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 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.
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 issued.
In 1989, Article 6 was revised and changed 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.
Since the creation of the first nine articles, two more articles have been added to the UCC. 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.
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 that was finally completed in 2003. As of 2004, it appeared likely to be adopted by state legislatures and thus become the law of the land. The major impetus behind the changes was updating Article 2 to accommodate electronic commerce. When enacted, the revisions are expected to force both buyers and sellers to revisit their organizational contract management and administration policies.
Cindy Rhodes Victor
Revised by Laurie Collier Hillstrom
Hakes, Russell A. The ABC's of the UCC, Article 9: Secured Transactions. Chicago: American Bar Association, 1996.
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.
Uniform Commercial Code. 14th ed. St. Paul, MN: West Publishing Co., 1996.