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Uniform Commercial Code

The Uniform Commercial Code (UCC or the Code) is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in all 50 states within the United States of America. This objective is deemed important because of the prevalence today of commercial transactions that extend beyond one state (for example, where the goods are manufactured in state A, warehoused in state B, sold from state C and delivered in state D). The UCC deals primarily with transactions involving personal property (movable property), not real property (immovable property).

The UCC is the longest and most elaborate of the uniform acts. It has been a long-term, joint project of the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute (ALI). Judge Herbert F. Goodrich was the Chairman of the Editorial Board of the original 1952 edition, and the Code itself was drafted by some of the top legal scholars in the United States, including Karl N. Llewellyn, William A. Schnader, Soia Mentschikoff, and Grant Gilmore. The Code, as the product of private organizations, is not itself the law, but only recommendation of the laws that should be adopted in the states. Once enacted in a state by the state's legislature, it becomes true law and is codified into the state’s code of statutes. When the Code is adopted by a state, it may be adopted verbatim as written by ALI and NCCUSL, or may be adopted with specific changes deemed necessary by the state legislature. Unless such changes are minor, they can affect the purpose of the Code in promoting uniformity of law among the various states.

The ALI and NCCUSL have also established a permanent editorial board for the Code. This board has issued a number of official comments and other published papers concerning the Code. Although these commentaries do not have the force of law, courts interpreting the Code often cite them as persuasive authority in determining the effect of one or more provisions. Courts interpreting the Code generally seek to harmonize their interpretations with those of other states that have adopted the same or a similar provision, except where specific aspects of the Code were changed by that state when adopting it, or where other aspects of state law require a different decision.

The Code, in one or another of its several revisions, has been enacted in all of the 50 states, as well as in the District of Columbia, the Commonwealth of Puerto Rico, Guam and the U.S. Virgin Islands. Louisiana has enacted most provisions of the UCC with the exception of Article 2, preferring to maintain its own civil law tradition for governing the sale of goods.

Louisiana jurisprudence refers to the sections of the UCC as “chapters” instead of articles, since the term “articles” is used to refer to provisions of the state’s Civil Code. However, the use of different terms for UCC articles is not unique to Louisiana; neighboring Arkansas also refers to UCC articles as “chapters”, the term for equivalent subdivisions in its code of statutes. (“Article” in that state's law generally refers to a subdivision of the Arkansas Constitution.)

UCC Articles

The 1952 Uniform Commercial Code was released after ten years of development, and revisions were made to the Code from 1952 to 1999. The Uniform Commercial Code deals with the following subjects under consecutively numbered Articles:

ART. TITLE CONTENTS
1 General Provisions Definitions, rules of interpretation
2 Sales Sales of goods
2A Leases Leases of goods
3 Negotiable Instruments Banknotes and drafts (commercial paper)
4 Bank Deposits Banks and banking, check collection process
4A Funds Transfers Transfers of money between banks
5 Letters of Credit Transactions involving letters of credit
6 Bulk Transfers and Bulk Sales Auctions and liquidations of assets
7 Warehouse Receipts, Bills of Lading and Other Documents of Title Storage and bailment of goods
8 Investment Securities Securities and financial assets
9 Secured Transactions Transactions secured by security interests

In 2003, a major revision of Article 2 modernizing many aspects (as well as changes to Article 2A and Article 7) was proposed by the NCCUSL and the ALI. Although being considered, there are no states that have yet adopted the revised version of Article 2.

In 1989, the National Conference of Commissioners on Uniform State Laws recommended that Article 6 of the UCC, dealing with bulk sales, be repealed as obsolete. It remains in force in several jurisdictions.

A major revision of Article 9, dealing primarily with transactions in which personal property is used as security for a loan or extension of credit, was enacted in many states with an effective date of July 1, 2001.

The controversy surrounding with what is now termed the Uniform Computer Information Transactions Act (UCITA) originated in the process of revising Article 2 of the UCC. The provisions of what is now UCITA were originally meant to be "Article 2B" within a revised Article 2 on Sales. As the UCC is the only uniform law that is a joint project of NCCUSL and the ALI, both associations must agree to any revision of the UCC (i.e., the model act; revisions to the law of a particular state only require enactment in that state). The proposed final draft of Article 2B met with controversy within the ALI, and as a consequence the ALI did not grant its assent. The NCCUSL responded by renaming Article 2B and promulgating it as the UCITA. As of October 12, 2004, only Maryland and Virginia have adopted UCITA.

The overriding philosophy of the Uniform Commercial Code is to allow people to make the contracts they want, but to fill in any missing provisions where the agreements they make are silent. The law also seeks to impose uniformity and streamlining of routine transactions like the processing of checks, notes, and other routine commercial paper. The law frequently distinguishes between merchants, who customarily deal in a commodity and are presumed to know well the business they are in, and consumers, who are not.

The UCC also seeks to discourage the use of legal formalities in making business contracts, in order to allow business to move forward without the intervention of lawyers or the preparation of elaborate documents. This last point is perhaps the most questionable part of its underlying philosophy; many in the legal profession have argued that legal formalities discourage litigation by requiring some kind of ritual that provides a clear dividing line that tells people when they have made a final deal over which they could be sued.

Article 2

Contract formation

  • Firm offers are valid without consideration and irrevocable for time stated (or up to 3 months) and must be signed (company letterhead will do).
  • Offer to buy goods for “prompt shipment” invites acceptance by either prompt shipment or a prompt promise to ship. Therefore, this offer is not strictly unilateral. However, this “acceptance by performance” does not even have to be by conforming goods §2-206(1)
  • Consideration -- modifications without consideration may be acceptable in a contract for the sale of goods. §2-209(1)
  • Failure to state price -- In a contract for the sale of goods, the failure to state a price will NOT prevent the formation of a contract if the parties original intent was to form a contract. A reasonable price will be determined by the court. [2-305]
  • Assignments -- a requirements contract CAN be assigned IF the quantity required by the assignee is not unreasonably disproportionate to original quantity (§2-306)

Contract repudiation and breach

  • Nonconforming goods -- if sent with a note of accommodation, it is construed as a counteroffer, and if accepted, forms a new contract and binds buyer at previous contract price. If seller refuses to conform and buyer does not accept, the buyer can sell the goods at public or private auction and credit the proceeds to amount owed.
  • The buyer however does have a right of “perfect tender” and can accept all, reject all, or accept conforming goods and reject the rest, within a reasonable time after delivery but before acceptance, he must notify the seller of the rejection. If the buyer does not give a specific reason (defect), he cannot rely on the reason later, in legal proceedings. (akin to the cure before cover rationale). Also, the contract is not breached per se if the seller delivered the non-conforming goods, however offensive, before the date of performance has hit.
  • “Reasonable Time/Good Faith” standard -- required from a party to a contract indefinite as to time, or made indefinite by waiver of original provisions.
  • Requirements/Output contracts -- the UCC provides protection against disproportionate demands, but must meet the “good faith” requirement.
  • “Reasonable Grounds for Insecurity” -- In a situation with a threat of non-performance, the other part may suspend its own performance and demand assurances in writing. If assurance not provided “within a reasonable time not exceeding 30 days,” the contract is repudiated. [2-609]
  • Specially Manufactured Goods -- in buyers breach, the aggrieved party can recover costs incurred plus incidental costs (lost profits). (§2-821)
  • Battle of Forms -- New terms will be incorporated into the agreement unless 1) offer limited to its own terms, 2) materially alter original terms (limit liability etc), 3) first party objects to new terms in a timely manner, or first party has already objected to new terms. Look at what the item is to determine whether the new terms “materially alter” the original offer. (delay in delivery of nails not the same as for fish).
  • Battle of Forms -- a written confirmation of an offer sent within a reasonable time operates as an acceptance even though it states terms additional terms to or different from those offered, unless acceptance is expressly made conditional to the additions.
  • Statute of Frauds as applicable to the sale of goods -- the actual contract need not be in writing. Just some note or memo must be in writing and signed. However, the UCC exception to the signature requirement is where written confirmation is received and not objected to within 10 days [§2-201(2)]
  • Cure/cover -- Buyer must give seller time to cure the defective shipment before seeking cover
  • FOB contracts -- FOB place of business: seller assumes risk of loss until goods are placed on a carrier. FOB destination: seller risks loss until shipment arrives at destination. If the contract leaves out the delivery place, it is the seller’s place of business.
  • Risk of Loss -- no equitable conversion. In sale of specific goods, the risk of loss lies with the seller until tender. Generally, the seller bears risk of loss until the buyer takes physical possession of the goods (the opposite of realty)
  • Crop Failures -- resulting from an unexpected cause excuses a farmer’s obligation to deliver the full amount as long as he makes a fair and reasonable allocation among his buyers. The buy may accept the proposed modification or terminate the contract.
  • Reclamation -- successful reclamation of goods excludes all other remedies with respect to the goods [2-702(3)]. A seller can reclaim goods upon demand within 10 days after buyer receives them if the seller discovers that the buyer received the goods while insolvent.
  • Rightfully Rejected Goods -- Duties of merchant/buyer are 1) follow reasonable instructions of the seller, 2) if no instructions then make a reasonable effort to resell for seller, and 3) buyer/bailee entitled to 10% of gross.
  • Insolvency -- if a buyer is insolvent, the seller may refuse to deliver the goods except for cash, including goods already delivered under the contract [2-702]
  • Warranties -- Implied warranty of fitness: arises when the seller knows the buyer is relying upon his expertise in choosing goods. Implied warranty of merchantability: every sale of goods fit for ordinary purposes. Express warranties: arise from any statement of fact of promise.
  • UCC damages in Repudiating/Breaching SELLER -- Difference between 1) the market price when the buyer learned of breach and the 2) contract price 3) plus incidental damages. An aggrieved seller simply suing for the contract price is economically inefficient. [2-713]
  • Specially Manufactured Goods -- exempt from statute of frauds where manufacturer has made a “substantial beginning” or “commitments for the procurement” of supplies.

Section 2-207: Battle of the Forms

One of the most tested sections of the UCC, Section 2-207, governs a "battle of the forms" between two business, giving rules as to whose boilerplate terms will survive a commercial transaction where multiple forms are exchanged.

The first step in a "battle of the forms" analysis is determining whether the UCC or the common law governs the transaction. Once it is determined that the UCC governs, courts will usually try to find which form constitutes the offer. Usually this is a purchase order. Next, the acceptance with varying terms is examined. It is important to note whether the acceptance is expressly conditional to its own terms. If it is expressly conditional, it is a counteroffer, not an acceptance. If performance is completed after the counteroffer, with no express acceptance, then, under 2-207(3), the contract will exist of those terms on which the parties agree, together with UCC gap-fillers.

Assuming that the acceptance does not expressly limit acceptance to its own terms, it counts as an acceptance, even though it contains additional or different terms. The different terms from both the offer and acceptance are commonly "knocked out" of the contract and replaced with UCC gap-fillers. The additional terms go into the contract if they pass a three-part test in 2-207(2). First, the offer must not expressly limit acceptance to the terms of the offer. Second, the terms must not materially alter the contract (see Comments to 2-207). Third, the terms in question must not have been objected to.

Conspiracy theories

The Uniform Commercial Code plays a significant part in the legal theories of far right groups such as the Christian Patriot movement, Sovereign Citizen Movement, and the Posse Comitatus. Their theory is that a secret treaty made in 1930 put the United States and other countries around the world in "bankruptcy" with the "international bankers" being the "creditor/rulers", who prefer commercial law to common law. The newer "redemption movement" even claims that the Uniform Commercial Code is now "actually the supreme law of the land". The Constitution Party of Pennsylvania claims that the UCC governs all human interaction in the U.S., and that using the language contained in §1-207 of UCC such as "without prejudice" or "under protest" protects the signer from being bound by any contract or that the signer is not recognizing a government's jurisdiction over the signer.

See also

References

External links

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