Definition of Uniform Commercial Code
Each state is free to make its own laws, and this is generally a good thing. It allows the citizens of the states to craft the rules by which they will be governed. Commerce, however, is one of those areas where a large disparity in the laws of the states could create real challenges. The Uniform Commercial Code (UCC) is a wide-ranging body of model commercial laws endorsed by the American Bar Association (ABA) and drafted by professional organizations of judges, lawyers and legal scholars. Most states have adopted the UCC whole or in part, creating a fairly uniform law of commercial transactions throughout the country.
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Identification
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The UCC is a broad, detailed and thorough body of suggested laws, regulations and practices for commerce and commercial transactions (but not real estate). The code itself is not law, but the product of a joint venture by the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute (ALI). It is divided into nine articles on topics ranging from the formation of contracts, to the forms of negotiable instruments and rules pertaining to investment securities.
Significance
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The UCC itself is not law. The legislatures of individual states must vote on and enact the code, usually in parts, before it has the binding power of law in that jurisdiction. When a state legislature considers a portion of the UCC it has the power to modify or remove parts, or to include new language. Thus, the UCC is truly a body of recommended laws designed to steer individual states towards at least a convergent approach to commerce.
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History
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The ABA recognized the need for a more uniform body of commercial law in the late nineteenth century. The organization brokered the first meeting of the NCCUSL in 1892, which led to the first uniform act in 1896. The push for uniform laws was tabled by the massive upheavals over the next four decades, but the relatively young ALI took up the cause again in 1940. The first edition of the UCC was finally published in 1952, and since then has been adopted in whole or in part by all the states.
Function
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The original purpose of the UCC was to foster interstate commerce. A desire for what amounts to a "free trade zone" is evidenced in the Constitution's federalization of interstate commerce. By limiting the barriers presented by differences in state laws, the UCC helps make interstate commerce possible. In practice, the UCC is also used as a reference for legislators when drafting laws, and by courts when looking for guidance in specific cases. It is used when the laws of a state or the terms of a commercial contract do not adequately address a question of circumstance covered in the code.
Considerations
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For small business owners, the main impact of the UCC is on the forms and paperwork they use to conduct their business. National standards on what constitutes a valid contract, sale, bill of lading or negotiable instrument (such as a promissory note) are important considerations to a business. To use property of the business as collateral for a loan, a UCC-1 filing statement is needed in most states to create an enforceable lien for the lender.
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