A material component of the wholesale marketing of petroleum products is the advancement of credit to customers. In conjunction with the advancement of credit, it is appropriate to secure the credit advanced to the greatest extent possible. Methods available for securing credit advances include, but are not limited to obtaining: security deeds, UCC Financing Statements and security agreements, personal guarantees, assignments of leases, and assignments of rents or other contracts. Each of these mentioned security and collateralization vehicles will be briefly discussed hereinafter:
- Security Deed. A security deed is a conveyance of land to secure a debt. A security deed, as opposed to a mere mortgage, passes legal title to the land while reserving unto the debtor the equitable title to use and enjoy the conveyed land subject to compliance with debt obligations. Security deeds must be recorded in the county where the land is located. Although there is no specific time within which such deeds must be filed, the failure to timely record the deed to secure debt may affect priority and therefore the ability to enforce the debt against the subject property.
Terms, which should be included within your form deed to secure debt, include the following:
i) Parties, legal description and description of debt secured;
ii) Provisions for payment of attorney's fees;
iii) Rates of interest applicable to the deed to secure debt in the event of default;
iv) Ability and procedure of exercise of nonjudicial foreclosure;
v) A future advance clause.
A first priority security deed on a valuable parcel of real property usually represents the best, most secure collateral for a debt.
- Security agreements and UCC Financing Statements.
Whereas a security deed is utilized for real property to secure an indebtedness, in the event the creditor desires to include personal property or articles which may not be regarded as fixtures as collateral, the creditor will need to obtain a security agreement and UCC Financing Statement.
To have a binding interest in personalty, it is required that the financial statement filing be on the forms prescribed by the Georgia Superior Court Clerks Cooperative Authority. Further, the filing must disclose the names and addresses of both parties, be signed by the Debtor and indicate the type and items of property which constitute the collateral subject tot he filing. Be aware that UCC-1 Financing Statements lapse after five (5) ears, if no continuation certificate is filed. In this regard, since many supply agreements have terms greater than five (5) ears, it is necessary to keep track of the filings and assure that continuation statements are filed as necessary in order to prevent lapse and loss of enforceability of security agreements.
- Personal Guarantees
In the event the customer is a corporation, it is advisable to obtain personal guarantees from the principals of the corporation. Debt of corporations are generally not enforceable or recoverable against owners, officers, or employees of corporations. Your guaranty agreements, at a minimum, include the following provisions:
i) Unconditional guaranty of prompt payment;
ii) Reference the agreements from which the liability arises;
iii) A waiver of notice of acceptance, presentment for payment, demand for payment, protest, notice of protest and notice of nonpayment;
iv) The right to extend or renew the indebtedness without the notice or consent of the guarantors;
v) That the guarantors may be sued jointly or individually without first or contemporaneously suing or otherwise seeking or proceeding to collect against the primary obligor.
- Conditional Assignment of Lease.
Where the marketer is making substantial improvements or has a valuable legal interest in property, which is leased to the customer, it is recommended that the supplier require a conditional assignment of leases. The purpose of this document is two fold:
i) in the event the customer defaults under the lease agreement, it allows the supplier to cure the event of default to prevent the lease from being terminated and the supplier loosing all rights to the premises; and
ii) if drafted appropriately, it may allow the supplier to step into the place of the tenant under the lease and operate the premises.
- Assignment of Rents and/or other Contracts.
Similar to the assignment of leases, it may be appropriate under certain circumstances to obtain an assignment of rent or other contracts in order to secure indebtedness. The purpose of these documents is to allow the creditor to either obtain proceeds under contracts in the event of default, or to step into the position of the debtor and enjoy the benefits to be received from the contracts, which are assigned.
Security deeds, security agreements, guarantees and assignments are not a substitute for leases, written supply agreements and other documents evidencing the agreements between the parties. Such security documents are supplemental to any such agreements.
In today's market place where we have experienced increased bankruptcy filings, numerous retailers of foreign citizenship and origin who in ordinary cases are difficult to enforce and collect judgment against, increased sale and transfer of retail outlets, and increased incidents of default on payment obligations, it is necessary to review business practices and take all possible steps to secure to the greatest extent possible any credit advances made to customers. In a default situation, the ability to collect all or any portion of outstanding indebtedness is directly related to the amount of collateral, which has been obtained by previously entered into security protection documentation.