International Business Law: Uniform Commercial Code

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Historical Background

The Uniform Commercial Code, popularly referred to as ‘The Code’, is an elaborate code that deals with mostly commercial law. The code was first published in 1952 with the intended goal of harmonizing the law of commerce that entails sales, leases, instruments for business negotiation, credits, and debits, bulk transactions, etc. (Clay & Straus, 2002). Its scope was to guide as well as streamline all the commercial transactions and dealings that relate to business into one central uniform document for ease of reference within the United States (Clay & Straus, 2002). In principle, its inception was driven by the fact that the commercial transactions would involve two or more states hence the need to harmonize them so that they could be used uniformly by all the 50 states that make the USA. For instance, goods being manufactured in the state I, stored in state II, the selling takes place in State III and finally delivered in state IV. In this way, the code became important in harmonizing and creating a critical uniformity in dealing with these commercial transactions, while at the same time giving the states room to consider local the local cases that needed special attention (American Law Institute, 2007). Another primary feature of the code is that it only deals with “personal property that is movable, and not really real or immovable property” (Clay & Straus, 2002, p.245).

Considered to be one of the longest and the most comprehensive acts that is uniform in nature, the code was jointly established by the National Conference of Commissioners on Uniform State Laws and the American Law Institute (Cornell University, 2010). At its inception in 1952, Judge Herbert F. Goodrich chaired the Editorial Board after the first draft was drawn by the US’s top legal experts (Clay & Straus, 2002).

General Provisions

Many people may consider The Code as a law in itself. However, it is simply a harmonized product of organizations acting privately, which has been recommended for application in the states. The moment it has been adopted by a state, the code is entered into this particular state’s code of statutes with the options of adopting it wholesomely or making piecemeal changes to suit its local scenario. However, these changes must be minor such that they don’t interfere with its specific purpose as well as meaning in the promotion of uniform law across several states (Litowitz, 2001).

In other words, an individual who is doing business in various states must be conversant with that particular state’s laws to have a clear conscience of what is required in the local business environment. An illustrative case is that of Payne vs. Stalley, where a lawyer wholly depended on the “official text of the Uniform Probate Code” but failed to check keenly on Florida Statute (Clay & Straus, 2002). This eventually led to the lawyer failing to beat the deadline in the filing of the case in this high-profile claim. The court eventually ruled that they cannot edit the Florida Probate law simply “accommodate a Michigan attorney more familiar with the Uniform Probate Code” (Clay & Straus, 2002). So far the code has an established permanent editorial board, which has been credited with the issuance of several official comments as well as some other published papers to back their stand and opinions. This is even though the commentaries and ideas given as relates to the code do not have the full support of the law, with various courts having their independent interpretation; which is generally outlined to seek permission from the authority to determine the impact of either one or more provisions. In summary, courts interpret the code by seeking to harmonize their interpretations with the ones in other states with similar statutes (Litowitz, 2001). To a large extent, the Code has been adopted by over 50 states in the United States, in addition to District of Columbia, Puerto Rico, and the Virgin Island (Litowitz, 2001). Other states like Louisiana have adopted a bigger section of the Code, except for the civil law section contained in Article 2 that deals with the sale (Cornell University, 2010).

Even though a big percentage of the code is shared as stated earlier, particular states have modified it to suit the local standards. For instance, Louisiana and Arkansas have changed their reference to the major subdivisions of the Code to ‘chapters’, unlike its common reference as ‘articles’ by the uniform code, thereby separating it from their Civil Codes and constitutions respectively (Cornell University, 2010). Similarly, California calls it ‘divisions’, to make it different from their third as well as fourth level of the code, unlike the first divisions for their laws (Cornell University, 2010).

Uniform Commercial Code and Sales- Article 2

In this section, the content of sales as referred to in the Code is based on the transactions that involve real goods; and it does not include any other transaction related to unconditional contract between the seller and the buyer or simply put, “the present sale is intended to operate only as a security transaction” and does not prevent any statute from controlling sales to consumers or any specified types of buyers such as farmers (FFIE, 2006). The article 2 of the Uniform Commercial Code applies to “transactions in goods” but “unless the content otherwise require, contract and agreement are limited to those relating to the present of future sale of goods” (FFIE, 2006). For instance, the definition of ‘sales’ and ‘goods’ assumes that the purchase of such things as software may look like an ordinary contract for the sale of goods, while in reality, the buyer only obtained the license to use the software; and there is no scenario where the seller passes the real good to the buyer. White (2001) argues that the Code should govern the 1999 purchase order and clickwrap license. This dilemma is caused by the controversy on whether UCC should be applied in the software purchase in general terms. However at present, the code does not govern the purchase of software license, at least in a technical term of service.

Article 2 therefore applies to contracts for the sale of goods. In this perspective, sales occur where there is “a passing of title from the seller to the buyer at a price” White (2001). It therefore follows that the sale must involve the title of goods to sell. The title represents the legal rights to ownership of a thing such as a laptop or a car, and when the legal title des not pass, there has not bee a sale under the UCC. Article 2 subsequently does not apply to the lease of goods, such as the lease of a car, but in most cases the states adopted the Article 2A, a new Code article dealing with some very specific personal property White (2001).

Uniform Commercial Code and Leases

It’s commonly said that the object of the law is to encourage commerce. This is true with Uniform Commercial Law. The Code is known to facilitate commercial transactions by making the laws governing lease (Article 2A) contracts uniform, clearer, simpler and most readily applicable to the numerous difficulties that may arise during such transactions White (2001). It can be remembered that the UCC is one of the many uniform model acts that were drafted by the National Conference of Commissioners on Uniform State Laws and eventually submitted to the state for adoption. Once a state legislature has adopted a uniform act, the act becomes statutory law in that particular state. Hence, when we turn to sales and leases contracts, we move away from the common law principles and into the area of statutory law (White, 2001).

The Code thus attempt to provide a consistent as well as integrated framework of rules that helps us deal with all the issues that arises from commercial lease transactions from the beginning to the end. For instance, the following cases may lead to application of UCC during a single application; a contract for the lease of particular good or goods is formed and executed. In this case Article 2A of the Code will provide the specific rules that govern all aspects of such a transaction.

Uniform Commercial Code and Negotiable Instruments

Goods and services provided may be negotiated under the guidance of Uniform Commercial Law. In most cases, courts have different ways of interpreting the transactions that involved the negotiations between two or more parties. For instance, in the provision of blood to a particular patient during an operation, one court would term it ‘sale of goods’ while another would say it is ‘performance of a medical service’ (Clay & Straus, 2002). In other words, while some courts would term it a service, others would simply say it is goods in exchange. For example, in accomplishment of such a transaction, it may involve a payment of the transaction cost through check or electronic fund transfer, or just through other means readily available. Article 3, which involve negotiable instruments may be supported by Article 4 that deals with bank deposits and collections, Article 4A that deals with fund transfers, and Article 5 that entails letters of credit (Clay & Straus, 2002).

In practice, Article 2A, as opposed to ordinary contract law, makes the lease’s obligation under a commercial finance lease irrevocable and independent from the financer’s obligations. Said the other way, the lessee is obliged to perform and continue to make lease payments even if the leased equipments does not serve the full purpose of what was intended due to defects that may have occurred during the process. Again that lessee must be ready to check entirely to the supplier for warranties (Cornell University, 2010).

Uniform Commercial Code and Bank Deposit

Bank deposit refers to the act of delivering a particular amount of cash to a bank account. In the various jurisdictions of the US, checks are governed by the provisions of Article 3 of the Uniform Commercial Code, as supplemented by Article 4 (Litowitz, 2001). In the United States, rights of a depositor as well as that of a drawer in the process of the collection and payment of checks are guided by several jurisdictions in the Article 4 of the Uniform Commercial Code, as interpreted by a specific state law. Funds that are available upon deposit into a bank account are the subject matter of Regulations. With records, the subsequent days ensure that the money deposited is available in the bank of deposit, to electronic payments for which the bank has received the payment plus the adequate and relevant account information put in place.

Letters of Credit

When a buyer is in business of buying, it means that he or she is buying goods and services in good faith, with little or no knowledge that the sale interferes with the rights of another person in the goods. Again a person buying goods in the ordinary course s guided by the nature and understanding of the buyer and the willingness of the seller. This willingness may be extended in the process to entrust the buyer with the property before a full or no payment is met (Litowitz, 2001). For instance, person who sells oil, gas or any mineral at the wellhead is familiar with this kind of selling the similar type of goods. In other words, a buyer may just decide to buy for cash, by property exchange or trough secure or unsecured loan.

Uniform Commercial Code and Warehouse Receipts and Bills of Lading

In regular business transaction or financial exchange, it is normal to outline the fact that financing is adequately evidencing that the person is in possession or control of the record pf the said goods. In this case, the good may be stored or kept in a warehouse, which calls for other transaction issues like a bill of lading (FFIE, 2006). Litowitz (2001) explains that the latter term “is used among other terms as transport document, dock warrant, dock receipt, warehouse receipt and order for delivery of goods”. In this case, an electronic document is used to store existing information that would make it easily accessible in that format. On the other hand if the information is held in a tangible document, it shows evidence of a record consisting of information that is inscribed on a tangible medium, hence can act as a backup to the electronic case (FFIE, 2006).

Uniform Commercial Code and Secured Transactions

Both the business of securing the interest in personal property and the fringe properties that are attached to the real property, popularly known as ‘fixtures’ e.g. light fixtures and the consequences of taking such a security are governed by Article 9 of the Uniform Commercial Code (FFIE, 2006). This adoption of the Code has been accomplished by several states, albeit with certain variations in the respective states. Despite some specific exceptions, the article applies to any transaction, despite its form that draws a security interest in the personal property that may include goods, documents, the intangible goods, etc.

Conclusion

The Uniform Commercial Code has streamlined the commercial law since its inception in 1952. It was established to accomplish issue on sales, leases, instruments for business negotiation, credits and debits, bulk transactions, etc. (Clay & Straus, 2002), in an attempt to make the commercial law in United States uniform in it operations and features. This is because different states would be found trading together in the same goods, but in different forms.

The Codes’ establishment came through a joint venture between National Conference of Commissioners on Uniform State Laws and the American Law Institute (Cornell University, 2010). This however does not mean that the code makes up for the law but just a recommendation for uniform business transactions, which is also open for piecemeal changes to suit the local scenario of a particular state.

Reference

American Law Institute. UCC 2007 Edition. Web.

Clay, K. & Straus R. (2002). Institutional barriers to Electronic commerce: An historical perspective. The New Institutionalism in Strategic Management, Vol.19, pp.245-271. Web.

Cornell University. (2010). UCC: Uniform Commercial Code-Article 2 Sales. Cornell University Law School. Web.

Federal Financial Institutions Examination (FFIE). (2006). FFIEC Statement on revised UCC Article 9. Web.

Litowitz, D. (2001). Perspectives on the Uniform Commercial Code. Carolina Academic Press. Web.

White, J. (2001). Uniform Commercial Code. Web.

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