UCC Uniform Commercial Code

The Uniform Commercial Code (UCC) is the result of an effort to harmonize the law of sales and other commercial transactions in all 50 states within the United States of America. The Code is not itself law, but a recommendation of a set of laws that should be adopted by the states.


In 1942, a group of legal scholars began work on one of the longest and most comprehensive sets of uniform laws in the United States: the Uniform Commercial Code (UCC). Nine years later, in the fall of 1951, a first draft was finished by an editorial board of representatives from the National Conference of Commissioners on Uniform State Laws and the American Law Institute. The UCC framework evolved from earlier uniform commercial acts involving transactions, such as negotiable instruments and sales receipts, adopted by many state legislatures starting in 1896.

The purpose of the Code was to harmonize laws in all 50 states concerning sales and commercial transactions; at a time, when laws governing the contracts between the merchant, manufacturer, and shipper differed from state to state. Before its implementation, many business people were unsure which law applied on transactions between different states.
The Code normalized commercial transactions and provided state governments with a set of laws concerning business transactions.

Some legal scholars today consider the UCC one of the most important developments in American law.

The nine articles of the UCC address various aspects of sales, including the sale of goods, leases of goods, negotiable instruments, bank deposits, fund transfers, letters of credit, bulk sales, warehouse receipts, bills of lading, investment securities and secured transactions.
The Uniform Commercial Code deals with the following subjects under consecutively numbered Articles:

Article 1 (General Provisions)
provides general definitions and principles of interpretation for all of the articles.

Article 2 (Sales)
covers every stage of a transaction for the sale of goods, from general obligations, construction of a contract, and performance under that contract to breach, repudiation, and excuse of a sales contract. Article 2 further offers remedies for disputes that may occur during a sales transaction.

Article 2A
governs leases of personal property.

Article 3 (Negotiable Instruments)
covers negotiable instruments, such as various types of checks, promissory notes, and certificates of deposit. Article 3 handles all transactions involving negotiable instruments, like negotiation and endorsements; payment on the instruments; liability of parties such as the endorser, drawer, and acceptor; and dishonor of the instrument. An instrument is negotiable if it can be transferred to another person and remain enforceable against the person who originally made the promise to pay.

Article 4 (Bank Deposits and Collections)
regulates collect items and post deposits, as well as the relationship among depository, collecting, and payer banks, and between a payer bank and its customer.

Article 4A
covers fund transfers, not including electronic fund transfers.

Article 5 (Letters of Credit)
addresses letters of credit, including the issuer’s obligations, warranties that arise, and remedies that are provided for problems during the issuance process or after a letter of credit has issued. ‘Letters of Credit’ are typically issued by a bank or other financial institutions to business customers in order to facilitate trade.

In 1989, Article 6 (Bulk Sales)
was revised and changed from covering bulk transfers to governing bulk sales. It regulates the obligations of a buyer of a bulk sale. A bulk sale generally involves the sale of more than half of the seller’s inventory, not in the ordinary course of a seller’s business, when the buyer has (or after inquiry would have had) notice that the seller is not going to continue to operate a similar business after the sale, including auction and liquidation sales. There are specific provisions for notice to claimants (such as creditors of the seller), distribution of the sale’s proceeds, filing notices of bulk sales, and liability for noncompliance. This ensures that creditors are not bypassed when a company decides to end its business. Many states have determined this topic to be obsolete and the Uniform Law Commission has recommended repeal.

Article 7 (Documents of Title)
governs warehouse receipts, bills of lading, and other such documents describing ownership and transportation of goods.

Article 8 (Investment Securities)
“Investment Securities,” includes rules regulating the issuance of security certificates, the transfer and registration of securities, and the obligations of an intermediary who holds them. Investment securities are securities that are purchased in order to be held for investment. This is in contrast to securities, which are purchased by a broker or other intermediary, for quick resale.

Article 9 (Secured Transactions)
covers secured transactions, which occur when one party gives another a secured interest in a piece of property, usually to secure payment of a debt. The provisions of this article determine when a security interest may occur, the types of property that may be covered, the validity of the underlying security agreement, and the issue of default. Article 9 also covers the rights of third parties through a process called perfection of a security interest, which happens when the holder of the security interest files notice of it with the state, so that other creditors know of the existence of the security interest.