The Uniform Commercial Code
In the United States, most commercial transactions are governed by state contract law. But because many companies do business in multiple states, it could become burdensome for companies to research the contract law of fifty different U.S. states. To address this issue, every state has adopted substantially similar laws that apply to commercial transactions, called the Uniform Commercial Code (the “UCC”).
Why should you continue to read this post about the UCC?
Because you are a business person and you are interested in learning more about one law that may govern your work.
Because you do not have time to read fifty different blog posts about the contract laws of each of the states.
Because this post is probably easier to read than the actual UCC.
When does the UCC Apply?
The UCC applies to certain types of transactions when a court decides that the law that governs the transaction is the law of a state that has passed a version of the UCC. Since every U.S. state has adopted the UCC, this usually means that the UCC applies to every commercial transaction described in the UCC when the law of a U.S. state applies. In one major exception, though, Louisiana has not adopted Article 2 of the UCC, so it does not apply to commercial sales and leases governed by Louisiana law.
There are different “Articles” of the UCC, and each concerns a different type of commercial transaction. For example, Article 2 concerns the sale of goods, Article 2A concerns leases of goods, Article 8 concerns securities (such as stocks), and Article 9 concerns secured transactions (generally debts that have collateral).
But because the UCC terms itself are often very complex, it may be necessary to analyze the actual facts of a case to determine whether the UCC applies.
What does the UCC say?
The UCC is very long. As you can see in the picture above, it fills a thick book. But it provides a lot of rules about when, exactly, a contract officially exists between two parties and how to determine what the terms of their agreement are in the event of ambiguities. For example, the UCC allows parties to form an enforceable sales contract, even if they have not agreed on a price. It also allows parties to modify sales contracts, even if the modification only benefits one side of the agreement.
The UCC also provides a lot of rules about what happens in the event of a breach. For example, it holds a seller responsible for the quality of goods it ships until the goods arrive at the buyer’s location, except in certain specific situations. And it sets forth how a buyer can reject defective goods.
The UCC also governs how creditors can establish their entitlement to collateral in the event a debtor defaults on their loan. The process involves filing a standard form in a state government office.
The UCC Does Not Always Govern Every Aspect of a Commercial Transaction
Even though the UCC provides rules for many aspects of commercial transactions, it does not always govern everything.
First, parties to a commercial transaction may vary the terms of their relationship through a contract. So, even if the UCC states that a seller is responsible for the quality of goods while they are in transit, two parties may agree in a contract to change that rule and transfer the risk to the buyer.
And second, some aspects of commercial transactions may require the application of other laws. For example, the UCC may govern secured transactions where personal property is the collateral, but different state laws may apply when real estate is the collateral. And for international sales transactions, other uniform laws, like the Convention on the Sale of International Goods, may apply.