DEFINITION of Uniform Commercial Code

The Uniform Commercial Code (UCC) is a standardized set of business laws that regulate financial contracts. The Uniform Commercial Code UCC has been fully adopted by most states in the U.S. The code itself has nine separate articles. Each article deals with separate aspects of banking and loans. The UCC better enabled lenders to loan money secured by the borrower's personal property.

BREAKING DOWN Uniform Commercial Code

The UCC was drawn up and ratified by most states in the 1950s. Louisiana is now the only state that has not fully ratified the code, although it has adopted Article 3, relating to checks, drafts and other negotiable instruments. A recent addition to the code covers corporate electronic payments. The UCC undergoes frequent revisions that address specific articles.

How the Uniform Commercial Code Applies to Interstate Business Transactions

The policies instituted under the 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. The code imposes standards for processing checks and other types of commercial paper. Often the Uniform Commercial Code is applied to 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 UCC. This includes leasing equipment, selling goods, borrowing money, and establishing contracts. The code also covers warehouse receipts, bulk sales, bills of lading, and investment securities.

The UCC was not established through Congress. It was created by private organizations that include the National Conference of Commissioners on Uniform State Laws and the American Law Institute. Article 1 of the code establishes definitions and certain parameters for how the UCC is to be applied. 

Each state has the option of adopting the code as it was written and amended or, in the case of Louisiana, adopt and modify provisions of it. For example, Louisiana did not adopt Article 2 of the UCC as written, which deals with the sale of goods with the exception of except real estate and service contracts. The state also did not adopt Article 2A, which covers the lease and rental of personal property that is not regarded as real estate.

Articles 4 covers bank deposits and collections while Article 4A and funds transfers. Article 5 addresses letters of credit. Bulk sales are covered by Article 6. Documents of title fall under Article 7. Article 8 covers investment securities. Article 9 governs secured transactions.