Uniform Commercial Code

The Uniform Commercial Code (UCC) is a body of statutes developed to govern commercial transactions. Every state has adopted its own version of the UCC.

Visit the Legal Information Institute website for the articles of the UCC and links to corresponding state statutes.

Visit NCS' National UCC Digest for a practical guide to understanding and utilizing secured transactions. This digest provides step-by-step procedures, rules and regulations necessary for perfecting UCC-1, UCC-3, or UCC-11 in all 50 states.

History

Laws governing sales began in England when merchants developed the law of merchants or a system of rules, customs and usages which regulated their transactions. Eventually, the law of merchants was combined with British common law. By 1882, the English Bills of Exchange Act was adopted by the British Parliament, followed by the Sale of Goods Act in 1893.

Using these two English laws as an example, two sets of laws were created by the National Conference of Commissioners on Uniform State Laws in the United States: the Uniform Negotiable Instruments Act (1896) and the Uniform Sales Act (1906). Other laws relating to commercial transactions were also created in the early 1900s such as the Uniform Warehouse Receipts Act (1906), the Uniform Stock Transfer Act (1909), the Uniform Bills of Lading Act (1909), the Uniform Conditional Sales Act (1918) and the Uniform Trust Receipts Act (1933). By the mid-1900s, it became clear that these various laws needed revision to keep current with business and to be integrated into one set of laws.

In 1942, the Uniform Commercial Code was designed as a joint project between the American Law Institute and the National Conference of Commissioners. It took ten years for the appointed editorial board and drafting committees to produce an official text, which underwent several revisions. Today, the Permanent Editorial Board (PEB) for the UCC is the body responsible for the uniformity of enactment and construction of the UCC and for evaluating and preparing proposals for amendment Any change made to a letter of credit after it is issued. of the UCC.

The UCC is not federal law; each state adopts the Code. Pennsylvania was the first state to adopt the Uniform Commercial Code in 1954, and Louisianais the only state that has not adopted the Code in its entirety. The Code applies to sales made in the District of Columbia and in the Virgin Islands, but it is not valid for sales made in Puerto Rico.

The basic premise on which the Uniform Commercial Code is based is that commercial transactions is a single subject of the law, involving the sale of and payment for goods. A single transaction may involve a contract for the sale of goods followed by a sale, which is the subject of Article 2 of the UCC. Article 2: Sales replaced the former Uniform Sales Act. The transaction may involve the giving of a check or draft, which will ultimately pass through one or more banks for collection, for all or part of the purchase price. This is the subject of Article 3: Commercial Paper and Article 4: Bank Deposits and Collections. Transactions made using letters of credit are covered in Article 5: Letters of Credit. If the goods are shipped or stored, the sale may be covered by a bill of lading or warehouse receipt or both. These transactions are covered by Article 7: Documents of Title. Because the transaction can involve not only a contract for the sale of goods followed by a sale, the giving of a check or draft for part of the purchase price but also the acceptance When a drawee acknowledges in writing on the face of the draft that the buyer will pay the draft at maturity. of some type of security for the balance, Article 9-Secured Transactions was created. The concept of the UCC is to cover every phase of commerce involved in the sale and payment of goods.

Brief Guide to the UCC

The UCC is divided into nine articles and extends over the laws of sales, negotiable instruments, bank deposits and collections, letters of credit, bulk sales, documents of title, investment securities, and secured transactions. The following lists each Article and the basic subjects covered:

Article 1: General - Presents purposes and policies, definitions

Article 2: Sales - Contracts for Purchase/Sale of goods

Article 2A: Leases - Transfer of the right to possession and use of of goods for a term in return for consideration

Article 3: Commercial Paper - Negotiable Instruments, Promissory notes, checks Certificate of Deposit, Money Orders, Drafts

Article 4: Bank Deposits and Collections - Deposit/Collection of checks

Article 4A: Wire Transfers - Electronic transfers of funds (CHIPS, Fedwire)

Article 5: Letters of Credit - Domestic and Foreign commercial letters of credit

Article 6: Bulk Transfers - Special protection for creditors of seller in bulk inventory sales

Article 7: Warehouse Receipts Documents of Title - Special rules for documents that evidence ownership or right to possession of goods

Article 8: Investment Securities - Stock Certificates

Article 9: Secured Transactions - Security interests, collateral, priority among secured creditors

Basic UCC Definitions

SECURITY INTEREST : An interest in personal property or fixtures which secures payment or performance of an obligation.

COLLATERAL: An asset or assets subject to a security interest.

DEBTOR: The person who owes payment or other performance of an obligation.

SECURED PARTY: A lender, seller, lessor or other person in whose favor there is a security interest.

SECURITY AGREEMENT: An agreement which creates or provides for a security interest. The security agreement establishes rights and obligations between the debtor and the secured party.

GOODS: The UCC divides "Goods" into four categories, defined here in basic language. Full legal definitions can be found in section 9109 of the UCC:

1. Equipment: Goods used or bought for use primarily in business (including farming or a profession).
2. Inventory: Goods held by a person for sale or lease. The basic difference between "inventory" and "equipment" is how the goods are used. A machine used by a business is "equipment" while the same machine offered for sale or lease is "inventory."
3. Consumer Goods: Goods used or bought for use primarily for personal, family, or household purposes.
4. Farm Products: Crops, livestock, supplies or products used in farming operations.

ACCOUNT: Any right or payment for goods sold or leased or for services rendered which is not evidenced by an instrument (e.g. a note) or chattel paper (a writing which evidences both a monetary obligation and a security interest).

PERFECTION OF SECURITY INTEREST: The security agreement establishes the rights of a secured party against the Debtor in the collateral. A secured party who "perfects" its security interest establishes its priority in the collateral against other creditors. For most types of collateral, a Secured Party can perfect its security interest by timely filing a signed UCC-1 financing statement.

PURCHASE MONEY SECURITY INTEREST: A security interest is a "purchase money security interest" to the extent that it is (a) taken or retained by the seller of the collateral to secure all or part of its price; or (b) taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used.

PURCHASE MONEY NOTIFICATION: A notice is given by a secured party who holds (or will hold) a perfected purchase money security interest in inventory to other creditors with prior perfected security interests in the same collateral. A timely purchase money notification advances the secured party's priority in the inventory ahead of the perfected security interests of the other creditors.

LIEN CREDITOR: A creditor who has acquired a lien on the property involved by attachment (through the courts), levy or the like. A lien creditor can include a trustee in bankruptcy.

Edited by Michael Dennis, author of "Credit and Collection Handbook" available at the NACM Bookstore.