Uniform Commercial Code
Uniform Commercial Code (UCC)
Uniform Commercial Code (UCC)
The Uniform Commercial Code (UCC) is a collection of modernized, codified, and standardized laws that apply to all commercial transactions with the exception of real property. Developed under the direction of the National Conference of Commissioners on Uniform State Laws, the American Law Institute, and the American Bar Association (ABA), it first became U.S. law in 1972. Since that time, it has undergone a process of constant revision.
The Uniform Commercial Code arose out of the need to address two growing problems in American business: 1) the increasingly cumbersome legal and contractual requirements of doing business, and 2) differences in state laws that made it difficult for companies located in different states to do business with one another. Businesspeople and legislators recognized that some measures needed to be taken to ease interstate business transactions and curb the trend toward exhaustively detailed contracts. They subsequently voiced support for the implementation of a set of standardized laws that would serve as the legal cornerstone for all exchanges of goods and services. These laws—the Uniform Commercial Code—could then be referred to when discrepancies in state laws arose, and freed companies from painstakingly including every conceivable business detail in all of their contractual agreements.
DEVELOPMENT OF THE UNIFORM COMMERCIAL CODE
Work on the UCC began in earnest in 1945. Seven years later, a draft of the code was approved by the National Conference of Commissioners on Uniform State Laws, the American Law Institute, and the American Bar Association. Pennsylvania became the first state to enact the UCC, and it became law there on July 1, 1954. The UCC editorial board issued a new code in 1957 in response to comments from various states and a special report by the Law Revision Commission of New York State. By 1966 48 states had enacted the code. Currently, all 50 states, the District of Columbia, and the U.S. Virgin Islands have adopted the UCC as state law, although some have not adopted every single provision contained within the code.
BUSINESS ISSUES ADDRESSED IN THE UCC
Many important aspects of business are covered within the UCC, and several of them are of particular import to entrepreneurs and small business owners. The Code provides detailed information on such diverse business aspects as: breach of contract (and the options of both buyers and sellers when confronted with a breach); circumstances under which buyers can reject goods; risk allocation during transportation of goods; letters of credit and their importance; legal methods of payment for goods and services; and myriad other subjects.
The UCC consists of ten articles. Article 1, titled General Provisions, details principles of interpretation and general definitions that apply throughout the UCC. Article 2 covers such areas as sales contracts, performance, creditors, good faith purchasers, and legal remedies for breach of contract; given its concern with the always important issue of contracts, small business owners should be thoroughly acquainted with this section. Article 3, which replaced the Uniform Negotiable Instruments Law, covers transfer and negotiation, rights of a holder, and liability of parties, among other areas. Article 4 covers such areas as collections, deposits, and customer relations; it incorporated much of the Bank Collection Code developed by the American Bankers Association.
Article 5 of the Uniform Commercial Code is devoted to letters of credit, while Article 6 covers bulk transfers. Article 7 covers warehouse receipts, bills of lading, and other documents of title. Article 8, meanwhile, is concerned with the issuance, purchase, and registration of investment securities; it replaced the Uniform Stock Transfer Act. Article 9 is another provision that is particularly important to small business owners. Devoted to secured transactions, sales of accounts, and chattel paper, it supplanted a number of earlier laws, including the Uniform Trust Receipts Act, the Uniform Conditional Sales Act, and the Uniform Chattel Mortgage Act.
Finally, Article 10 provides for states to set the effective date of enactment of the code and lists specific state laws should be repealed once the UCC has been enacted (Uniform Negotiable Instruments Act, Uniform Warehouse Receipts Act, Uniform Sales Act, Uniform Bills of Lading Act, Uniform Stock Transfer Act, Uniform Conditional Sales Act, and Uniform Trust Receipts Act). In addition, Article 10 recommends that states repeal any acts regulating bank collections, bulk sales, chattel mortgages, conditional sales, factor's lien acts, farm storage of grain and similar acts, and assignment of accounts receivable, for all of these areas are covered in the UCC. Individual states may also add to the list of repealed acts at their own discretion.
The UCC has a permanent editorial board, and amendments to the UCC are added to cover new developments in commerce, such as electronic funds transfers and the leasing of personal property. Individual states then have the option of adopting the amendments and revisions to the UCC as state law. For current information on changes within and interpretations of the Uniform Commercial Code, consult the Business Lawyer's "Uniform Commercial Code Annual Survey." Also of use is a Web site made available by Cornell Law School which offers the entire text of the UCC in an easily searchable format, located at http://www.law.cor-nell.edu/ucc/ucc.table.html.
Stone, Bradford. The Uniform Commercial Code in a Nutshell. West, 1995.
"UCC: Uniform Commercial Code." Cornell Las School. Legal Information Institute. Available from http://www.law.cornell.edu/ucc/. 11 March 2005.
White, James J., and Robert Summers. Uniform Commercial Code. West/Wadsworth, 1999.
Hillstrom, Northern Lights
updated by Magee, ECDI
Uniform Commercial Code
Uniform Commercial Code
The Uniform Commercial Code (UCC) is a collection of recommended laws covering many different issues that arise during commercial transactions, such as sales contracts, leases, negotiable instruments, letters of credit, bank collections, and secured transactions. The impetus behind the creation of the UCC was the hope that each state would adopt it as a statute, thereby giving uniformity throughout the country to the area of commercial law. The UCC is a joint project of the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute (ALI).
HISTORY AND REVISION
The first draft of the UCC was created in the fall of 1951 by an editorial board consisting of representatives from the National Conference of Commissioners on Uniform State Laws and the American Law Institute. Pennsylvania adopted the draft as state law in 1953, but no other state enacted it until the editorial board issued a revised code in late 1956. After the revision, Massachusetts and Kentucky were the first to adopt the UCC. Today, all of the states (except Louisiana, which has only adopted certain parts) and the District of Columbia have adopted the UCC.
The UCC has been revised a number of times since 1956. Two more articles have been added to the UCC since the creation of the first nine articles. Article 2A, approved in 1987, covers leases of personal property (not apartments or offices). Article 4A, added in 1989, regulates the issuance, acceptance, and payment of electronic funds transfers. In 2001, the general provisions of Article 1 were revised to bring it in line with revisions in other articles; however, only twenty states had adopted these revisions as of 2007.
The most significant recent revision was completed in 2003. Article 2 of the UCC, which is widely considered to be the “bible” for contracts concerning the purchase or sale of goods in the United States, underwent a decade-long revision process. The major impetus behind the changes was updating Article 2 to accommodate electronic commerce.; Hhowever, as of 2007, no states had yet enacted these revisions.
Another revision to Article 2, originally called “Article 2B,” is intended to bring uniformity to the rules that apply to information technology transactions. Article 2B met with resistance in the ALI, and the NCCUSL responded by renaming the revision as the Uniform Computer Information Transactions Act (UCITA). The UCITA is not officially a part of the UCC, and only Maryland and Virginia have adopted the UCITA.
TOPICS COVERED BY THE UCC
Until 1987, the UCC consisted of nine articles. Each article was separate and distinct from the other articles, and covered a specific topic in commercial law.
Article 1 is entitled “General Provisions,” and sets forth general definitions and principles of interpretation for all of the articles.
Article 2, “Sales,” controls every stage of a transaction for the sale of goods, from general obligations, construction of a contract, and performance under that contract to breach, repudiation, and excuse of a sales contract.
Article 2 also provides remedies for problems that may occur during a sales transaction.
Article 3 covers negotiable instruments, which include checks, cashiers' checks, travelers' checks, promissory notes, and certificates of deposit. This article regulates all transactions involving negotiable instruments, such as negotiation and endorsements; payment on the instruments; liability of parties such as the endorser, drawer, and acceptor; and dishonor of the instrument.
Article 4, “Bank Deposits and Collections,” regulates collect items and post deposits, and governs the relationship among depository, collecting, and payer banks, and between a payer bank and its customer.
Article 5 addresses letters of credit, including the issuer's obligations, warranties that arise, and remedies that are provided for problems during the issuance process or after a letter of credit has been issued.
Article 6 was revised and changed in 1989 from covering bulk transfers to governing bulk sales. It regulates the obligations of a buyer of a bulk sale. A bulk sale generally involves the sale of more than half of the seller's inventory, not in the ordinary course of a seller's business, when the buyer has (or after inquiry would have had) notice that the seller is not going to continue to operate a similar business after the sale, including auction and liquidation sales. There are specific provisions for notice to claimants (such as creditors of the seller), distribution of the sale's proceeds, filing notices of bulk sales, and liability for noncompliance. This ensures that creditors are not bypassed when a company decides to end its business.
Article 7 governs warehouse receipts, bills of lading, and other such documents relating to ownership and transportation of goods.
Article 8, “Investment Securities,” includes rules regulating the issuance of security certificates, the transfer and registration of securities, and the obligations of an intermediary who holds them.
Article 9 covers secured transactions, which occur when one party gives another a secured interest in a piece of property, usually to secure payment of a debt. The provisions of this article determine when a security interest may arise, the types of property that may be covered, the validity of the underlying security agreement, and the issue of default. Article 9 also covers the rights of third parties through a process called perfection of a security interest, which occurs when the holder of the security interest files notice of it with the state, so that other creditors know of the existence of the security interest.
SEE ALSO Exporting and Importing; International Management
Gabriel, Henry D. The ABC's of the UCC, Article 2: (Revised) Sales. Rev. ed. Chicago: American Bar Association, 2005.
Hakes, Russell A. The ABC's of the UCC, Article 9: Secured Transactions. Rev. ed. Chicago: American Bar Association, 2000.
Murray, John, Jr. “What the Updated UCC Means to You.” Purchasing, 6 May 2004.
Rumbaugh, Charles E. “The New (and Improved) Article 2 to the UCC.” Contract Management, December 2004.
White, James J. and Robert S. Summers. Uniform Commercial Code. 5th ed. St. Paul, MN: West Publishing Co., 2000.
Uniform Commercial Code
UNIFORM COMMERCIAL CODE
A general and inclusive group of laws adopted, at least partially, by all the states to further uniformity and fair dealing in business and commercial transactions.
The Uniform Commercial Code (UCC) is a set of suggested laws relating to commercial transactions. The UCC was one of many uniform codes that grew out of a late nineteenth-century movement toward uniformity among state laws. In 1890 the american bar association, an association of lawyers, proposed that states identify areas of law that could be made uniform throughout the nation, prepare lists of such areas, and suggest appropriate legislative changes. In 1892 the National Conference of Commissioners on Uniform State Laws (NCCUSL) met for the first time in Saratoga, New York. Only seven states sent representatives to the meeting.
In 1986 the NCCUSL offered up its first act, the Uniform Negotiable Instruments Act. The NCCUSL drafted a variety of other uniform acts. Some of these dealt with commerce, including the Uniform Conditional Sales Act and the Uniform Trust Receipts Act. The uniform acts on commercial issues were fragmented by the 1930s and in 1940, the NCCUSL proposed revising the commerce-oriented uniform codes and combining them into one uniform set of model laws. In 1941 the American Law Institute (ALI) joined the discussion, and over the next several years lawyers, judges, and professors in the ALI and NCCUSL prepared a number of drafts of the Uniform Commercial Code.
In September 1951 a final draft of the UCC was completed and approved by the American Law Institute (ALI) and the NCCUSL, and then by the House of Delegates of the American Bar Association. After some additional amendments and changes, the official edition, with explanatory comments, was published in 1952. Pennsylvania was the first state to adopt the UCC, followed by Massachusetts. By 1967 the District of Columbia and all the states, with the exception of Louisiana, had adopted the UCC in whole or in part. Louisiana eventually adopted all the articles in the UCC except articles 2 and 2A.
The UCC is divided into nine articles, each containing provisions that relate to a specific area of commercial law. Article 1, General Provisions, provides definitions and general principles that apply to the entire code. Article 2 covers the sale of goods. Article 3, commercial paper, addresses negotiable instruments, such as promissory notes and checks. Article 4 deals with banks and their handling of checks and other financial documents. Article 5 provides model laws on letters of credit, which are promises by a bank or some other party to pay the purchases of a buyer without delay and without reference to the buyer's financial solvency. Article 6, on bulk transfers, imposes an obligation on buyers who order the major part of the inventory for certain types of businesses. Most notably, article 6 provisions require that such buyers notify creditors of the seller of the inventory so that creditors can take steps to see that the seller pays her debts when she receives payments from the buyer. Article 7 offers rules on the relationships between buyers and sellers and any transporters of goods, called carriers. These rules primarily cover the issuance and transfer of warehouse receipts and bills of lading. A bill of lading is a document showing that the carrier has delivered an item to a buyer. Article 8 contains rules on the issuance and transfer of stocks, bonds, and other investment securities. Article 9, secured transactions, covers security interests in real property. A security interest is a partial or total claim to a piece of property to secure the performance of some obligation, usually the payment of a debt. This article identifies when and how a secured interest may be created and the rights of the creditor to foreclose on the property if the debtor defaults on his obligation. The article also establishes which creditors can collect first from a defaulting debtor.
The ALI and the NCCUSL periodically review and revise the UCC. Since the code was originally devised, the House of Delegates of the American Bar Association has approved two additional articles: article 2A on personal property leases, and article 4A on fund transfers. Article 2A establishes model rules for the leasing or renting of personal property (as opposed to real property, such as houses and apartments). Article 4A covers transfers of funds from one party to another party through a bank. This article is intended to address the issues that arise with the use of new technologies for handling money.
Most states have adopted at least some of the provisions in the UCC. The least popular article has been article 6 on bulk transfers. These provisions require the reporting of payments made, which many legislators consider an unnecessary intrusion on commercial relationships.
Benfield, Marion W., Jr., and William D. Hawkland. 1992. Sales: Cases and Materials. 3d ed. Westbury, N.Y.: Foundation Press.
"Annual Survey of Commercial Law: The Uniform Commercial Code Survey." 2003. Business Lawyer 58 (August).
Cooper, Corinne, ed. 2000. The Portable UCC. 3d ed. Chicago: Section of Business Law, American Bar Association
Miller, Frederick H., and Alvin C. Harrell. 2002. The ABCs of the UCC. Related Insolvency Law. Chicago: American Bar Association.