What are the consequences if a franchisee of Aunt Millies Bakeries fails to comply with the UCC-1 requirements?
Aunt_Millies_Bakeries Franchise · 2025 FDDAnswer from 2025 FDD Document
For purposes of this Section 3.5, "Accounts" shall
mean accounts as defined in the Uniform Commercial Code as in effect in the state of organization of Distributor.
- §3.6 PROMOTION PARTICIPATION PROGRAM: In cases where DISTRIBUTOR wishes to sell Products to Outlets at prices which are less than those reflected on AUNT MILLIE'S' then current Suggested Price List, and AUNT MILLIE'S, at the DISTRIBUTOR'S request, agrees to participate in such promotion or discount price, AUNT MILLIE'S will contribute to the promotion or discount in accordance with its Promotion Participation Policy as amended from time to time.
- §3.7 SECURITY INTEREST: To secure the payment of any indebtedness or liability of DISTRIBUTOR to AUNT MILLIE'S, now or hereafter arising, pursuant to this Agreement or otherwise, DISTRIBUTOR hereby grants and conveys to AUNT MILLIE'S a continuing and general security interest in the Distribution Rights, all other assets used in connection with the exercise and operation of the Distribution Rights, all rights hereunder and all Products and receivables of the DISTRIBUTOR, and grants to AUNT MILLIE'S the rights of a secured party. DISTRIBUTOR agrees to execute the AUNT MILLIE'S Security Agreement and financing statement(s) to evidence such security interest. Any default under the AUNT MILLIE'S Security Agreement by DISTRIBUTOR shall be a default under this Agreement.
- §3.8 DEFAULT: Nothing herein shall be deemed to require AUNT MILLIE'S to fill an order of DISTRIBUTOR during any time when DISTRIBUTOR is in default of any payment or other obligation to AUNT MILLIE'S.
Source: Item 23 — RECEIPT (FDD pages 44–196)
What This Means (2025 FDD)
According to Aunt Millies Bakeries' 2025 Franchise Disclosure Document, the consequences for failing to comply with UCC-1 requirements are tied to the security interest Aunt Millie's Bakeries takes in the distributor's assets. Specifically, Section 3.7 states that the distributor grants Aunt Millie's Bakeries a security interest in the Distribution Rights, all other assets used in connection with the exercise and operation of the Distribution Rights, all rights under the agreement, and all Products and receivables of the distributor to secure the payment of any indebtedness or liability of the distributor to Aunt Millie's Bakeries. The distributor also agrees to execute Aunt Millie's Bakeries Security Agreement and financing statements to evidence this security interest.
Section 3.7 further clarifies that any default under the Aunt Millie's Bakeries Security Agreement by the distributor constitutes a default under the Distribution Agreement itself. This means that failure to meet the obligations outlined in the security agreement, which would include complying with UCC-1 requirements to perfect and maintain the security interest, triggers a default under the broader Distribution Agreement.
Section 3.8 states that Aunt Millie's Bakeries is not required to fill an order of the distributor during any time when the distributor is in default of any payment or other obligation to Aunt Millie's Bakeries. Therefore, failure to comply with UCC-1 requirements, leading to a default under the Security Agreement and consequently the Distribution Agreement, could result in Aunt Millie's Bakeries refusing to supply the distributor with products. This could severely impact the distributor's ability to operate their business and meet their obligations to outlets in their sales area.