Uniform Commercial Code (UCC): Definition, Purpose, and History

What Is the Uniform Commercial Code (UCC)?

The Uniform Commercial Code (UCC) is a standardized set of laws and regulations for transacting business. The UCC code was established in 1953 because it was becoming increasingly difficult for companies to transact business across state lines given the various state laws.

The Uniform Commercial Code (UCC) is important since it helps companies in different states to transact with each other by providing a standard legal and contractual framework. The UCC laws have been fully adopted by most states in the U.S. Although there are some slight variations from state to state, the UCC code consists of nine separate articles. The UCC articles govern various types of transactions, including banking and loans.

Key Takeaways

  • The Uniform Commercial Code (UCC) is a set of business laws that regulate financial contracts and transactions employed across states.
  • The UCC code consists of nine separate articles, each of which covers separate aspects of banking and loans.
  • Companies that conduct business transactions outside of their home state must comply with the Uniform Commercial Code (UCC).
  • The UCC code has been fully adopted by most states and adapted slightly by others.
  • The Uniform Commercial Code (UCC) was not established through Congress but rather by private organizations.

How the Uniform Commercial Code (UCC) Works

Uniform Commercial Code (UCC) laws regulate sales of personal property and various other transactions. If you’ve ever purchased a business or a vehicle in the past, chances are you signed a UCC-1 statement. The title remains in the lender’s possession until the loan is paid off.

The policies instituted under the Uniform Commercial Code (UCC) are largely focused on the activities of small businesses and entrepreneurs. Part of the intent is to clear up confusion over how each state might separately regulate such operations.

Although the UCC code regulates dealings involving personal property, it does not govern real property such as land or any structures attached to land.

The UCC code imposes standards for processing checks and other types of commercial paper. Often it is applied to the property secured by a bank where the title is held until the borrower pays off the balance of the financing.

Companies that conduct business transactions outside of their home state must comply with the applicable UCC law, including when leasing equipment, selling goods, borrowing money, and establishing contracts.

Uniform Commercial Code (UCC) Articles

Below is an outline of what the nine different articles in the Uniform Commercial Code (UCC) address:

Article 1: General provisions establish definitions and certain parameters for how the Uniform Commercial Code (UCC) is to be applied. It was last updated in 2001.

Article 2/2a: The sale of goods, excluding real estate and service contracts. Article 2a covers leases of personal property.

Article 3: Checks, drafts, and other negotiable instruments, such as notes (the promise to pay money). An item is considered negotiable if it can be transferred to another individual and still be enforceable against the original payer.

Article 4/4a: Bank deposits and collections, which covers rules for check processing and automated inter-bank collections. Article 4a focuses on fund transfers.

Article 5: Letters of credit, those of which are issued by a bank for trade facilitation.

Article 6: Bulk sales, auctions, and liquidations of assets. Most states believe this article to be obsolete and the Uniform Law Commission (ULC) has recommended a repeal, which most states have adopted.

Article 7: Documents of title, including warehouse receipts, bulk sales, and bills of lading (BoL).

Article 8: Investment securities; specifically the holding of securities through intermediaries.

Article 9: Secured transactions of personal property, agricultural liens, promissory notes, consignments, and security interests.

The Uniform Commercial Code (UCC) undergoes frequent revisions that address specific articles.

History of the Uniform Commercial Code (UCC)

The Uniform Commercial Code (UCC) was not established through Congress. It was created by private organizations that include the Uniform Law Commission (ULC), which is also known as the National Conference of Commissioners on Uniform State Laws (NCCUSL), and the American Law Institute (ALI).

The ULC was established in 1892 with the purpose of creating uniform commercial law. The organization established a variety of laws from its founding up until the 1950s. In the 1950s, along with the ALI, the ULC compiled all the commercial laws into one set of commercial codes for states to follow.

The UCC was presented to the states in 1951, with Pennsylvania being the first to adopt the UCC in 1953 with other states adopting the code over time. Louisiana is now the only state that has not fully ratified the code, though it has adopted part of it.

Special Considerations

Each state has the option of adopting the code as it is written or adopting and modifying provisions of it.

Louisiana did not adopt Article 2 of the Uniform Commercial Code (UCC) as written. The state also did not adopt Article 2A, which covers the lease and rental of personal property that is not regarded as real estate.

California has made some modifications, too, implementing its own version of the UCC laws. Real estate contracts are one of the exceptions to California's adoption of the UCC. For the purchase of real estate, such as a warehouse, the laws regulating this purchase are not in California's commercial code but rather the laws and regulations specifically set by the state regarding real estate.

Service contracts in California are also not covered by the UCC. Service contracts include auto repairs, painting jobs, interior decor, and so on. These activities are covered by state insurance laws.

Who Does the Uniform Commercial Code Protect?

The Uniform Commercial Code (UCC) was established to protect all individuals engaged in business. It was created in order to standardize commerce between states, whether that commerce occurs between individuals or businesses.

What Does the Uniform Commercial Code Article 2 and 2A Cover?

Uniform Commercial Code Article 2 covers the sale of goods, excluding real estate and service contracts, while Article 2a covers leases of personal property.

How Does a UCC Lien Work?

A UCC lien, also known as a UCC filing, is a form that a creditor files to provide notice that they have an interest in the property of a debtor, whether that property is personal or business. The overall purpose of a UCC lien is to allow a creditor to claim collateral on financing with a debtor. The creditor will have the right to the property in the lien until the financial obligation has been repaid by the debtor.

What Is the UCC Filing Fee?

The UCC filing fee is $40 for paper filings and $20 for electronic filings in New York.

Article Sources
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  1. Uniform Law Commission. "Uniform Commercial Code." Accessed Feb. 8, 2022.

  2. Tulane Law Review. "Louisiana Civil Law and the Uniform Commercial Code: Interpreting the New Louisiana U.C.C.-Inspired Sales Articles on Price." Accessed Feb. 8, 2022.

  3. Upcounsel. "When Does California Commercial Code Apply?" Accessed Feb. 8, 2022.

  4. New York Department of State. "UCC Frequently Asked Questions." Accessed Feb. 8, 2022.