Also known as: supporting obligations · support obligation · support obligations
Written by attorneys · grounded in primary & secondary sources — see below
A letter-of-credit right or secondary obligation that supports the payment or performance of an account, chattel paper, a document, a general intangible, an instrument, or investment property. Attachment of a security interest in the underlying collateral automatically attaches a security interest in the supporting obligation, and perfection of the interest in the collateral likewise perfects the interest in the supporting obligation.
Summit Bank lends to Southland Foods and takes a security interest in Southland's accounts receivable. The accounts are backed by a guarantee from a third-party supplier. When Summit files a financing statement covering the accounts, the filing also perfects its interest in the guarantee as a supporting obligation.
Sterling Dynamics sells equipment on credit and obtains chattel paper from the buyer. The chattel paper is supported by a standby letter of credit issued by a bank. Sterling grants a security interest in the chattel paper to Starlight Media. Starlight's filing as to the chattel paper automatically perfects its interest in the letter-of-credit right.
Samuel Soto holds a promissory note from a borrower. The note is supported by a personal guarantee from the borrower's parent. Samuel grants a security interest in the note to Summit Bank. The bank's security interest in the note automatically attaches to and is perfected in the guarantee.
Select any source to read its text and confirm it supports the definition.
Sydney Santos assigns her rights under a licensing agreement to Sterling Dynamics as collateral. The agreement is supported by a letter-of-credit right. Sterling's security interest in the licensing agreement automatically perfects its interest in the letter-of-credit right without a separate filing.
Serena Soto pledges investment property to secure a loan from Starlight Media. The investment property is supported by a secondary obligation from a guarantor. Starlight's perfection of its security interest in the investment property also perfects its interest in the supporting obligation.
A supporting obligation is a letter-of-credit right or secondary obligation that backs payment or performance of specific types of collateral such as accounts or instruments. It is not standalone collateral but travels automatically with the underlying collateral for attachment and perfection purposes.
Yes. Under the UCC, perfection of a security interest in collateral also perfects the security interest in any supporting obligation for that collateral without a separate step.
The security interest continues in the supporting obligation even after disposition of the original collateral, because the supporting obligation is treated as attached and perfected at the same time as the main collateral.
No. A description of the underlying collateral is sufficient. The security interest automatically extends to the supporting obligation by operation of the UCC rules on attachment.