An Overview of the Uniform Commercial Code

Each state in the United States has the authority to enact its own laws. While federal laws apply equally to all states, state law is only applicable to matters that occur in that state’s jurisdiction. Generally, this system works well. However, there are matters were uniformity among the state laws are desirable. Commercial transactions, which often occur in more than one state, are one area where uniformity among state laws is desirable. Accordingly, each state has enacted a version of the Uniform Commercial Code (UCC) so that there is considerable uniformity among state laws.

What is the Uniform Commercial Code?

The UCC was drafted by the National Conference of Commissioners on Uniform State Laws and the American Law Institute. Each state reviewed the model UCC and passed its own state commercial code. Some states adopted the model UCC as drafted while others made their own changes. The UCC is divided into articles, as follows:

• Article 1: General Provisions (such as definitions and rules of interpretations)
• Article 2: Sales (sales of goods)
• Article 2A: Leases (leases of goods)
• Article 3: Negotiable Instruments (banknotes and drafts)
• Article 4: Bank Deposits
• Article 4A: Funds Transfer (transfer of money between banks)
• Article 5: Letters of Credit
• Article 6: Bulk Transfers and Bulk Sales
• Article 7: Warehouse Receipts, Bills of Lading and other Documents of Title
• Article 8: Investment Securities
• Article 9: Secured Transactions

Why is Uniformity Important for Commercial Transactions?

Commercial transactions often occur across state lines. Goods, for example, may be manufactured in one state, distributed in another and sold to a customer in a third state. Banking and credit transactions often occur between financial institutions in one state and customers in another state. This uniform law is meant to make the complex law that applies to business transactions applicable across the nation and make business people and their customers confident that they understand the law applicable to their transaction.

The certainty about the law governing business transactions benefits businesses and consumers alike. It encourages interstate commerce which allows businesses to partner with the best partners, such as distributors and manufacturers, in the country rather than limiting them to one state. Before the UCC was passed, developing contracts for interstate business deals was cumbersome and expensive. The UCC makes it easier to do business in the United States and thereby passes a cost savings down to the consumer.

Additionally, the UCC serves as a model for uniform state laws in other areas of the law. Uniform laws in divorce, custody and probate issues have been implemented following the success of the UCC.

There is no doubt that the UCC has its limitations. The law is not exactly the same from state to state and businesses must understand how the law is as enacted in each individual state. The model law has no legal effect as written. However, the UCC has had benefits for business in the United States that are important to understand and to study for interstate legal dealings.