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.