The UCC, an acronym for Uniform Commercial Code, is a term that alludes to a holistic assortment of laws which govern the commercial transactions in the US. The UCC is not a federal law, but it is a state law that has uniformly been adopted by each American state. This type of uniformity is critical because it allows for seamless functioning of the code between the different existing states especially in regards to business transactions. Since the code has been adopted on a comprehensive basis, companies and organizations have the confidence of engaging in business and contracts because they understand that the UCC is enforceable in all the states of the US and thus uniformity in all the jurisdictions and court verdicts in any case. Therefore, this provides certainty and confidence of business links and relationships and this gives them the capacity to grow and thus ensures that the American economy thrives and blooms. It can be speculated that the UCC has significantly contributed to the proliferation of the US economy (Uniform Commercial Code, 2020). According to Steingold, the “p rimary purpose of the UCC is to make business activities more predictable and efficient by making business laws highly consistent across all American states. In the words of the UCC itself, the Code is intended “to simplify, clarify and modernize” commercial law, “to permit the continued expansion of commercial practices,” and “to make uniform the law among the various jurisdictions ” (n.p, par 1).
The code is a conjoint effort between the American Law Institute and the Uniform Law Commission. Presently, it is being maintained under PEB’s guidance, also alluded to as Permanent Editorial Board for the Uniform Commercial Code, which constitutes members that are appointed by the ALI as well as the ULC. The UCC covers the following domain according to the different stipulated articles including:
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Article 1- General Provisions
Article 2- Sales
Article 2A- leases
Article 3- negotiable instruments
Article 4- bank deposits and collections
Article 4A- funds transfers
Article 5- Letters of credit
Article 6- Bulk sales
Article 7- Documents of title
Article 8- Investment securities; and
Article 9- secured transactions.
This essay delves into the history as well as the evolution of the Universal Commercial Code.
History of the Universal Commercial Code
In order to have a comprehensive view of how the code came to be, it is crucial to showcase how it was prepared, and depict how it was drafted and reviewed prior to its promulgation. The author of the code has been a commissioner on Uniform State Laws from Pennsylvania since 1924. As the head of the National Conference of Commissioners on Uniform State Laws, the president facilitated the code’s preparation in 1940. After the conclusion that the enactment and implementation of the code necessitated the involvement of a larger group, negotiations with the American Law Institute commenced in a bid to seek help and cooperation in the project’s implementation. Before 1940, the conference was able to promulgate a myriad of commercial acts that attained a lot of acceptance by legislators of states. The acts commenced with the Negotiable Instruments Law that was promulgated in 1896 after which it was widely implemented in all the states and other US jurisdictions. It was approximated that the code’s preparations would cost in the region of $250,000 (Schnader, 1967). Therefore, a Ways and Means Committee of the Institute was enacted in order to raise the funds needed from law firms, financial corporations, and financial institutions across the US. The concluding agreement between the Conference and the Institute was made on 1st December 1944 and over the next year, Llewellyng and his organization commenced the work. It was estimated that the code preparation would necessitate at least five years from 1945. While this deadline was met, there were objections to the provisions and thus a need for further revision as will be showcased late on. The conference was among the most formal and distinguished legal organizations as the majority of its members were appointed by the governors of the different states with the number of commissioners averaging between three and four from each state.
Portions of the code were presented to the Conference and the Institute at their meetings in 1947 and 1946. In 1948, some of the parts of the Code were considered fully. The material’s volume was very immense and the interests surrounding them were very keen such that the conference in 1947 as well as the joint meeting of the Conference and the Institute in 1948 were apportioned into two primary parts to enable the simultaneous consideration of the two chapters of the code. Joint sessions of the Institute and the Conference were undertaken in Washington in 1949 and Missouri in the same year as well. At the Missouri’s meeting, resolutions were made to adopt a final draft of the Uniform Commercial Code but allowing for edits by the Editorial board before January 1, 1950 in a bid to make the changes in the arrangement, style, and phraseology of the comments and texts as this would not affect the content of the Code. Provisions were also made to provide copies for further comments and criticism to the Conference and Institute members as well as all the parties involved in the drafting of the document. The plan to ensure that the code was to be presented for adoption in 1950 was perceived as being impractical as there were still changes that were needed by different organizations. In this manner, the board was expanded to include fifteen members instead of the usual five because it was deemed to be undesirable. This board was to be alluded as the Enlarged Editorial Board. Their main purpose was to supervise the preparation of the code as regular meetings were undertaken to address problems that necessitated resolutions.
At another meeting between the Institute and the Conference in 1951, it was ascertained that article 4 of the code ought to be eliminated as it would cause difficulties in having the article be accepted by the Federal Reserve Banks as well as other institutions. Therefore, after the elimination of this article, it was later deemed to be acceptable for approval. However, later on, Mr. Malcolm later helped in redrafting the fourth article instead of it being fully dropped and his restructuring was accepted after the two primary sponsoring bodies met in New York, with the subsequent amendments included in the Code. After several revisions, the Code was finally introduced to the Pennsylvania, New Hampshire, Mississippi, Massachusetts, Indiana, Illinois, California, and Connecticut legislatures. The code was first enacted by Pennsylvania after both its legislatures’ houses passed the Code on a unanimous basis. Consequently, the Code was made effective in 1954. The last full revision of the UCC was made in 1962. The historical information regarding UCC is showcased in the chronological timeline below (CSC, 2018):
Pre-UCC
1700-1950
Utilization of Chattel mortgages- they were used especially for security interests particularly for personal security. In the age that was pre-electronic, where the current financial technologies were not present, all the lending process was made locally. The laws of Chattel mortgage embarked on the local necessities but were usually not uniform when contrasted on a state-to-state level.
1900s
Communication improvement- improved payment systems and improved communications slowly facilitated geographic extension of financial services like lending. However, other commercial laws and chattel mortgages were a hindrance and thus did not enable full-scale implementation and consistency.
Development
1892
This year marked the formation of the National Conference of Commissioners on Uniform State Laws (presently known as ULC (Uniform Law Commission)). The organization would later become UCC’s co-sponsor.
1932
This year’s main event, in regards to the history of UCC, was the formation of the American Law Institute also known as ALI. This establishment also later joined ULC in a bid to co-sponsor the UCC.
1942
This was the year when the drafting of the UCC commenced. It was drafted by the ALI and ULC with the primary aim of attaining uniformity and cohesion of commercial laws across the United States.
1951
This year marked the initial promulgation of the Code.
Launch
1952
In this year, the UCC (Uniform Commercial Code) was published, inclusive of the nine primary articles that cover the provisions and eight commercial law domains. The articles 2A and 4A were later additions to the original publication. They are each showcased below:
Article 1- General Provisions
Article 2- Sales
Article 2A- leases
Article 3- negotiable instruments
Article 4- bank deposits and collections
Article 4A- funds transfers
Article 5- Letters of credit
Article 6- Bulk sales
Article 7- Documents of title
Article 8- Investment securities; and
Article 9- secured transactions.
1953
The main historical event was that Pennsylvania became the first state to implement the draft as a law governing the state. However, several years passed until others undertook the same.
After the revision of the code by the editorial in 1956, Kentucky and Massachusetts followed suit by adopting the Uniform commercial code.
By the mid-60s, most of the states had adopted code. The state of Louisiana was the last state to implement the code in the year 1990.
1961
In this year, the PEB was created. PEB stands for Permanent Editorial Board and its primary purpose was to revise and monitor the UCC. However, its role later on extended to entail commentary on things that were not addressed by the official comments or the code.
1962
The last revision of the UCC was undertaken in this year as an improved version was given out to the sponsors.
This was the version that was widely accepted by the different states over the ensuing years.
It also entailed the last revision of the UCC as after this release, changes were made only to individual articles.
1972
There were significant changes made to the UCC article 9 on the basis of experiences with the previous texts.
1990
Because of technology, the article 9 requisites were becoming obsolete
Amendments
1991
Establishment of the drafting committee by the PEB- this was made in a bid to modernize and simplify the 9th article.
This was finally enacted by all 50 states
1998
The 9th article that was revised was promulgated. It entailed a myriad of changes which affect the filing and search process in UCC.
Revised UCC
1998-2001
Revised 9th article implemented in most states.
2003
The first court case which addressed the novel rules for the “correct debtor name” under the revised 9th act, took pace.
2006
The transition period for article 9 is concluded in most states.
2008
The JRC was initiated. Their main purpose was to examine unresolved problems under the 9th article.
2009
First draft of article 9 presented by the JRC.
2010
Approval of the first draft by the ULC and ALI for article 9.
Amendments
2010
Debtor location clarification
Change in the governing rules
Revision of the format and forms for UCC records.
2011
Introduction of bills for the enactment of 2010 changes
2012- 2013
Continuation of the enactment process
Transition era
2014
All states have the amendment in effect except Oklahoma.
2015
Oklahoma introduces legislation to enact the changes made to article 9
2018
The transition period for the amendments made in 2010 concluded in most states on 30th June, 2018.
Evolution of the UCC
Infancy
During the time of its inception, the UCC was faulty and needed many changes in order to be applicable. Even if the official text had been enacted in all the major states, it would not necessarily mean that it would be a truly uniform commercial law in the US. Besides, it also failed to cover the major regions of commercial law and because of these gaps in coverage, it was a comprehensive regulation of commercial law (McLaughin, 1993). Each of the weaknesses in its infancy is showcased as follows
Lack of Uniformity
At its infancy stage, the UCC was not expected to create a commercial law that was universal. These are the reasons why:
It was not a federal legislation but a state legislation. Since the UCC’s official text had to be implemented in a plethora of states, it was unavoidable that the legislators would make amendments that were non-uniform to the official text amid the enactment process.
Supplementation by state common-law. The UCC is highly reliant on state common law to supplement its propositions.
Lack of a mechanism to referee. Because of the need for the universal implementation of the code, judicial interpretations of the text would quickly disrupt the uniformity.
Not holistically commercial
The code had different gaps in its commercial definition as follows:
The first gap was due to the limited number of “goods” transactions entailed in the scope. For instance, while goods transactions were included within the scope, others such as gift, lease, and bailment transactions were not included.
The second gap was because of the limited size of a “goods” transaction within the code’s scope.
The third gap was due to inconsistencies in the “non-goods” type entailed within the scope.
Not a code
The UCC was not a representation of a code in regards to civil law and is thus intended as good law. For instance, the drafter explicitly states that the code “does not displace the principles of law and equity, these principles remain good law” (McLaughin, 1993).
Maturity
While the code failed to live up to its name in the infancy stages, it did so with time, especially due to the addition of new articles as well as proposed revisions to the existing ones.
The code became more universal
In a bid to make the UCC more universal, the PEB tried to make the code more universal by issuing supplemental UCC commentaries. The commentaries showcase an effort to make it more universal.
Comprehensive coverage of the code
When the UCC was enacted, it failed to cover all commercial transaction forms. However, over some time, the enactment of articles 4A and 2A have filled existing gaps in the coverage of UCC. For instance, articles 2A and 4A govern goods lease and electronic funds transfers respectively.
In conclusion, the history of UCC represents the gradual process by which the code evolved as it was adopted slowly by each state and as conditions became more favorable, all states enacted the laws within their respective states. While the initial infancy stages did not entail a comprehensive and uniform commercial code, it grew to maturity over time as it was tweaked to conform to both the traditional and modern contexts and thus the widespread adoption and expansion. However, the future is not bright for the code as commerce’s globalization in conjunction with the growing intricacy of commercial transactions will make the UCC more obsolete with time.
References
CSC. (2018) Uniform Commercial Code (UCC) Timeline. CSC. Retrieved 20 December 2020, from https://www.cscglobal.com/service/cls/ucc-timeline/
McLaughlin, G. T. (1992). The Evolving Uniform Commercial Code: From Infancy to Maturity to Old Age. Loy. LAL Rev. , 26 , 691.
Schnader, A. W. (1967). A Short History of the Preparation and Enactment of the Uniform Commercial Code William. University of Miami
Steingold, D. (2020). What is the UCC? Retrieved 20 December 2020, from https://www.nolo.com/legal-encyclopedia/what-is-the-ucc.html#:~:text=As%20the%20word%20%E2%80%9CUniform%E2%80%9D%20in,consistent%20across%20all%20American%20states.
Uniform Commercial Code. (2020). UniformLaws.Org. Retrieved 20 December 2020, from https://www.uniformlaws.org/acts/ucl
