Chapter 19: Uniform Commercial Code

19.1    Uniform Commercial Code Generally
The Uniform Commercial Code, or UCC, is one of several uniform acts developed in an attempt to bring the law of the states into harmony with another. The UCC, which governs commercial transactions, was a joint project of the American Law Institute and the National Conference of Commissioners on Uniform State Laws. Originally drafted in 1952, the UCC is not, by itself, law; rather, it is merely a recommendation of laws that should be adopted by the states. With minor amendments and variations, the UCC has been adopted in its entirety by 49 of the 50 states, as well as in the District of Columbia, Puerto Rico, Guam, and the US Virgin Islands. Louisiana, with its unique civil code system, has adopted most of the UCC sections but has maintained its own laws governing the sale of goods.
The UCC is divided into Articles, each of which governs a distinct type of commercial transaction or a distinct branch of commercial law. Where it has been adopted, each Article of the UCC replaces the common law of contracts with respect to the type of agreements covered by that Article. The provisions of the UCC are often similar to general contract law, but they are usually much more detailed. In some respects, UCC provisions occasionally contradict the common law. Article 1 contains general principles and definitions applicable to commercial law, including rules of contract interpretation.[1] The provisions of Article 1 apply to all of the other Articles of the UCC, which are described briefly below.
19.2    Sale of Goods
Article 2 governs the sale of goods.[2] Goods, as used in the UCC, are movable items of personal property that can are in existence at the time specified for sale in the contract. Manufactured items, cattle, machinery, vehicles, and most merchandise are goods; unborn animals in their mother’s wombs, growing crops, and the like may also be goods if the time identified for the effective date of sale is after they exist in tangible form. Information, purchase money, investment securities such as stock, minerals and other mined substances, and similar items are not goods. Article 2 is one of the most important and frequently-invoked articles of the UCC. 
Article 2 differs from the common law of contracts in several key respects. It places a greater burden on “merchants,” persons who deal regularly with the type of good being sold, because merchants are presumed to be more sophisticated and to have more of an advantage in contract negotiation. Article 2 is generally more lenient with parol evidence than the common law.[3] Contract formation can be considerably less formal as well.[4] Article 2 also sets out specific rules for selling to an insolvent buyer, terms of delivery, right of inspection, rejecting goods that do not satisfy the buyer, and damages for breach, among many others.
One of the most significant, and often-tested, differences between the UCC and general contract law is the so-called “battle of the forms.” Under common law, an acceptance of an offer that includes additional terms is not an acceptance at all, but rather a counter-offer. Under Article 2, however, such a communication can be an acceptance, with the additional terms being a mere proposal, unless it expressly states that the acceptance is conditional on the acceptance of the additional terms, in which case it is a counter-offer. For example, Party A offers to sell Party B a “widget” for $3000. Party B sends back that he accepts, but specifies that he wants the widget painted white. If widgets are not “goods,” the transaction is governed by common law, and there is no contract. Party B has made a counter-offer to Party A. If, however, widgets are goods, the UCC governs and Article 2 states that Party B has accepted party A’s offer, and that a contract exists only as to the terms on which the two parties agree. Party A is now obligated to deliver a widget, but it need not be painted white.
19.3    Leases
Article 2A governs leases of goods, transactions where the owner (or lessor) of vehicles, equipment, or other property permits another party (the lessee) to use the property in exchange for regular payments.[5] Article 2A is not exclusive; some leases, such as those to consumers (individuals using such goods for personal or family use) lasting four months or longer, are also regulated by such federal laws as the Truth in Lending Act. Article 2A requires that certain disclosures be made when leasing to consumers, including a detailed description of the leased property, the amount to be paid and the nature, due date and breakdown of each payment, late payment and default charges, and related matters. Article 2A also governs the creation and interpretation of lease contracts and the remedies available to each of the lessor and lessee.
19.4    Commercial Paper
Articles 3 (negotiable instruments, promissory notes, banknotes, and drafts), 4 (bank deposits and check collection), 5 (letters of credit), and 7 (warehouse receipts, bills of lading, and documents of title) all regulate commercial paper, devices used to transfer funds from one party to another.[6] These Articles regulate the form such devices can take, the manner in which they can be created, fulfilled, and transferred to third parties. A related article, Article 4A, governs wire transfers between banks, but has not been universally adopted by the states.[7]
19.5    Bulk Sales
Article 6 originally dealt with bulk transfers, or sales of all of a business’s entire inventory such as might accompany a company’s going out of business.[8] In 1989, the UCC was revised and states were advised to follow one of two courses: either to repeal the old Article 6, which was seen as obsolete, or replace it with a revised and renamed Article. Almost all of the states repealed Article 6 without replacing it.
19.6    Securities
Article 8 regulates the ownership and transfer of investment securities, including stocks, bonds, ownership interests in various types of business entities, and shares in mutual funds, as well as certain types of financial instruments, such as certificates of deposit.[9]
19.7    Secured Transactions
Article 9, after Article 2, is probably the most important Article, as it regulates the rights of debtors and creditors when personal property is used as collateral for the extension of credit.[10] Such a transaction is known as a secured transaction, and the interest held by the creditor is a security interest. Security interests covered by UCC Article 9 include liens, mortgages, pledges, and conditional sales contracts. Sometimes, the same collateral can be subject to more than one security interest. Article 9 controls which interest takes priority. Priority defines the order in which debts must be paid off in a bankruptcy or insolvency proceedings—those with higher priority must be paid in full before those with lower priority.
Article 9 is notoriously intricate and difficult for non-specialists to grasp, but the crucial elements are attachment, or the point where the security interest is created, and perfection, or the point at which the creditor’s interest assumes its place within the pecking order of priority. Article 9 sets forth the circumstances that allow the attachment, including the requirements of a security agreement between the parties, and the many different ways in which the security interest can be perfected, including (but not limited to) filing a financing statement with the appropriate government agency (such as the office of the Secretary of State in the state where the debtor is located or the county government of the county where the collateral is located).

[1] See UCC §§ 1-101 et seq.