Recently I was asked what reference material I most often used when I was a
practicing credit professional. Without hesitation I replied the Uniform
I have over four dozen books on the bookshelves in my office, from the Credit
Manager’s Handbook to Sales versus Credit by Sol
Barzman. However, the publication that has always sat on my desk, close at
hand, is the Uniform Commercial Code.
The Uniform Commercial Code (UCC), was first published in 1952, twenty years
prior to my entering the credit profession. It was not until 1958 that it
was first adopted by the state of
and it took another eight years after that before it was adopted by any
other state. Today, it has been adopted by all fifty states, the
District of Columbia
, Puerto Rico, and the
. The UCC was a joint project of the National Conference of Commissioners
on Uniform State Laws and the American Law Institute who began drafting
the initial version during the second world war in 1942.
The UCC is one of a number of uniform acts that have been promulgated in
conjunction with efforts to commonize the law of sales and other
commercial transactions in all 50 states within the
. The purpose of commonizing state law is important because of the
prevalence of commercial transactions that extend beyond one state. For
example, goods may be manufactured in
, warehoused in
, sold from
and delivered in
. 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 regulations by modifying the UCC's provisions as enacted by
each state’s legislature. The UCC deals primarily with transactions
involving goods and not services or real propery
The UCC is a product of private organizations and 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 individual state’s
code of statutes. A state may 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 seriously obstruct the Code's express
objective of promoting uniformity of law among the various states. It is
important that when doing business in different states you check the local
law for any deviations made by that stae’s legislature.
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 incorporate 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, Louisiana has enacted the majority of the UCC, with the
exception of Article 2, preferring to maintain its own civil law or
Napoleanic tradition for governing the sale of goods rather than rely on
common law as in the other 49 states.
Although the substantive content is largely similar, some states have made
structural modifications to conform to local customs. For example, in
Louisiana they refer 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. The same
can be said of
where the term “article” in that state's law generally refers to a
subdivision of the Arkansas Constitution.
, they are titled "divisions" instead of articles, because in
, 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 such as UCC-2 is dropped in the California
Ater ten years in development the Uniform Commercial Code was released to
the states for review and ratification in 1952, Between 1952 and 1999 the
state’s made numerous revisions to the Code in oder for it to conform to
their existing laws. The Uniform Commercial Code deals with the following
subjects under consecutively numbered Articles:
Sales and 2a Leases
Bank Deposits and 4a Funds Transfer
Letters of Credit
Bulk Transfers and Sales
The most important of the two articles for credit professionals is article(s)
two and nine. The only article that is not relevent to the credit function
is article 8, investments.
In 2003, a major revision of Article 2 updating 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 NCCUSL recommended that Article 6 of the UCC, dealing with bulk
sales, be repealed as obsolete since many of the states already had laws
that were more strigdent then Article 6. However, many states were
relunctant to make changes and Article 6 still remains in force in several
A major revision to Article 9, became effective in July 2001. The revision,
commonly referred to as RA-9 adopted national forms to be used by all the
states for perfecting and amending security interests; eliminated dual
filing; and eliminated the signing of the financing statement for
perfection. There were many other changes but these were the most
The Uniform Computer Information Tranasctions Act which was to have become
article 2b within a revised Article 2 could not be agreed on by the NCCUSL
and ALI and it has been set aside for further discussion.
The UCC is the only uniform law that is a joint project of NCCUSL
and the ALI, and both associations must agree to any revision of the UCC
before it is given to the states for enactment of the changes in that
Since ALI and NCCUSL could not come to agreement on Article 2bAs the NCCUSL
responded by renaming Article 2b as the Uniform Computer Information
Transactions Act and as of 2004, only two states
have adopted it.
The philosophy behind 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 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 legal counselor the preparation of elaborate documents.
As stated earlier the two most important Articles in the UCC to the credit
professional are two and nine.
Again, Article 2, dealing with sales, has not been adopted by
, as its provisions are inconsistent with the Louisiana Civil Code, which
is based on the civil law as opposed to common law in the other 49 states.
majority of the content of Article Two deals with contract formation.
offers (offers that cannot be revoked for a set time) are valid
without consideration and irrevocable for time stated (or up to 3
months) and must be signed (company letterhead is sufficient).
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)
modifications without consideration may be acceptable in a contract
for the sale of goods. §2-209(1)
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]
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
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.
time/good faith” standard—Such standard is required from a party
to a contract indefinite as to time, or made indefinite by waiver of
contracts—The UCC provides protection against disproportionate
demands, but must meet the “good faith” requirement.
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.
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
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.
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)]
must give seller time to cure the defective shipment before seeking
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.
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)
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.
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.
a buyer is insolvent, the seller may refuse to deliver the goods
except for cash, including goods already delivered under the contract
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.
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]
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.
Article 9 identifies the four types of security:
Money Security Agreement
It also governs how security interests may be obtained in personal property
that a buyer and a seller agree will serve as security for payment of
specified debts. In Article 9 the buyer is referred to as the “debtor”
and the seller is referred to as the “secured party.”
Fundamental concepts under Article 9 include how a security interest is
imposed on property (“attachment”); how security interests are made
complete (“perfected”); and what remedies are available to the secured
party if the debtor defaults in payment or performance of the secured debt
In general, Article 9 does not govern real property security interests,
except for fixtures to real property. Mortgages, deeds of trust, and
installment land contracts, which are the principal forms of real property
security interests, remain governed by non-uniform state laws.
Knowledge of the Uniform Commercial Code and how it
applies to state laws is a valuable tool for every credit professional and
should never be overlooked.
I wish you well.
The information provided above is for
educational purposes only and not provided as legal advice. Legal advice
should be obtained from a licensed attorney in good standing with the Bar
Association and preferably Board Certified in either Creditor Rights or