What is the Uniform Commercial Code?
Anyone who has ever purchased a business or personal vehicle has most likely signed a UCC-1 statement as part of the transaction. The purchase of a car with a loan from a bank or financing entity is a good example of a Uniform Commercial Code transaction. A UCC-1 is filed and the title is kept by the lender until the loan is paid off.
What is the Uniform Commercial Code?
Uniform Commercial Code (UCC) 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.
The Universal Commercial Code is an important benefit to business transactions because it means that business contracts can be enforced in the same way by all U.S. courts.
Uniform Commercial Code Laws
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 non-profit organization. Each state has adopted its own slightly different but basically the same version of the Uniform Commercial Code.
Here is a list of Uniform Commercial Codes for each state.
Sections of the Uniform Commercial Code
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 An instrument is negotiable if it can be transferred to another person and remain enforceable against the person who originally made the promise to pay.
- 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, 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 Many states have determined this topic is obsolete and the Uniform Law Commission has recommended repeal.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, including warehouse receipts, bills of lading, and other documents typically used for commercial trade.
- Article 8: Investment securities, used for the system of holding securities through intermediaries.
- Article 9: Secured transactions, involved with the granting of credit secured by personal property; for example, agricultural liens, promissory notes, consignments, and security interests.
Secured Transactions and UCC Statements
Most Uniform Commercial Code transactions involve secured transactions. 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.
UCC-1 Financing Statements
Under the provisions of state Universal 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 is 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, a UCC-1 form is filed by the dealer.
What a UCC-1 Statement Includes
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, that holds the security).
- 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.
UCC-1 Statement Example
The state of Texas has an online fillable PDF UCC-1 statement. It includes:
- Debtor's name and address.
- The name and address of a second debtor, if any.
- The secured party's name This is the lender or seller who holds the security interest against the asset. For example, in the case of a car loan it would be the title to the car.
- The collateral - a description.
- Other information about the collateral and the transactions.
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.