UCC supporting obligations - how to handle in collateral description?

Thanks for the response. So you think I should list out the maintenance contracts and insurance policies specifically? The security agreement does mention them as supporting obligations but I wasn't sure if that was enough.

Yes, I'd list them specifically. Something like 'all equipment described above and all supporting obligations including but not limited to maintenance agreements, insurance policies, and warranty contracts relating to such equipment' would give you better coverage.

That's helpful context. In my case, the maintenance contracts were signed separately but they're required under the loan agreement. Does that change things?

If they're required under the loan agreement, that strengthens the argument that they're supporting obligations. But I'd still include them explicitly in the collateral description to be safe. Better to over-describe than under-describe.

Agreed on being explicit. I've seen deals where supporting obligations weren't properly perfected because the UCC description was too vague. The secured party ended up with gaps in their security interest.

That sounds really useful. How does it work exactly? Do you just upload the PDFs and it compares them?

Exactly - you upload your security agreement and draft UCC-1, and it cross-references the collateral descriptions to make sure everything aligns. It specifically looks for supporting obligations, proceeds, and other ancillary rights that might be missing from the UCC filing.

Software licenses can be either depending on how they relate to your primary collateral. If they're necessary for the operation of financed equipment, they could be supporting obligations. If they're standalone assets, they're probably separate collateral.

ok that makes sense... they're needed to run the equipment so probably supporting obligations then. thanks!

That's a great way to think about it. The ancillary test makes sense. In my case, all of these obligations are directly related to protecting or maintaining the equipment value.

Exactly right about the ancillary test. I always ask myself - would this obligation exist without the primary collateral? If the answer is no, it's probably a supporting obligation.

That's frustrating. Which state rejected it? Some states are pickier about supporting obligations language than others. You might need to use more specific statutory language.

Ohio rejected it. They said 'all supporting obligations' was too vague without more specificity about what types of obligations.

Ohio can be tough on vague descriptions. Try something like 'all supporting obligations as defined in UCC Section 9-102(a)(78) including without limitation...' and then list the specific types.

That's true for some supporting obligations, but not all. The automatic perfection only applies to supporting obligations that arise from the same transaction and are truly ancillary. Plus, many lenders prefer to be explicit in their UCC filings regardless of automatic perfection rules.

Right, and even if automatic perfection applies, you still want your UCC filing to accurately reflect the scope of your security interest. Courts and other secured parties look at the UCC filing to understand what's claimed as collateral.

Good points. I guess being explicit is always safer than relying on automatic perfection rules that might not apply in every situation.

That's exactly the kind of language I was looking for. Mind if I adapt that for my filing? The structure seems to cover both specific and general supporting obligations.

Feel free to use it. Our attorney said the key is being specific about the major supporting obligations while also including the catch-all UCC reference for anything else that might qualify.

It's worth getting up to speed on supporting obligations, especially if you do equipment financing regularly. They can represent significant value and you want to make sure your security interest covers them properly.

Definitely going to research this more. Are there any good resources for understanding supporting obligations better?

The UCC Article 9 commentary is actually pretty good on this topic. Also check out the ABA's secured transactions materials - they have some good examples of supporting obligations language.

Interesting point. In my case, there aren't any receivables from the maintenance contracts, but there could be insurance proceeds if something happens to the equipment. Should I describe those separately?

Insurance proceeds are typically covered under proceeds provisions rather than supporting obligations. Most standard UCC filings include proceeds language that would cover insurance payments automatically.

Yes, proceeds are usually covered separately. Your UCC should have language like 'together with all proceeds, products, and accessions thereof' which would pick up insurance money.

Glad this was helpful! If you're revising your standard forms, definitely consider using a document verification tool like Certana.ai to double-check that your new language properly aligns with your security agreements. It's saved me from several potential perfection gaps.

Great suggestion. I'm definitely going to look into that verification tool before I file this UCC. Better to catch any issues upfront than deal with problems later.