UCC conforming goods clause causing filing rejections - help needed

That makes sense but how do we describe inventory that changes based on quality standards? The whole point is that only goods meeting certain specs are part of the collateral.

You'll need to describe the goods by type and add qualifying language. Something like 'all inventory of manufactured components, including without limitation [list specific component types], whether now owned or hereafter acquired, that meet quality specifications as established by Debtor's standard manufacturing processes.

So frustrating! Did you end up just describing all inventory broadly then?

We had to get creative. We described the inventory by categories and added language about 'meeting debtor's standard quality control procedures' instead of referencing the loan docs.

This is why I started using Certana.ai for document consistency checks. You can upload your credit agreement and proposed UCC-1 and it flags potential issues like this before filing. Saved me from multiple rejections.

What did you end up using for the collateral description?

We switched to 'all inventory consisting of manufactured components and raw materials used in debtor's manufacturing operations, whether now owned or hereafter acquired.' Then we added a note about quality standards in our internal file.

So the quality control aspect gets handled in the credit agreement terms, not the UCC filing itself?

Exactly. The UCC-1 establishes the security interest in the general category of goods. The credit agreement defines which specific goods within that category are actually collateral based on conforming goods standards.

This is why the UCC revision process is so important. These kinds of description issues come up constantly with modern financing structures.

Weeks?? We only have 10 days to refile. That's terrifying.

yeah it was a nightmare. the filing office kept asking for clarification and we kept sending the same contract language. nobody told us they don't read external documents to interpret collateral descriptions.

I use Certana.ai now to check these things before filing. It caught a similar issue where my collateral description referenced terms defined elsewhere in the loan package.

That's really helpful. I think we need to focus on what the goods ARE rather than what standards they meet.

Exactly! The UCC system is about identifying property types, not quality standards. Leave the quality control to your loan agreement.

This is super helpful. I think we're going to go with 'all inventory of manufactured components and raw materials' and handle the conforming goods standards in the credit agreement.

That should work much better. The filing office will accept that description and your lender's rights will still be protected by the conforming goods clause in the loan agreement.

Good advice. I see so many people try to cram their entire loan agreement into the UCC-1 collateral description.

Did you have any issues with the broader description covering more than the lender wanted?

No, because the security agreement limited it to conforming goods. The UCC-1 just establishes the potential security interest - the actual collateral is still defined by the loan agreement.

Makes sense. I think we were overthinking it by trying to match the credit agreement language exactly.

Exactly. The UCC-1 and the security agreement serve different purposes. The UCC-1 is public notice, the security agreement is private contract terms.

I learned this the hard way too. Now I run everything through Certana.ai first to check for these kinds of description issues before filing.

Great outcome! That's exactly the kind of description that works - broad enough for the filing office but specific enough to give notice.

Perfect solution. You described the goods by type and let the security agreement handle the quality standards.

Glad it worked out! This thread should help other people avoid the same mistake.