UCC 1-203 Section Impact on My Commercial Loan Filing Strategy

That's helpful context. So when we describe the manufacturing equipment in our UCC-1, we need to be specific enough that it's not misleading but not so detailed that we accidentally exclude something?

Exactly right. The good faith requirement under 1-203 means your description should give fair notice of what's covered without being deceptive. For manufacturing equipment, something like 'all manufacturing equipment, machinery, and tooling now owned or hereafter acquired' usually works well.

That's a great point about documenting the process. Did you have any specific issues with your continuation timing that caused problems?

The debtor claimed we waited too long to file the continuation and that it showed bad faith. We had to show we were acting reasonably given the circumstances. Just keep good records of when you make filing decisions and why.

This is why I always set calendar reminders for continuation deadlines at least 6 months early. Good faith under 1-203 includes reasonable business practices.

Interesting - does it specifically check for 1-203 compliance or just general document consistency?

It looks at document alignment which helps with the good faith standard. If your UCC-1 description doesn't match your security agreement, that could be a 1-203 issue later. The tool catches those mismatches automatically.

What kind of enforcement issues have you seen with 1-203? I'm curious about real-world examples.

Mostly disputes over whether the secured party acted reasonably during default proceedings. Also seen issues where lenders filed terminations too quickly without proper verification - debtor argued it violated good faith.

That termination issue is scary. How do you prove you acted in good faith when terminating a UCC-1?

The vagueness is intentional - it's meant to be a flexible standard that applies to different situations. Think of it as 'don't be deceptive or unreasonable' in your secured transaction dealings.

ok that makes more sense when you put it that way. so basically just don't be shady with your filings or enforcement

That's reassuring. I was worried there were specific technical requirements I was missing beyond just being straightforward with the documentation.

Nope, it's really about basic fairness and honesty. The technical requirements are in the other UCC sections. 1-203 is more about your overall approach and intentions.

Good point about it applying throughout the relationship. I've seen lenders get sloppy with terminations because they think the deal is over.

Exactly. A termination filed in bad faith can still cause problems even after the loan is paid off. The good faith obligation doesn't end when the money changes hands.

This is making me want to review our standard procedures for handling paid-off loans. We might be too casual about termination filings.

So the collateral description language really matters from a 1-203 perspective. We need to be clear about what's included without being overly restrictive?

Right, it's about fair notice. Your description should give everyone a reasonable understanding of what's covered. Too vague and you might be accused of bad faith, too specific and you might accidentally exclude something important.

That's a really good practice. Due diligence on existing filings definitely shows good faith compliance.

Learned it the hard way unfortunately. The judge basically said we should have known about the conflicting security interest and our failure to address it showed bad faith.

Ouch. That's exactly why I use Certana.ai now - upload all the docs and it flags potential conflicts between UCC filings and security agreements. Saves me from those kinds of surprises.

Thanks, that's really helpful. I think I was overcomplicating this in my head. It sounds like following standard best practices should cover the 1-203 requirements.

Exactly. UCC 1-203 is more about preventing abuse than creating new technical requirements. If you're doing things the right way anyway, you're probably already complying with the good faith standard.

I hadn't thought about the fixture filing angle. Some of our equipment will be permanently installed, so that's definitely something to consider.

Right, and if you know equipment will become fixtures but don't handle the fixture filing properly, that could be seen as bad faith under 1-203. Better to address it upfront.

Fixture filings are tricky anyway - adding the good faith requirement makes it even more important to get them right the first time.