What is the UCC?
Here's some background on this very large collection of legal rules governing many important business and commercial activities.
The Uniform Commercial Code, or UCC, is a very large collection of legal rules regarding many important business, or “commercial,” activities. The UCC originally was created by two national nongovernmental legal organizations: the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute (ALI). As the word “Uniform” in its title suggests, a primary purpose of the UCC is to make business activities more predictable and efficient by making business laws highly consistent across all American states. In the words of the UCC itself, the Code is intended “to simplify, clarify and modernize” commercial law, “to permit the continued expansion of commercial practices . . . ,” and “to make uniform the law among the various jurisdictions.”
The UCC is organized into eleven Articles. You can get at least a general idea of the activities covered by the UCC from the titles of the Articles:
- Article 1: General Provisions
- Article 2: Sales
- Article 2A: Leases
- Article 3: Negotiable Instruments
- Article 4: Bank Deposits and Collections
- Article 4A: Funds Transfers
- Article 5: Letters of Credit
- Article 6: Bulk Transfers/Bulk Sales
- Article 7: Documents of Title
- Article 8: Investment Securities
- Article 9: Secured Transactions
These eleven Articles are further subdivided into Parts and then into Sections. A single UCC rule is contained in a Section. For example, UCC Section 2-205, “Firm Offers,” provides the rule for when offers by certain businesses to buy or sell goods are irrevocable. The complete text of Section 2-205 is as follows:
“An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.”
Compared to some other UCC Sections, Section 2-205 is relatively short and straightforward. Many other sections of the UCC are substantially longer and may include multiple subparagraphs. Almost all UCC Sections are partly dependent on other Sections. For example, to more fully understand Section 2-205 as quoted just above, you would need to check UCC Section 2-104 for the Code’s definition of “merchant” and UCC Section 2-105 for the Code’s definition of “goods.”
Here are some basic points about what the UCC covers:
- Sales refers to the sale of goods as opposed to services
- Leases refers to the leasing of goods as opposed to, for example, real estate
- Negotiable Instruments are generally documents that can be exchanged for money, such as checks or promissory notes
- Bulk Sales laws, while still included in the UCC, have been voided in almost every state; and
- Secured Transactions mainly concern creditors’ legal rights in the personal property of borrowers or debtors, with particular relevance to cases of bankruptcy.
UCC Versions and Amendments
The original version of the UCC was first published in 1952. Over the subsequent sixty years, the Code has undergone multiple revisions and incorporated many new amendments. In the case of any particular state, you probably will need to do some research to determine whether the very latest revision to one or another UCC Section has been adopted. For example, in 2000 there were important revisions to Articles 1, 2, and 2A, which have been widely adopted. However, certain other, more recently proposed revisions have not been adopted by many individual states.
The UCC is only a model or recommendation for what a particular state’s commercial code might include; by itself, the UCC has no legal force. However, in practice, every American state has adopted some version of the UCC, and those state versions, known as the states’ commercial codes (for example, the California Commercial Code), do have the force of law—in fact, they are laws. Moreover, because the individual states generally adhere closely to one or another version of the model UCC, there is often relatively little variation between one state’s commercial code and that of another. Variations do, however, exist. To take an extreme example, the State of Louisiana has never adopted UCC Article 2. Because your state’s commercial code may not be identical to the UCC in every detail, you should always look first to your own state’s version of the UCC when trying to answer real-life questions.
A Practical Example
On a practical level, you will likely turn to the UCC if your business is involved in a contract dispute covered by one of the UCC’s many rules. As Section 2-205, quoted above, suggests, one common situation where this is true is a contract dispute involving the buying and selling of goods.
Example. You have a technology business that produces computer control devices. Last week you shipped twenty custom-made computer controllers to a manufacturer, and they arrived four days ago. Today the manufacturer called you and said she is going to return ten of the controllers because she now realizes she has no use for them. Also, she will not be paying for those ten controllers. Because the controllers were specially made for the manufacturer’s specific needs, you don’t see how you can sell them to anyone else. With that in mind, you want to know what your options are in terms of being paid by the manufacturer for all twenty controllers. In these circumstances, you may well turn to the UCC, and more specifically Article 2 on the sale of goods. Among many other potentially relevant items, Article 2 has rules that will help you determine whether the controllers are, indeed, “goods” covered by the UCC, whether shipping the controllers to the manufacturer constituted a “sale,” whether the agreement you had with the manufacturer to produce and sell her the controllers needed to be in writing (including whether a written contract is required in the case of custom-made or “specially manufactured” goods), and general guidance about the circumstances under which the manufacturer can try to modify your sales agreement.
While the UCC clearly is often relevant to situations involving business sales contracts, such as in the preceding example, there are also other situations where you may find yourself looking to the UCC. For example, the UCC provides rules for how money should move between businesses, including via banks, both in the form of payments for goods and in the form of loans. These matters are essentially contract issues.
Beyond the Rules: The Official Comments
The individual sections of the UCC, which state the rules, sometimes can be difficult to understand. In many cases, it is easier to make sense of the rule by also reading the Official Comment related to the section. The Official Comments are prepared under the authority of the organizations that draft and amend the rules themselves. They are written in relatively plain English and sometimes will provide concrete, explanatory examples. In short, if you find yourself confused when reading a section of the UCC, a good place to look first for clarification is the Official Comment for that section. This advice applies to state-specific commercial codes. Each state’s commercial code is based on an adoption of the model UCC, so the Official Comment generally is a reliable way to further illuminate a UCC section regardless of what state you’re dealing with.
Note, however, that the Official Comments are not always readily available without cost. While you should be able to find sections of both your state’s commercial code and the model UCC for free online, finding the Official Comment for a particular section may take more digging.