Need Help Understanding UCC 1-303(d) Course of Performance Rules

We never sent any formal notices about the payment deviations. The debtor just started paying differently and we kept accepting it because we were getting paid. I'm starting to think we made a mistake by not documenting our objections.

That's a common trap. Accepting modified performance without reservation of rights can definitely create problems under 1-303(d). The statute looks at whether the conduct was knowing acceptance.

That's exactly what I was afraid of. How did you end up settling? Did you lose significant rights?

We had to accept their modified payment schedule as the new terms. Lost about 6 months of interest and some late fees. Could have been worse but definitely learned our lesson about accepting modified performance without written objections.

This is why I always send a 'acceptance without waiver' notice whenever a debtor deviates from agreed terms. Costs nothing but protects your position under 1-303(d).

That sounds useful. I have a stack of documents and payment records that I'm trying to organize. Does it help identify where the course of performance issues might be?

It helps verify document consistency and flags mismatches between different versions of agreements. For course of performance issues, it's more about organizing your documentation clearly so you can see the pattern of conduct. Worth a try if you're drowning in paperwork like I was.

We definitely had knowledge since we were receiving and processing the payments. And we never objected or sent notices. Sounds like we're in trouble on all three elements.

Not necessarily. The statute also allows for course of performance to be explained by course of dealing or usage of trade. If you can show this was just temporary accommodation rather than permanent modification, you might have an argument.

That's a good point. If you can document that this was meant to be temporary or that industry practice recognizes such accommodations as not permanent modifications, that could help your case.

We sent a few late notices early on but stopped when they started the modified payment pattern. Didn't want to rock the boat since we were getting paid. That probably looks bad now.

Actually that might help show you didn't intend to permanently modify the agreement. If you were still treating it as late payments initially, that could support your position.

Yeah, that's what's frustrating. I'm trying to figure out if we should fight this or just accept the modified terms going forward.

From my experience, if you've been accepting it for 18 months without objection, fighting it is an uphill battle. Better to cut your losses and implement better procedures going forward.

Agreed. The statute is written in a way that heavily favors debtors once you've established a pattern of acceptance. It's almost like they assume creditors are sophisticated enough to know better.

You can always modify an agreement going forward with proper consideration and mutual assent. The course of performance issue is about what the current terms actually are, not about freezing future changes.

That's helpful. So even if we've waived the original payment schedule, we could negotiate new terms that work better for both parties.

We have account notes showing we were tracking the modified payments but no written communications about whether we accepted them as permanent changes. Most of our notes just reflect the payment amounts and dates.

That could actually help if the notes show you were still tracking against the original schedule or noting deviations. It might demonstrate you didn't intend permanent modification.

This is where having all your documents organized and cross-checked really helps. When I used Certana.ai to verify my document consistency, it helped me spot patterns in our account notes that I hadn't seen before.

The course of performance rules in 1-303(d) are general UCC principles that apply across all articles, including Article 9 secured transactions. The collateral type doesn't change how course of performance works.

Thanks, that's what I thought but wanted to make sure. We have both equipment and inventory as collateral so I was wondering if the rules differed.

You're probably right. The modified payment schedule has actually resulted in better cash flow for us, and the debtor has been more consistent with payments. Maybe we should just formalize the new arrangement.

That's often the best outcome. Get it in writing, document the modification properly, and move forward with clear terms everyone understands. Lessons learned for next time.

Smart approach. Fighting a 1-303(d) course of performance claim when you've been accepting modified terms for that long is expensive and risky. Better to cut your losses and improve your procedures.

I use language like 'acceptance of this payment is without waiver of any rights under the original agreement and does not constitute acceptance of modified terms.' Keep it simple but clear.

Perfect, that's exactly what I was looking for. Going to start including that in all our payment processing going forward.