What exactly is the UCC?

Here's some history on this massive set of legal standards that govern a wide range of crucial commercial and corporate activity.

The Uniform Commercial Code, or UCC, is a massive collection of legal standards that govern a wide range of significant commercial transactions. The National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute were the first two national nonprofit legal bodies to create the UCC (ALI). The UCC's principal goal, as its name implies, is to make commercial activities more predictable and efficient by ensuring that company rules are highly consistent across all American states. The UCC is meant to "simplify, clarify, and modernize" commercial law, "to permit the continuous spread of business operations...," and "to make uniform the law among the various jurisdictions," according to the Code itself.

The UCC is divided into eleven Articles. From the headings of the Articles, you can get a basic notion of the activities covered by the UCC:

• 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 separated into Parts, which are then divided into Sections. A Section is made up of a single UCC regulation. For instance, UCC Section 2-205, "Firm Offers," specifies whether some organizations' offers to acquire or sell items are irrevocable. The following is the whole text of Section 2-205:

"A merchant's offer to buy or sell goods in a signed writing that by its terms assures 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."

Section 2-205 is relatively short and easy when compared to some other UCC Sections. Many other sections of the UCC are much lengthy and may have several subparagraphs. Almost every UCC Section is reliant on other Sections in some way. For example, to properly comprehend Section 2-205, you'll need to look up UCC Section 2-104 for the definition of "merchant" and UCC Section 2-105 for the definition of "goods" in the Code.

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

In 1952, the UCC was first published in its original form. Over the next sixty years, the Code was revised several times and numerous new amendments were added. In the case of any given state, you'll almost certainly need to conduct some investigation to see if the most recent change to one or more UCC Sections has been accepted. Articles 1, 2, and 2A, for example, underwent significant modifications in 2000, which were broadly embraced. Other, more recent proposed amendments, on the other hand, have not been implemented by several states.

The UCC is just a model or suggestion for what a state's commercial code should include; it has no legal authority in and of itself. In practice, however, every American state has adopted some version of the UCC, and those state versions, known as state commercial codes (for example, the California Commercial Code), have the force of law—indeed, they are laws. Furthermore, because different states generally follow one version of the model UCC or another, there is often minimal change between one state's commercial code and another. Variations do exist, however. To give you an extreme example, Louisiana has never ratified UCC Article 2. Because your state's commercial law may not be identical to the UCC in every detail, you should always consult your state's version of the UCC before attempting to address real-world questions.

A Practical Example

On a practical level, if your company is embroiled in a contract dispute that is covered by one of the UCC's many provisions, you will most likely turn to the UCC. A contract disagreement involving the purchasing and selling of products, as Section 2-205 says, is one common instance where this is true.

Example. You own a technological company that specializes in computer control devices. You sent a manufacturer twenty custom-made computer controllers last week, and they arrived four days ago. The manufacturer called you today to tell you that she is returning 10 of the controllers since she no longer needs them. She will also not be responsible for the ten controllers. You don't see how you can sell the controllers to anyone else because they were made specifically for the manufacturer's needs. With that in mind, you'd like to know your possibilities for getting the manufacturer to pay for all twenty controllers. You may well turn to the UCC in certain circumstances, notably Article 2 on the sale of goods. Article 2 has rules that will help you determine whether the controllers are, in fact, "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 statutory requirements.

While the UCC is clearly important in instances involving business sales contracts, such as the one described above, there are other times when you might need to consult it. The UCC, for example, establishes regulations for how money should be transferred between businesses, including through banks, in the form of payments for goods and loans. These are mainly contract-related difficulties.

Beyond the Rules: The Official Comments

Individual sections of the UCC that state the rules can be difficult to comprehend at times. In many circumstances, reading the Official Comment connected to the section will help you understand the rule. The Official Comments are prepared with the permission of the organizations that write and change the regulations. They're written in simple English and may include concrete, explanatory examples. In short, if you're having trouble understanding a piece of the UCC, the Official Comment for that area is an excellent place to start looking for answers. This recommendation is for commercial codes that are specific to each state. Because each state's commercial code is based on the model UCC, the Official Comment is a dependable technique to clarify a UCC section regardless of which state you're dealing with.

It should be noted, however, that the Official Comments are not always free. While elements of your state's commercial code and the model UCC should be available for free online, obtaining the Official Comment for a specific piece may take a little more searching.

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