Uniform Commercial Code: Wikis

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The official 2007 edition of the UCC.
Even the confidential rough drafts of the UCC were saved and published as a 10-volume set.

The Uniform Commercial Code (UCC or the Code), first published in 1952, 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.

The goal of harmonizing state law is important because of the prevalence of commercial transactions that extend beyond one state. To take one example, goods are manufactured in State A, warehoused in State B, sold from State C and delivered in State D). The UCC therefore achieved the goal of substantial uniformity in commercial laws and, at the same time, allowed the states the flexibility to meet local circumstances. 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. The Code has been a long-term, joint project of the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute (ALI).[1] Judge Herbert F. Goodrich was the Chairman of the Editorial Board of the original 1952 edition,[2] 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 a recommendation of the laws that should be adopted in the states. Once enacted by a state, the UCC is codified into the state’s code of statutes. A state may be adopt the UCC verbatim as written by ALI and NCCUSL, or a state may adopt the UCC with specific changes. Unless such changes are minor, they can affect the purpose and meaning of the Code in promoting uniformity of law among the various states.

Thus persons doing business in different states must check local law. In Payne v. Stalley, [3], a lawyer relied on the official text of the Uniform Probate Code and failed to check the Florida statute. As a result, the lawyer missed a filing deadline on a multi-million dollar claim. The court wrote, "[w]e cannot rewrite Florida probate law to accommodate a Michigan attorney more familiar with the Uniform Probate Code." [4]

The ALI and NCCUSL have established a permanent editorial board for the Code. This board has issued a number of official comments and other published papers. 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.

In one or another of its several revisions, the UCC 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.

Although the substantive content is largely similar, some states have made structural modifications to conform to local customs. For example, Louisiana jurisprudence refers to the major subdivisions of the UCC as “chapters” instead of articles, since the term “articles” is used in that state to refer to provisions of the Louisiana Civil Code. Arkansas has a similar arrangement as the term “article” in that state's law generally refers to a subdivision of the Arkansas Constitution. In California, they are titled "divisions" instead of articles, because in California, articles are a third- or fourth-level subdivision of a code, while divisions are always the first-level subdivision. Also, California does not allow the use of hyphens in section numbers because they are reserved for referring to ranges of sections; therefore, the hyphens used in the official UCC section numbers are dropped in the California implementation.

Contents

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.[1] 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.[5]

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

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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 non-conforming goods are sent with a note of accommodation, such tender 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.
  • Perfect tender—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—Such standard is 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]
  • 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 does not need to 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 place of business—The 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—Equitable conversion does not apply. 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 failure—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 buyer 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 20 days after buyer receives them if the seller discovers that the buyer received the goods while insolvent.
  • Rightfully rejected goods—A merchant buyer may follow reasonable instructions of the seller to reject the goods. If no such instructions are given, the buyer make a reasonable effort to sell them, and the buyer/bailee entitled to 10% of the gross proceeds.
  • 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]
  • Implied warranty of fitness—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 for 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—Specially manufactured goods are 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" as to whose boilerplate terms, those of the offeror or the offeree, will survive a commercial transaction where multiple forms with varying terms are exchanged.

The first step in the analysis is to determine whether the UCC or the common law governs the transaction. If the UCC governs, courts will usually try to find which form constitutes the offer, such as a purchase order. Next, offeree's acceptance forms bearing the different terms is examined. One should note whether the acceptance is expressly conditional on its own terms. If it is expressly conditional, it is a counteroffer, not an acceptance. If performance is accepted after the counteroffer, even without express acceptance, under 2-207(3), a contract will exist under only those terms on which the parties agree, together with UCC gap-fillers.

If the acceptance form does not expressly limit acceptance to its own terms, and both parties are merchants, offeror's acceptance of offeree's performance, though offeree's forms contains additional or different terms, forms a contract. At this point, if offeree's terms cannot coexist with offeror's terms, both terms are "knocked out" and UCC gap-fillers step in. If offeree's terms are simply additional, they will be considered part of the contract unless (a) the offeror expressly limits acceptance to the terms of the original offer, (b) the new terms materially alter the original offer or (c) notification of objection to the new terms has already been given or is given within a reasonable time after they are promulgated by the offeree.

See also

References

External links


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