­ship of which Debtor is a general partner; Obligor; or any secondary obligor; or

h.any collateral is impaired by loss, theft, damage, levy and execution, issuance of an official writ or order of seizure, or destruction, unless it is promptly replaced with collateral of like kind and quality or restored to its former con­dition.

F.2.      If a default exists, Secured Party may—

a.demand, collect, convert, redeem, settle, compromise, receipt for, realize on, sue for, and adjust the collateral either in Secured Party’s or Debtor’s name, as Secured Party desires, or take control of any proceeds of the collateral and apply the proceeds against the obligation;

b.take possession of any collateral not already in Secured Party’s possession, without demand or legal process, and for that purpose Debtor grants Secured Party the right to enter any premises where the collateral may be located;

c.without taking possession, sell, lease, or otherwise dispose of the collateral at any public or private sale in accordance with law;

d.exercise any rights and remedies granted by law or this agreement;

e.notify obligors on the collateral to pay Secured Party directly;

f.as Debtor’s agent, make any endorsements in Debtor’s name and on Debtor’s behalf of any instruments in the collateral and to any proceeds of the collat­eral;

g.exercise and enforce all rights, including voting rights, available to an owner of the collateral; and

h.transfer record ownership of any collateral to Secured Party.

F.3.      Foreclosure of this security interest by suit does not limit Secured Party’s reme­dies, including the right to sell the collateral under the terms of this agreement. Secured Party may exercise all remedies at the same or different times, and no remedy is a defense to any other. Secured Party’s rights and remedies include all those granted by law and those specified in this agreement.

F.4.      Secured Party’s delay in exercising, partial exercise of, or failure to exercise any of its remedies or rights does not waive Secured Party’s rights to subsequently exercise those remedies or rights. Secured Party’s waiver of any default does not waive any other default by Debtor. Secured Party’s waiver of any right in this agreement or of any default is binding only if it is in writing. Secured Party may remedy any default without waiving it.

F.5.      Secured Party has no obligation to clean or otherwise prepare the collateral for sale.

F.6.      Other than exercising reasonable care to assure safe custody of the collateral in its possession, Secured Party has no responsibility for the collateral. Secured Party has no obligation to collect any of the collateral and is not liable for failure to collect any of the col­lateral, for failure to preserve any right pertaining to the collateral, or for any act or omission on the part of Secured Party or Secured Party’s officers, agents, or employees, except willful misconduct.

F.7.      Secured Party has no obligation to satisfy the obligation by attempting to collect the obligation from any other person liable for it. Secured Party may release, modify, or waive any collateral provided by any other person to secure any of the obligation. If Secured Party attempts to collect the obligation from any other person liable for it or releases, modifies, or waives any collateral provided by any other person, that will not affect Secured Party’s rights against Debtor. Debtor waives any right Debtor may have to require Secured Party to pursue any third person for any of the obligation.

F.8.      If Secured Party must comply with any applicable state or federal law require­ments in connection with a disposition of the collateral, such compliance will not be consid­ered to adversely affect the commercial reasonableness of a sale of the collateral.

F.9.      Secured Party may sell the collateral without giving any warranties as to the col­lateral. Secured Party may specifically disclaim any warranties of title or the like. This proce­dure will not be considered to adversely affect the commercial reasonableness of a sale of the collateral.

F.10.      If Secured Party sells any of the collateral on credit, Debtor will be credited only with payments actually made by the purchaser and received by Secured Party for appli­cation to the indebtedness of the purchaser. If the purchaser fails to pay for the collateral, Secured Party may resell the collateral and Debtor will be credited with the proceeds of the sale.

F.11.      If Secured Party purchases any of the collateral being sold, Secured Party may pay for the collateral by crediting the purchase price against the obligation.

F.12.      Secured Party has no obligation to marshal any assets in favor of Debtor or against or in payment of the note, any of the other obligation[s], or any other obligation owed to Secured Party by Debtor or any other person.

F.13.      If the collateral is sold after default, recitals in the bill of sale or transfer will be prima facie evidence of their truth and all prerequisites to the sale specified by this agreement and by law will be presumed satisfied.

G.General

G.1.      Notice is reasonable if it is mailed, postage prepaid, to Debtor at Debtor’s mail­ing address at least ten days before any public sale or ten days before the time when the collat­eral may be otherwise disposed of without further notice to Debtor.

G.2.      This security interest will neither affect nor be affected by any other security for any of the obligation. Neither extensions of any of the obligation nor releases of any of the collateral will affect the priority or validity of this security interest.

G.3.      This agreement binds, benefits, and may be enforced by the successors in inter­est of Secured Party and will bind all persons who become bound as debtors to this agreement. Assignment of any part of the obligation and Secured Party’s delivery of any part of the col­lateral will fully discharge Secured Party from responsibility for that part of the collateral. If such an assignment is made, Debtor will render performance under this agreement to the assignee. Debtor waives and will not assert against any assignee any claims, defenses, or setoffs that Debtor could assert against Secured Party except defenses that cannot be waived. All representations, warranties, and obligations are joint and several as to each Debtor.

G.4.      This agreement may be amended only by an instrument in writing signed by Secured Party and Debtor.

G.5.      The unenforceability of any provision of this agreement will not affect the enforceability or validity of any other provision.

G.6.      This agreement will be construed according to Texas law, without regard to choice-of-law rules of any jurisdiction. This agreement is to be performed in the county of Secured Party’s mailing address.

G.7.      Interest on the obligation secured by this agreement will not exceed the maxi­mum amount of nonusurious interest that may be contracted for, taken, reserved, charged, or received under law. Any interest in excess of that maximum amount will be credited on the principal of the obligation or, if that has been paid, refunded. On any acceleration or required or permitted prepayment, any such excess will be canceled automatically as of the accelera­tion or prepayment or, if already paid, credited on the principal of the obligation or, if the prin­cipal of the obligation has been paid, refunded. This provision overrides any conflicting provisions in this and all other instruments concerning the obligation.

G.8.      In no event may this agreement secure payment of any debt that may not law­fully be secured by a lien on real estate or create a lien otherwise prohibited by law.

G.9.      When the context requires, singular nouns and pronouns include the plural.

G.10.      Any term defined in sections 1.101 to 9.709 of the Texas Business and Com­merce Code and not defined in this agreement has the meaning given to the term in the Code.

G.11.      This agreement is given to comply with the Final Decree of Divorce rendered in Cause No. [number], styled “[style of case],” by the [designation] Court of [county] County, Texas, and the obligation imposed in that decree.

   
[Name of debtor]