The Uniform Commercial Code (UCC) is a set of laws that govern all commercial transactions in the United States. It is designed to increase uniformity in transactions across state and jurisdictional borders. Although all states have adopted at least a portion of the code, it is not federal legislation.
The UCC is relevant to many different types of business transactions, from the exchange of goods and the transfer of money to the sale of investment securities and the content of lease agreements. Learn what this set of laws covers and how it affects business in the U.S.
What Is the Uniform Commercial Code?
The Uniform Commercial Code was originally released in 1952 in an effort to create a standard for commercial transactions that could be applied anywhere in the U.S. This provides security in business because it means that contracts can be similarly enforced by all U.S. courts.
Because it is not federally binding legislation, the UCC is proposed as a model on which states should base their own commercial legislation. In practice, every state and most independent jurisdictions within the U.S. have adopted most, if not all, of the UCC.
Uniform Commercial Code laws are established to regulate sales of personal property and other business transactions. For example, transactions such as borrowing money, leasing equipment or vehicles, setting up contracts, and selling goods are all covered by the Uniform Commercial Code.
- Acronym: UCC
How UCC Laws Work
The UCC laws were set up and are maintained by the National Conference of Commissioners on Uniform State Laws (NCCUSL)—also known as the Uniform Law Commission—which is a nonprofit organization.
Along with the American Law Institute, the Uniform Law Commission oversees the ongoing development and implementation of the UCC. The two organizations jointly staff an editorial board that recommends amendments and changes to the UCC. This board also publishes commentary designed to assist the courts in interpreting the UCC.
States can either adopt the UCC as is or draft their own version with revisions. Louisiana, for instance, has never adopted UCC Article 2.
Sections of the Uniform Commercial Code
The UCC contains nine articles addressing different types of commercial transactions. Here is an overview of the articles in the Uniform Commercial Code:
- Article 1, Definitions and general provisions.
- Article 2, Sales and leases: This article governs the sale of goods. Article 2A governs leases of personal property.
- Article 3, Negotiable instruments: This section covers drafts (including checks) and notes representing a promise to pay a sum of money. An instrument is considered negotiable if it can be transferred to another person while the person who originally promised to pay is still held responsible.
- Article 4, Bank deposits and collections: This section provides rules for check processing and automated inter-bank collections. Article 4A covers fund transfers, not including electronic fund transfers.
- Article 5, Letters of credit: These are typically issued by a bank or other financial institutions to business customers in order to facilitate trade.
- Article 6, Bulk sales: This also includes auctions and liquidations of assets. Many states have determined this topic is obsolete and the Uniform Law Commission has recommended repeal.
- Article 7, Documents of title: This includes warehouse receipts, bills of lading, and other documents common in commercial trade.
- Article 8, Investment securities: This deals with the system of holding securities through intermediaries.
- Article 9, Secured transactions: These are exchanges involving the granting of credit secured by personal property; for example, agricultural liens, promissory notes, consignments, and security interests.
Secured Transactions and UCC Statements
Most secured transactions are covered under UCC Article 9, making it one of the most common ways consumers and businesses interact with the UCC. A secured transaction is a loan in which the borrower provides collateral in case of default. The security interest (collateral) gives the lender the assurance that they may be able to recover the value of the property by taking possession of it.
Under the provisions of state Uniform Commercial Code statutes, when personal property, equipment, inventory, and other tangible assets of a business are used as collateral for borrowing, a UCC-1 statement must be prepared, signed, and filed. This process is also called "perfecting the security interest" in the property, and this type of loan is a secured loan.
For example, when a lender gives a car loan to the person buying the car, the lender will file a UCC-1 form.
In a commercial loan, the UCC-1 statement is just one part of the transaction. There will probably be other documents you will need to sign.
What's on a UCC-1 Statement?
A UCC-1 financing statement is prepared and signed by both parties. The filing creates a lien against the property, so the borrower may not dispose of the property without paying off the debt.
The parts of a UCC-1 statement are:
- Name and address of the debtor or debtors: Additional information is needed if the debtor is an organization.
- Name and address of the secured party (person or organization on the other side of the transaction, usually the lender)
- Information about the collateral involved (the property pledged against the loan or sale)
To file a UCC-1 statement, you would need to go to the business division of your state (usually in the Secretary of State office) and search for this form. Many states allow you to file online.
- The Uniform Commercial Code (UCC) is a set of laws intended to govern commercial transactions throughout the U.S.
- The UCC covers a wide variety of commercial transactions, including lending, leasing equipment or vehicles, selling goods, and setting up contracts.
- Although it is not federally binding legislation, it has been adopted at least in part by all states.
- The UCC laws are maintained and updated by the National Conference of Commissioners on Uniform State Laws (NCCUSL).