What laws govern the rights of the secured party in the Aunt Millies Bakeries agreement?
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.
- §3.7 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.
Source: Item 23 — RECEIPT (FDD pages 44–196)
What This Means (2025 FDD)
According to the 2025 FDD, the Aunt Millies Bakeries Distribution Agreement outlines the security interest granted to Aunt Millie's and the rights of a secured party. Specifically, Section 3.5 defines "Accounts" by referencing the Uniform Commercial Code (UCC) as it is enacted in the distributor's state of organization. This means that the UCC, a set of laws governing commercial transactions, will determine the legal rights and obligations of Aunt Millies Bakeries as the secured party.
Section 3.7 further clarifies that the distributor grants Aunt Millie's a continuing security interest in the Distribution Rights, assets, and receivables to secure any indebtedness. This section also grants Aunt Millie's the rights of a secured party. The distributor is required to execute a Security Agreement and financing statements to formalize this security interest. If the distributor defaults on the Security Agreement, it will also constitute a default under the Distribution Agreement.
In practical terms, this means that Aunt Millie's has a legal claim on the distributor's business assets up to the amount of any outstanding debt. If the distributor fails to meet their financial obligations, Aunt Millie's can take action to seize and liquidate those assets to recover the debt. Prospective franchisees should carefully review the Aunt Millie's Security Agreement and understand the implications of granting a security interest in their business.