Uniform Commercial Code or UCC - Definition, Purpose, Articles

Table of Contents

Definition

Uniform commercial code is the standardized state laws and regulations that govern commercial transactions in the United States of America. It includes the sale of goods, insurance contracts, and real estate deals.

The implementation of uniform commercial code has helped numerous companies in various states of the United States to transact with each other via a standard contractual and legal structure. UCC aims to offer a framework that is consistent and simple with clarity in its mode of operation and implementation.

Understanding of uniform commercial code

The uniform commercial code also referred to as UCC, has been established in the United States of America as a law. The adoption of uniform commercial code varies from one jurisdiction to another in the United States and is often subjected to statutory interpretations as per the courts of every jurisdiction.

This uniform act has been implemented to harmonize the laws of commercial transactions like sales of goods. Its applicability applies to both business and commercial transactions and includes

Purchase and sale of goods
Leases
Secured transactions
Banking deposits
Commercial paper transactions like a letter of credit
Investment securities, for example, bonds and stocks. The secured transactions are also for promissory notes, agricultural liens, personal property, and consignments.

The policies under the uniform commercial code have put its onus on activities of small business entities to clear up prevailing confusion on how to regulate operations in the various states. It includes nine separate articles which cover all the aspects of commercial and banking transactions to make the framework well-defined.

The uniform commercial code excludes the sale of

Intangible items
Services
Land or real estate

Money used as payment is also excluded from the UCC. The goods involved in a sale and purchase must have the following aspects to pass muster

At the time of the contract, the products should be movable
Before the purchase agreement is made the goods should be identifiable and existing
One can sell an undivided share of products and the quantity need not be calculated like in case of partial goods
Sometimes the sale can also include partial interest in the goods
The purchase of lots should consist of a single parcel or item and is to be considered as separate delivery or sale
Commercial products are those that are used for commercial usage and these can be sold as either many items or a single item

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Articles of uniform commercial code

The uniform commercial code was released in the year 1952 and dealt with various subjects. The nine articles of the code address the following

Article 1 – Article 1of the uniform commercial code is about the general provisions and establishes parameters for the way the UCC is to be applied. It includes definitions and rules of interpretation
Article 2 and Article 2A – Article 2 of the uniform commercial code is about the sale of goods. The exceptions to this article include service contracts and real estate. The article 2A deals in leases of goods
Article 3 – Article 3 of the uniform commercial code include negotiable instruments like promissory notes and commercial paper like drafts, cheques.
Article 4 and Article 4A – Article 4 of the uniform commercial code deals in bank collections and deposits like banking and banks and cheque collection process. The article 4A deals in funds transfers between various banks
Article 5 – Article 5 of uniform commercial code deals in transactions that involve letters of credit
Article 6 – Article 6 of uniform commercial code deals in bulk sales and transfers including liquidations and auctions of assets
Article 7 – Article 7 deals in documents of title, bills of lading and warehouse receipts that are used for bailment and storage of goods
Article 8 – Article 8 deals in investment securities that include financial assets and securities
Article 9 – The articles 9 is used for transactions that are secured by security interests

The uniform commercial code undergoes revisions and amendments frequently to meet with the changing times. Every state has the option of adopting the uniform commercial code as it was written, amended or by modifying provisions to suit its state regulations.

Uniform commercial code-1 statement

The UCC-1 Statement is a document signed by both the involved parties. Generally, the business division of the state in the Secretary of State Office provides the document but in several countries it also available online. The document includes

The name and address of the debtors or debtor. In case the debtor is not a person but an organization then you need to write further information stipulated in the document
The name and address of the secured party or the other party involved in the transaction that is the holder of the security. It can also be a business organization and thus further details will have to be provided
Information related to the collateral or the property or asset pledged against the sale or loan

Advantages

The advantages are as follows-

It is a self-contained module that can be easily adopted by the state legislature and an integrated unit designed to work in harmony
The UCC is a sophisticated mechanism that can enforce contracts across state lines
The uniform law helps in smooth transactions within all the states of the United States of America despite having different state laws. There is now a continuity in operations related to business and commercial activities between various states
An essential advantage of the uniform commercial code is that it has been able to promote certainty in commercial and business transactions
This code has made transactions easy because of its clarity
The UCC is a safeguard against corrupt commercial practices

Purpose of uniform commercial code

The uniform commercial code has been designed to ensure uniformity and offer transparency in transactions. Its goal is to promote certainty and to bring all the phases of business and commercial transactions under one statue. The purpose of the uniform commercial code is as follows-

To modernize, clarify and simplify the law that governs commercial transactions
To create an equal law that is applicable in the various jurisdictions of the United States of America
To permit expansion of commercial practices via agreement of parties and custom and usage

The purpose of the uniform commercial code is to meet the contemporary needs of industrial society and offer protection against immoral commercial activities. It provides a viable opportunity for the involved parties so that they can create their licensing agreement as per their needs by injecting regulatory interventions. The broad theme includes

An emphasis on the intent of the parties
Judicial power to avoid unreasonable terms
All transactions are governed by an assumption of good faith on behalf of both the parties
It tries to prevent discriminatory pricing by stopping the supplier from charging different prices for discriminatory reasons
Practical creation of an agreement and an effort to preserve it
Reaffirmation provision that states most requirements on risk allocation and presumed obligations are subjected to contract agreement

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