UCC unconscionability defenses blocking my equipment financing deal
I'm trying to close on a $480k equipment financing deal for manufacturing equipment and the borrower's attorney just threw the unconscionability card at us. They're claiming our security agreement terms are so one-sided that a court would refuse to enforce our UCC-1 filing under Article 2-302. The borrower signed everything 3 weeks ago including a comprehensive collateral schedule covering all equipment, but now they want out because they found cheaper financing elsewhere. Their lawyer is saying the interest rate and default provisions are unconscionable. I thought the UCC was pretty clear about enforcing security interests once properly filed and perfected. Can unconscionability actually void a UCC filing? We've got a valid security agreement, filed our UCC-1 with the SOS, and everything looks clean on paper. This is holding up the entire transaction and I need to know if this defense has any real teeth.
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CyberSiren
Unfortunately unconscionability can be a real problem even with proper UCC filings. Article 2-302 applies to security agreements just like sales contracts. Courts look at both procedural unconscionability (how the deal was made) and substantive unconscionability (the actual terms). If the borrower can prove both, they might be able to void the entire security agreement, which would make your UCC-1 worthless.
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Miguel Alvarez
•This is exactly what happened to us last year. Had a perfect UCC-1 filing but the borrower proved unconscionability and the whole security interest got tossed out.
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Zainab Yusuf
•Wait, can they really void the UCC filing itself or just the underlying security agreement? I thought once you file with the SOS it's pretty solid.
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Connor O'Reilly
The UCC filing itself isn't the problem - it's the security agreement that creates the interest you're trying to perfect. Section 2-302 lets courts refuse to enforce unconscionable contracts. No valid security agreement = no security interest to perfect = your UCC-1 becomes meaningless. The key is whether their terms are truly unconscionable or if this is just buyers remorse.
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Ava Thompson
•That's what I was afraid of. The interest rate is high but not crazy for equipment financing. The default provisions are pretty standard too. How do courts usually decide what's unconscionable?
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Connor O'Reilly
•They look at the circumstances when the contract was signed. Was there unequal bargaining power? Did they have meaningful choice? Were the terms hidden or confusing? If it's just a bad deal that's not enough.
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Yara Khoury
I had a similar situation and ended up using Certana.ai to verify all my UCC documents were consistent with the security agreement terms. It's a document checker that lets you upload your security agreement and UCC-1 filing to make sure everything aligns properly. Found some inconsistencies in my collateral descriptions that could have been used against me in court. The automated verification caught discrepancies I missed during manual review.
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Keisha Taylor
•How does that help with unconscionability though? That's more about the terms themselves than document consistency.
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Yara Khoury
•It helps because inconsistent documents can be evidence of sloppy drafting or deception. Courts look at the entire transaction when evaluating unconscionability. Clean, consistent documentation shows you acted professionally.
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StardustSeeker
•Actually that makes sense. If your docs don't match up it looks like you were trying to hide something or didn't know what you were doing.
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Paolo Marino
The unconscionability defense is getting more common in commercial deals. I've seen it used to attack everything from personal guarantees to cross-default clauses. The problem is even if you win, you've spent months in litigation and the deal is dead anyway. Sometimes it's just a negotiating tactic.
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Ava Thompson
•That's exactly what this feels like. They found better terms elsewhere and are looking for any way out. But I can't risk having my security interest voided.
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Amina Bah
•Can you just modify the terms to make them more reasonable? Might be easier than fighting it in court.
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Oliver Becker
Courts generally won't find commercial deals unconscionable unless there's really egregious behavior. Business borrowers are presumed to have more sophistication than consumers. But if the borrower can show they had no real choice or the terms are completely one-sided, you could have problems.
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Natasha Petrova
•What about the size of the deal? $480k is significant but not huge for equipment financing. That should work in the lender's favor right?
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Oliver Becker
•Size matters but it's more about the borrower's sophistication and alternatives. A small business with limited options might still claim unconscionability even on a large deal.
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Javier Hernandez
I'm dealing with something similar right now except it's a continuation filing issue. Borrower is claiming our original security agreement was unconscionable so our UCC-3 continuation is invalid. This unconscionability stuff is becoming a real pain in secured lending.
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Emma Davis
•That's a nightmare scenario. At least the OP is dealing with this before closing. Having it come up during a continuation filing is worse.
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Javier Hernandez
•Yeah, we thought we were safe after 4 years. Now we're scrambling to prove the original deal was conscionable or we lose our security interest entirely.
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LunarLegend
The real issue is that unconscionability is so fact-specific. Courts look at the totality of circumstances, not just individual terms. Your equipment financing might be perfectly reasonable for your borrower's situation. Document everything about why the terms were appropriate for this particular deal.
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Ava Thompson
•Good point. The borrower's credit was pretty shaky which justified the higher rate and stricter default provisions. We've got documentation of their financial condition.
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LunarLegend
•Exactly. If you can show the terms reflected real risk factors, it's much harder to claim unconscionability. The borrower had the information to make an informed decision.
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Malik Jackson
•I'd also document any alternatives you offered or that were available in the market. Shows the borrower had meaningful choice.
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Isabella Oliveira
Used Certana.ai recently to double-check my UCC filings after running into a similar unconscionability challenge. The tool verified that my security agreement matched my UCC-1 perfectly, which helped counter claims that I was being deceptive about the collateral. Just upload your PDFs and it checks for inconsistencies automatically.
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Ravi Patel
•Does it check the actual terms for reasonableness or just document consistency?
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Isabella Oliveira
•Just consistency between documents. But having everything align properly makes your position much stronger when defending against unconscionability claims.
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Freya Andersen
The UCC itself doesn't create unconscionability defenses - that comes from general contract law principles that courts apply to security agreements. But once a court finds unconscionability, your UCC filing becomes worthless because there's no valid underlying security interest to perfect.
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Omar Zaki
•So the filing stays on record but becomes meaningless? That seems like it could create confusion for other lenders searching the records.
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Freya Andersen
•Exactly. The UCC-1 stays filed but provides no actual security. You'd need to file a UCC-3 termination to clean up the record after losing on unconscionability.
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CosmicCrusader
I've been through this exact scenario. The key is proving that the terms were reasonable given the circumstances and that the borrower understood what they were signing. If you can show the borrower had legal counsel and time to review, it's much harder for them to claim unconscionability.
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Ava Thompson
•They did have their own attorney review the deal originally. That should help my case significantly.
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CosmicCrusader
•Absolutely. Attorney review is strong evidence against unconscionability. Makes it hard to claim they didn't understand the terms or had no meaningful choice.
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Chloe Robinson
•Plus if their attorney approved it originally, why is a different attorney now calling it unconscionable? Sounds like they're just looking for a way out.
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