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 businesses from 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 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.
ARTICLES 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 Collection 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."