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Simple English definitions for legal terms
collateral act
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A quick definition of collateral act:
Term: COLLATERAL ACT
Definition: A collateral act is when someone promises to do something and puts up something valuable as security. This valuable thing is called collateral. It is usually not money. The collateral act is done to make sure the person keeps their promise. If they don't, they will lose their collateral.
A more thorough explanation:
Definition: A collateral act is any action, usually not involving the payment of money, for which a bond or recognizance is given as security.
Examples:
- Performing a service for someone and providing a bond as security in case the service is not completed.
- Leasing a car and providing a bond as security in case the car is damaged or not returned.
- Signing a contract to complete a construction project and providing a bond as security in case the project is not completed.
These examples illustrate how a collateral act works. In each case, the person providing the service or taking on the responsibility provides a bond as security. This bond acts as a guarantee that the person will fulfill their obligation. If they fail to do so, the bond can be used to cover any damages or losses incurred by the other party.