What Is a Commercial Code?

A commercial code is a set of laws that regulates and facilitates commercial transactions. It sets out to provide a uniform set of standards that market participants can refer to when conducting business and resolving disputes.

Examples of the kinds of questions addressed by a commercial code include: When does a contract become legally binding? How do we handle instances when money is transferred to the wrong party? And how do we prove ownership of assets?

Key Takeaways

  • A commercial code is a set of laws designed to regulate commerce.
  • In the U.S., a Uniform Commercial Code (UCC) has been adopted in all 50 states.
  • Commercial codes can facilitate commerce by providing protocols for resolving common challenges and disputes.

Understanding Commercial Codes

In the U.S., all 50 states have adopted a unified body of commercial law known as the Uniform Commercial Code (UCC). The UCC was developed in 1952 as the result of collaboration between the American Law Institute (ALI) and the National Conference of Commissioners on Uniform State Laws (NCCUSL).

The purpose of the UCC is to provide a set of standard statutes nationwide for the governance of commercial activities. Once a state enacts the UCC, it becomes codified in that state’s laws. States can adopt the UCC in its original form, or they can modify it to better suit their local interests.

A central theme of the UCC is the resolution of contractual disputes, offering guidelines for the codification of concerns and advice on how to proceed if a contract is breached. Although the UCC covers a wide range of issues relating to commerce, it is principally concerned with transactions relating to personal property, as opposed to real estate. As such, its articles focus on subjects such as sales, leases, funds transfers, bank deposits and withdrawals, warehouse receipts, and documents of title.

The UCC has largely accomplished its goal of standardizing American commerce. Forty-nine states have enacted the UCC with minimal changes, as have the territories of Guam, the District of Columbia, the Northern Mariana Islands, and the U.S. Virgin Islands. 

Others have adopted the UCC with only minimal changes, such as Louisiana, Puerto Rico, and the Navajo Nation. In the case of Louisiana and Puerto Rico, the modifications to the UCC concerned the preservation of traditional civil law statutes relating to leases and sales.

Real World Example of a Commercial Code

Suppose you own a warehousing and trucking business. One of your truck drivers receives a bill of lading from a customer, specifying the nature and destination of the goods and authorizing your company to transport them. However, during a routine stop at a gas station, they discover that the bill of lading is missing, presumed stolen. Technically, you are not allowed to transport the goods without the bill of lading. Therefore, what do you do? Do you complete the delivery, or return the goods to your warehouse?

In section 7-601 of Article 7, the UCC provides guidance on what to do if a bill of lading has been lost, stolen, or destroyed. It states that a court can order the shipping company who lost possession of the bill of lading to complete the delivery of the goods even though that company is no longer in possession of the original bill of lading. Under these circumstances, the delivery company would be released from any liability associated with delivering goods without a bill of lading.

The UCC also states that, if a court order is not given, any company that completes delivery without a bill of lading will be liable for any personal injury that occurs during the delivery.

With these provisions in mind, you direct your driver to complete the delivery but to drive even more carefully than usual, and to remember to lock their door the next time they stop for gas.