Uniform Commercial Code (UCC) Legislative History On September 21, 1957 Massachusetts adopted the Uniform, Commercial Code. Effective October 1, 1958, the Code replaced the Uniform Sales Act, the Negotiable Instruments Law, the Uniform Warehouse Receipts Act, the Uniform Bills of Lading Act, the Uniform Stock Transfer Act, the Uniform Trust Receipts Act, and numerous other statutes. Massachusetts thus became the second state to enact the Code, following the lead of Pennsylvania, where the Code, enacted in April 1953, took effect on July 1, 1954. In March 1958 the Code was enacted in Kentucky, effective July 1, 1960. Proposals to enact the Code will undoubtedly come before legislatures in other states in the course of the next few years, and it seems likely that several other states will join the procession at their 1959 sessions (Braucher, 1958).
The Uniform Commercial Code (UCC or the Code), first published in 1952, is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in all 50 states within the United States of America. The Uniform Commercial Code, or UCC, is a very large collection of legal rules regarding many important business, or “commercial,” activities. The UCC originally was created by two national nongovernmental legal organizations: the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute (ALI) (Steingold, 2013). As the word “Uniform” in its title suggests, a primary purpose of the UCC is to make business activities more predictable and efficient by making business laws highly consistent across all American states. The Code is intended to simplify, clarify and modernize commercial law, permit the continued expansion of commercial practices, and to make uniform the law among the various jurisdictions (Steingold, 2013). The UCC is organized into eleven articles. These articles are: general provisions, sales, leases, negotiable instruments, bank deposits and collections, fund transfers, letters of credit, bulk transfers or bulk sales, documents of title, investment securities, and secured transactions (Steingold, 2013).
Article1: General provisions- provides definitions and general provisions which, in the absence of conflicting provisions, apply as default rules covering transactions and matters otherwise covered under a different article of the UCC (Uniform Law Commission, 2014).
Article 2: Sales- deals with transactions involving the sale of goods. Article two only covers the sale of goods. Goods include all items that can be both identifiable and moveable at the time of the sale. Article 2 does not cover transactions involving service contracts. In addition, the sale of real estate is not covered by Article 2, but rather by Article 9 of the Uniform Commercial Code (Uniform Law Commission, 2014). Article 2A: Leases- governs true leases of goods. It was added to the Uniform Commercial Code in 1987, and amended in 1990. It was the first article added to the UCC after its original promulgation in 1951, and responded to the enormous increase in the use of leases that began in the 1970's. Leasing became used in that time as a method of financing transactions in goods. In finance leases, lessor and lessee became analogous to creditor and debtor in these kinds of transactions. In a true lease, the lessor gives possession and right to use the goods to the lessee for a fixed period of time in return for rent (Uniform Law Commission, 2014). The title to the property and a meaningful residual interest remain with the lessor. A “finance lease” is a true lease in which the lessor is not the fundamental supplier of the goods leased, but leases goods to lessees as a means of financing their acquisition from the supplier. UCC Article 2A governs finance leases as true leases, but treats them differently in some respects from other true leases (Uniform Law Commission, 2014).
Article 3: Negotiable Instruments- Negotiable instruments always represent a right to payment of money, and are distinguishable from other documents that represent a right to payment by their ability to be freely transferred from person to person without regard for any obligations of any prior person who transferred the instrument. Transfer requires delivery of the paper instrument from one person to another. If there is a person listed as the payee on the instrument, free transfer (called negotiation) also requires an indorsement of the payee. If an instrument is made out to "bearer" negotiation occurs upon the delivery of the paper (Uniform Law Commission, 2014). A person who takes a negotiable instrument by delivery and any necessary indorsement, becomes a holder of that instrument. If a holder has no knowledge of any obligations of any transferor of the instrument, that person is called a "holder-in-due-course." Holders-in-due-course may enforce the instrument and obtain payment without regard to any defenses against enforcement by any prior transferor. Free transferability of interests is the basic quality of negotiable instruments that distinguishes them from other paper with promises to pay money written on them (Uniform Law Commission, 2014).
Article 4: Bank Deposits and Collections- covers the liability of a bank for action or non-action with respect to an item handled by it for purposes of presentment, payment, or collection. The law of the place where the bank is located governs. In the case of action or non-action by or at a branch or separate office of a bank, its liability is governed by the law of the place where the branch or separate office is located (USLegal, 2010). Article 4A: Funds Transfers- applies to funds transfers; beginning with the originator’s payment order, made for the purpose of making payment to the beneficiary of the order. The article also includes any payment order issued by the originator’s bank or an intermediary bank intended to carry out the originator’s payment order (USLegal, 2010).
Article 5: Letters of Credit- applies to letters of credit and to certain rights and obligations arising out of transactions involving letters of credit. It is designed to provide a basic statutory framework for this financing device by setting forth broad definitional guidelines within which the law governing letters of credit may be expected to develop. A bank issuing a letter of credit is obligated to issue the credit according to its terms. Unless otherwise agreed, the customer assumes all risks of error in the transmission and translation or interpretation of any message relating to a credit (USLegal, 2010).
Article 6: Bulk transfers or Bulk sales- provides a specific kind of protection for creditors of businesses that sell merchandise from stock. Creditors of these business are vulnerable to a "bulk sale, in which the business sells all or a large part of inventory to a single buyer outside the ordinary course of business, following which the proprietor absconds with the proceeds (Uniform Law Commission, 2014). Original Article 6 of the UCC requires "bulk sale" buyers to provide notice to the seller's creditors and to maintain a list of seller's creditors and a schedule of property obtained in a "bulk sale, for six months after the "bulk sale" takes place. Unless these procedures are followed, creditors may void the sale. Auctioneers, who handle merchandise in bulk, are given a similar burden to that of "bulk sale" buyers (Uniform Law Commission, 2014).
Article 7: Documents of Title- may be negotiable. Whether a document is negotiable or non-negotiable depends upon how it identifies the transferee and how it is transferred. A negotiable document may be one of two kinds of paper documents, bearer paper or order paper. A document made out to bearer may be transferred from one person to another by simple delivery of possession. The delivery transfers the rights to the goods (therefore the title) to the transferee. Order paper is made out to a specific person. After initial delivery to the person named on the document, it may be negotiated to another person by the indorsement of the named person and delivery of possession to that other person. The rights to the goods (and therefore the title) pass with the negotiation to the transferee (Uniform Law Commission, 2014). Documents of title may also be made non-negotiable. This is primarily done by a statement on the face of the instrument. Non-negotiable documents of title may also be assigned or transferred. The difference between negotiable and non-negotiable documents is the rights that they may transfer. A non-negotiable document of title transfers only the actual interests of the transferor. A negotiable document of title may transfer more than the actual interests of the transferor. If negotiated, for example, it transfers free of any claims against the issuer of the document. A non-negotiable document is not free of such claims (Uniform Law Commission, 2014).
Article 8: Investment Securities- In 1994, the Uniform Law Commission promulgated a revised Article 8 of the Uniform Commercial Code. Article 8 governs transfers of investment securities. Stocks and bonds are the most well-known kinds of investment securities, but mutual fund shares, limited partnership shares, and just about any medium which permits investment in an enterprise or financial participation in a business may fall within the scope of the rules in Article 8. One of the results of the 1994 revision is expansion and clarification of those investment medium that are "securities" under Article 8 (Uniform Law Commission, 2014). Investment securities are intangible property. A share of stock in a corporation is a share in an abstraction that primarily gives the owner a right to share in the income of the corporation. There is nothing that the owner can see, feel, or otherwise experience that constitutes the corpus of his or her interest. The corporation's tangible property is the corporation's, not the property of any shareholder. The shareholder's rights have no corporeal existence. The intangibility of investment securities has meant historically that their transfers from one person to another require some special rules (Uniform Law Commission, 2014).
Article 9: Secured Transactions- the Uniform Commercial Code (UCC) Article 9 governs secured transactions in personal property. UCC9 was substantially revised in 1998 and adopted in all states. The 2010 Amendments to UCC9 modify the existing statute to respond to filing issues and address other matters that have arisen in practice following a decade of experience with the 1998 version of UCC9. Of most importance, the 2010 Amendments provide greater guidance as to the name of an individual debtor to be provided on a financing statement (Uniform Law Commission, 2014).
The UCC is only a model or recommendation for what a particular state’s commercial code might include; by itself, the UCC has no legal force. However, in practice, every American state has adopted some version of the UCC, and those state versions, known as the states’ commercial codes (for example, the California Commercial Code), do have the force of law—in fact, they are laws. Moreover, because the individual states generally adhere closely to one or another version of the model UCC, there is often relatively little variation between one state’s commercial code and that of another.
Tennessee has adopted the following Articles of the UCC: Article 3: Negotiable instruments: UCC Article 3 applies to negotiable instruments. It does not apply to money, to payment orders governed by Article 4A, or to securities governed by Article 8. If there is conflict between this Article and Article 4 or 9, Articles 4 and 9 govern. Regulations of the Board of Governors of the Federal Reserve System and operating circulars of the Federal Reserve Banks supersede any inconsistent provision of this Article to the extent of the inconsistency. Article 4: Bank Deposits and Collections: UCC Article 4 covers the liability of a bank for action or non-action with respect to an item handled by it for purposes of presentment, payment, or collection is governed by the law of the place where the bank is located. In the case of action or non-action by or at a branch or separate office of a bank, its liability is governed by the law of the place where the branch or separate office is located (USLegal, 2010). The UCC section in the Tennessee Department of State provides public notice that a security agreement (the document that grants the security interest) exists between a specific debtor and creditor (called a secured party) and describes the collateral involved. The Secretary of State’s office is the central filing office for certain financing statements and other lien documents provided for in the Uniform Commercial Code. Filing a financing statement with our office allows a creditor to perfect a security interest in the collateral and establish priority in case of debtor default or bankruptcy. Documents filed include initial financing statements, amendments, assignments, and other UCC filings authorized by Tennessee statutes (Tennessee Department of State, 2011).
In 2013, the Mississippi Legislature passed Senate Bill 2609 which adopted recent model revisions to the Uniform Commercial Code. These revisions affect many different sections of MCA §79-9–102 et seq. most of which pertain to the names and statuses of debtors and secured parties. Mississippi has adopted the following Articles of the UCC: Article 3: Negotiable instruments: UCC Article 3 applies to negotiable instruments. It does not apply to money, to payment orders governed by Article 4A, or to securities governed by Article 8. If there is conflict between this Article and Article 4 or 9, Articles 4 and 9 govern. Regulations of the Board of Governors of the Federal Reserve System and operating circulars of the Federal Reserve Banks supersede any inconsistent provision of this Article to the extent of the inconsistency. Article 4: Bank Deposits and Collections: UCC Article 4 covers the liability of a bank for action or non-action with respect to an item handled by it for purposes of presentment, payment, or collection is governed by the law of the place where the bank is located. In the case of action or non-action by or at a branch or separate office of a bank, its liability is governed by the law of the place where the branch or separate office is located. Article 5: Letters of Credit: UCC Article 5 applies to letters of credit and to certain rights and obligations arising out of transactions involving letters of credit. Article 8: Investment Securities: UCC Article 8 applies to a share or similar equity interest issued by an entity that is registered as an investment company under the federal investment company laws, an interest in a unit investment trust that is so registered, or a face-amount certificate issued by a face-amount certificate company that is so registered. Investment company security does not include an insurance policy or endowment policy or annuity contract issued by an insurance company.
California and Arkansas has adopted all of the Articles of the UCC. All states have adopted articles of the UCC, those are just a few of them that are mentioned. One Uniform Commercial Code that all states should adopt is Article 2A. There are a number of reasons all states should adopt UCC Article 2A: Leases. (1). LEASES SHOULD BE a PART OF THE UCC- Since leases are an important part of business and commercial law, they should be governed by the Uniform Commercial Code. Further, the leasing business is interstate in character. Uniformity is as important to the conduct of leasing transactions as it is to sales transactions (Uniform Law Commission, 2014).
(2). LEASES AS SECURED TRANSACTIONS- Perhaps the most important question answered in UCC2A is when leases are subject to UCC Article 9 on "Secured Transactions." Certain lease contracts established what are called conditional sales, in which the lessor is no different from a creditor subject to Article 9. The prior law has never effectively dealt with the issue, and concrete standards are established in UCC2A and an accompanying amendment to UCC-1-201(37), which is a basic definition section in the UCC. Under these provisions, a secured transaction occurs when the lessor has no meaningful residual rights in goods when the lease expires. In a true lease, the rights to the goods revert to the lessor when the lease term ends. But if the contract terms indicate that the rights to this residue are valueless, then it can be inferred that the lease really amounted to a conditional sale of the goods. Article 9 then should and would apply (Uniform Law Commission, 2014).
(3). FINANCE LEASES- UCC2A creates a separate category of leases called "finance leases" to eliminate existing confusion over the rights of parties in such leases. Finance leases are characterized by the unique position of the lessor ─ as purchaser of goods only for the purpose of delivering them to a lessee pursuant to a lease contract. Because the lessor is not the real supplier of the goods, and acts merely to finance the goods in the hands of the lessee, certain of lessee's rights are best served by imposing obligations on the real supplier and by limiting some rights against the lessor. UCC2A does not give a lessee implied warranties against a lessor in a finance lease, but passes the lessor's warranties against the real supplier under Article 2 on the lessee. UCC2A also further limits a lessee's already limited rights to reject goods, once accepted under the contract, or to cancel, terminate, modify, excuse or substitute performance under the lease contract. The lessee relies upon warranty rights against the supplier, and the lessor is treated as the financing entity it really is (Uniform Law Commission, 2014).
(4). REMEDIES- Prior law does not provide clear remedies for leasing transactions. Because the parties to lease contracts share substantial characteristics with the parties to sales contracts, the full panoply of UCC Article 2 remedies can easily be translated and applied to lease contracts. UCC2A not only provides clear measures of damages upon breach of contract, but also provides: clear standards for anticipatory repudiation by a party to a contract when anticipated performance by another party becomes insecure; for rejection of goods that do not conform to the contract; for excused non-performance of the contract; and for specific performance under appropriate circumstances. UCC2A remedies carry over the original Article 2 policies of encouraging cure of default without litigation and of mitigation of damages whenever and wherever possible (Uniform Law Commission, 2014).
(5). WARRANTIES- UCC2A establishes and standardizes warranties for true leases. It follows closely Article 2 of the UCC, but it does not protect title, since title remains with the lessor. Rather than title, UCC2A warrants against infringement with lease rights. There are two kinds of implied warranties: merchantability and fitness for a particular purpose. Both are directly derived from Article 2 of the UCC. The warranty of merchantability assures the resale of goods between merchants. The fitness warranty presumes a purpose and reliance upon the lessor to supply goods fit for the purpose. These warranties can be excluded or modified by agreement. UCC2A implied warranties do not apply to finance leases. In that case the implied warranties under Article 2 of the supplier to the lessor are passed on to the lessee (Uniform Law Commission, 2014).
(6). CONSUMER LEASES- UCC2A defines a consumer lease as a lease in which the lessee takes the lease primarily for a personal, family or household purpose, when the total payments do not exceed $25,000. UCC2A does provide some protection for lessees in a consumer lease. Among other things, there is a burden on the lessor to justify acceleration of rentals in a consumer lease. But most consumer protection is left to other laws (Uniform Law Commission, 2014).
(7). FIXTURE AND ACCESSION PROBLEM- UCC2A settles recurring problems of what to do with leased goods that become fixtures and accessions and who has priority in each case. Fixtures are defined as "goods so related to particular real estate that an interest in them arises under real estate law." Generally, if goods are leased and become fixtures, the lessor with prior interest in them has priority over those with the real estate interests ─ if the lessor perfects his or her prior interest with a fixture filing under UCC Article 9. An accession occurs when leased goods are "installed in or affixed to other goods." Any existing rights in a lease contract are superior to any rights in the whole in which leased goods become accession after the lease contract is entered (Uniform Law Commission, 2014).

References:
Braucher, R. (1958). The Legislative History of the Uniform Commercial Code. Columbia Law Review: Vol. 58, No. 6 (June, 1958), pp. 798-814.
Steingold, D. M. (2013). What is the UCC? Retrieved on October 15, 2014 from http://www.nolo.com/legal-encyclopedia/what-is-the-ucc.html
Tennessee Department of State (2011). UCC FAQs. Retrieved on October 15, 2014 from http://www.tn.gov/sos/bus_svc/ucc_faqs.htm
Uniform Law Commission (2014). Diversity of Thought, Uniformity of Law. Retrieved on October 15, 2014 from http://www.uniformlaws.org/Default.aspx
USLegal (2010). Articles of the UCC. Retrieved on October 15, 2014 from http://uniformcommercialcode.uslegal.com/articles-of-the-ucc/