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Uniform Commercial Code


The Uniform Commercial Code (UCC) is a set of uniform laws that govern financial contracts for the sales of most types of personal property, and most commercial transactions across the United States. The main goal of the UCC is to create uniformity in the way sales and commercial transactions are regulated in all states.


The UCC was initially published in 1952 with the main objective of harmonizing the laws relating to sales and commercial transactions in the U.S. The UCC has been quite successful at accomplishing this challenging goal, but there are a few U.S jurisdictions that are yet to adopt all the articles that make up the UCC.

The Uniform Commercial Code is composed of nine individual articles that cover different aspects of sales, banking procedures, and loans. The articles are:

–             Article 1: General provisions.

–             Article 2: Sales.

–             Article 2a: Leases.

–             Article 3: Negotiable instruments.

–             Article 4: Bank deposits and collections.

–             Article 4a: Funds transfer.

–             Article 5: Letters of credit.

–             Article 6: Bulk transfers and bulk sales.

–             Article 7: Documents of title.

–             Article 8: Investment securities.

–             Article 9: Secured transactions.

The UCC is frequently revised to reflect current business trends and the updates usually relate to specific articles, which is the main reason why the number of articles has not ballooned. Currently, only the state of Louisiana has not ratified all the articles in the code, while California drafted its own articles.

One of the main achievements of the UCC is that it has made it easier for lenders to issue loans that are secured using personal property. The UCC has also made it much simpler for businesses in different states to successfully complete commercial transactions with each other.

History and Guiding Principle of the UCC

Firstly, the UCC is not a law enacted by Congress as it is a set of proposals from the federal government to all state legislatures in an attempt to create uniformity on the regulation of key business transactions. The code was a joint long-term project of the American Law Institute and the National Conference of Commissioners on Uniform State Laws (NCCUSL), and it is maintained and updated by the NCCUSL.

The UCC laws operate under the guiding principle of the implied covenant of good faith fair business dealings. This means that the individuals selling to, buying from, and dealing with each other must be operating under this covenant before entering into agreements or contracts.

How the UCC Regulates Interstate Commercial Transactions

The UCC was largely intended to regulate the activities of entrepreneurs and businesses that occur across borders with the main goal of streamlining the manner in which similar activities are regulated by state governments. By ratifying the UCC, each state legislature agreed to regulate the commercial transactions covered by the provisions in the UCC in a manner similar to that outlined in the code. This created significant uniformity in the way states regulate the different commercial transactions outlined in the code.

However, entrepreneurs and companies that conduct business across states should keep in mind that each state has a unique interpretation of the UCC. Therefore, each business transaction must meet the regulations of the state in which it occurred, which might differ slightly from the actual wording and interpretation contained in the UCC.

Most of the transactions governed by the UCC involve secured personal property financed by a lender such as a bank where the lender holds the property’s title as security until the borrower repays the loan in full.

UCC-1 Financial Transactions

Most states that have adopted the statutes of the Uniform Commercial Code require businesses to prepare, sign, and file a UCC-1 statement when a customer uses personal property such as inventory and equipment as security for a loan. This process is referred to as “perfecting the security interest” in the collateral property for the secured loan.

For example, when a dealer is issuing a car loan to a customer who has purchased a car, he is obligated to file a UCC-1 form. These forms only apply to loans that have personal property attached as collateral. The UCC-1 form usually contains a description of the property as well as details of the borrower and the lender.

Both parties usually sign the UCC-1 form, which creates a lien against the secured property, hence, it cannot be sold before the loan is fully paid off.