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While it doesn't apply to every business, in one way or another, the Uniform Commercial Code (UCC) effects most of the commercial transactions that occur in the U.S. on a daily basis. Given its important role in defining how we do business in this country, we present a two-part series. Part One gives a brief history and overview of the UCC. Part Two, which will appear in our next issue, focuses on Article 9, Secured Transactions – an article, significantly amended in 1999, that holds considerable importance for a broad range of businesses.
Part 1: Origin of Uniform Laws in the United States
In the American federal system, laws can be enacted by the national government, state governments and local governments (cities and counties). Historically, laws affecting business transactions have fallen under the jurisdiction of the states. However, as the states became more interdependent, and interstate commerce increased, the necessity to develop some uniformity in the various laws became apparent.
The United States Uniform Commercial Code (UCC) is the most successful and important of a number of uniform acts developed to harmonize disparate laws among the U.S. states. Its purpose is to help simplify and make consistent various aspects of commercial transactions. It should be understood, however, that the UCC is not a law, in and of itself. Rather, it functions as proposed legislation for consideration by the various state legislatures. The states then have the option to accept in full or in part, to modify, ignore, or reject entirely any of its provisions.
National Conference of Commissioners on Uniform State Laws (NCCUSL)
The NCCUSL was established in 1892 on the recommendation of the American Bar Association. Its purpose was (and remains) to debate areas of law which the body believes require uniformity among the states, and to draft acts to be used as model legislation by the states. Initially, only seven states participated. However, by 1912, every state had appointed a Uniform Law Commissioner. Today, all 50 states as well as the District of Columbia, Puerto Rico and the U.S. Virgin Islands participate.
According to the NCCUSL web site, the organization:
- Strengthens the federal system by providing rules and procedures that are consistent from state to state
- Represents state experience since the NCCUSL is made up of representatives from each state
- Keeps state law up-to-date by addressing important and timely legal issues
- Reduces the need for individuals and businesses to deal with different laws as they move and do business in different states
- Facilitates economic development and provides a legal platform for foreign entities dealing with U.S. citizens and businesses
- Is a state-supported organization that represents true value for the states, providing services that most states could not otherwise afford or duplicate
Members are appointed by the states and the only requirement is that they be members of their state bar association. Membership includes practicing lawyers, judges, legislators, legislative staff, and law professors, all of whom volunteer their services to the NCCUSL. These members expend literally thousands of hours and receive no salary or compensation for their work. To date, the organization has produced more than 250 uniform acts focusing on commercial law, family, estates, probate and trusts, real estate, interstate enforcement of judgments, and alternate dispute resolution.
Uniform Commercial Code: When and Why?
Work on the Uniform Commercial Code began in 1940 as a joint effort between the NCCUSL and the American Law Institute. The objective was to develop a model for legislation that would simplify commercial transactions across state lines. The goal was two-fold: make it easier to do business, and eliminate the need for the involvement of lawyers with regard to the various aspects of interstate business addressed by the UCC. It took ten years to finalize the initial Code and another 14 years for it to be enacted (in various forms) throughout the country. Currently, all 50 U.S. states, the District of Columbia and the U.S. Virgin Islands have adopted the UCC in some form as state law. The distinction “in some form” is extremely important, since as previously stated, state legislatures retain the option of modifying and adopting or rejecting any or all of the UCC's provisions as they deem appropriate.
Uniform Commercial Code: What?
The UCC is considered a work in progress. A permanent editorial board exists to consider amendments to the UCC related to new developments in commerce. The current version of the Code contains nine articles (11 sections), which apply to all commercial transactions except those involving real property.
||Scope, definitions, principles of interpretation, territorial applicability and general rules. Latest revision in 2001.
||Contract formation and obligations for sales of goods, remedies for breach of contract. Latest revisions in 2003; no states have yet adopted revisions.
||Contracts, warranties, and other aspects of leases of goods. Latest revisions in 2003; no states have yet adopted revisions.
||Transfer and negotiation, rights, warranties, and liabilities related to payments by check, bank notes, drafts and other paper instruments. Latest revision 2002.
||Relationship and responsibilities of depository and collecting banks, check collection process, relationship of bank to its customers. Latest revision 2002.
||Funds transfers between banks.
||Letters of Credit
||The latest revision in 1995 recognizes other standards like the Uniform Customs and Practices for Documentary Credits.
||Bulk Transfers and Bulk Sales
||The NCCUSL recommended in 1989 that the states repeal this act or revise it as the type of fraud it was intended to address (in the early 1900s) is no longer an issue.
||Why States Should Repeal
||Warehouse Receipts, Bills of Lading and Other Documents of Title
||The most recent revision in 2003 provides a framework for the further development of electronic documents of title.
||Issuance, purchase and registration of investment securities. Most recent revision 1994.
||Transactions involving credit secured by personal property: perfection and priority, filing requirements. Most recent revision 1999.
Uniform Commercial Code: Where?
As discussed, the NCCUSL does not create law, but rather recommends it. Therefore, the Uniform Commercial Code and each of its various amendments, is not law until each state legislature makes it so.
And, again, the states are not required to adopt any uniform laws, and, if they do decide to adopt such a law, they can make changes to any provision, or leave some articles out entirely. This, combined with the fact that the NCCUSL is constantly working to improve and modify the UCC, has resulted in multiple versions being in effect in the various states.
It is essential, therefore, that a business be familiar with the exact requirements of the UCC law in the states in which they do business, not simply the model law as referenced above. The web site of the Cornell School of Law provides a very helpful Uniform Code Locater, which provides hyperlinks to the state statutes corresponding to each article of the UCC. Unfortunately, some of these links are inactive. In these cases, try getting to the official state website by going to URL www.state.??.us, where “??” would be the two-letter state mailing code. (Example, to reach the official website of the State of New York, use www.state.ny.us)
Part 2: In our next issue of Credit-to-Cash Advisor, we'll focus in detail on Article 9, Secured Transactions.
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Disclaimer: This information is provided by ABC-Amega Inc. for informational purposes only and is not intended to be legal advice and is not a substitute for competent legal advice on the referenced subject.
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