/* The Uniform Commercial Code is one of the greatest works of
jurisprudence of the century. In some ways it simplified the
process of lending, selling and borrowing. In other ways it
introduced arcane complexity. The UCC like the Internal Revenue
Code and the Bankruptcy Code is a code in that it is a
"codification" of law, but also a "code" in that it also uses
words that have secret meanings. Section 1 is VITAL because of
the fact that it defines terms that are used throughout the code.
*/
UNIFORM COMMERCIAL CODE
ARTICLE 1
GENERAL PROVISIONS
PART 1. SHORT TITLE, CONSTRUCTION, APPLICATION AND SUBJECT
MATTER OF THE ACT
Section
1-101. Short Title.
1-102. Purposes; Rules of Construction; Variation by Agreement.
1-103. Supplementary general Principles of Law Applicable.
1-104. Construction Against Implicit Repeal.
1-105. Territorial Application of the Act; Parties' Power to
Choose Applicable Law.
1-106. Remedies to Be Liberally Administered.
1-107. Waiver or Renunciation of Claim or Right After Breach.
1-108. Severability.
1-109. Section Captions.
PART 2. GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION
1-201. General Definitions.
1-202. Prima Facie Evidence by Third Party Documents.
1-203. Obligation of Good Faith.
1-204. Time; Reasonable Time; Seasonably.
1-205. Course of Dealing and Usage of Trade.
1-206. Statute of Frauds for Kinds of Personal Property Not
Otherwise Covered.
1-207. Performance or Acceptance Under Reservation of Rights.
1-208. Option to Accelerate at Will.
1-209. Subordinated Obligations.
UNIFORM COMMERCIAL CODE
ARTICLE 1
General Provisions
PART I
SHORT TITLE, CONSTRUCTION, APPLICATION AND SUBJECT MATTER OF THE
ACT
1-101. Short Title.
This Act shall be known and may be cited as Uniform Commercial
Code.
1-102. Purposes; Rules of Construction; Variation by Agreement
(1) This Act shall be liberally construed and applied to
promote its underlying purposes and policies.
(2) Underlying purposes and Policies of this Act are
(a) to simplify, clarify and modernize the law governing
commercial transactions
(b) to permit the continued expansion of commercial
practices through custom, usage and agreement of the parties.
(c) to make uniform the law among the various jurisdictions
(3) The effect of provisions of this Act may be varied by
agreement, except as otherwise provided in this Act and except
that the obligations of good faith, diligence, reasonableness and
care prescribed by this Act may not be disclaimed by agreement
but the parties may by agreement determine the standards by which
the performance of such obligations is to be measured if such
standards are not manifestly unreasonable.
(4) The presence in certain provisions of this Act
of the words "unless otherwise agreed" or words of similar import
does not imply that the effect of other provisions
may not be varied by agreement under subsection (3).
(5) In this Act unless the context otherwise requires
(a) words in the singular number include the plural, and in
the plural include the singular;
(b) words of the masculine gender include the feminine and
the neuter, and when the sense so indicates words of the neuter
gender may refer to any gender.
1-103. Supplementary General Principles of Law Applicable.
Unless displaced by the particular provision of this Act, the
principles of law and equity, including the law merchant and the
law relative to capacity to contract, principal and agent,
estoppel, fraud, misrepresentation, duress, coercion, mistake,
bankruptcy, or other validating or invalidating cause shall
supplement its provisions.
1-104. Construction Against Implicit Repeal.
This Act being a general act intended as a unified coverage of
its subject matter no part of it shall be deemed to be impliedly
repealed by subsequent legislation if such construction can
reasonably be avoided.
1-105. Territorial Application of the Act; Parties' Power to
Choose Applicable Law.
(1) Except as provided hereafter in this section, when a
transaction bears a reasonable relation to this state and also to
another state or nation the parties may agree that the law either
of this state or of such other state or nation shall govern
their rights and duties. Failing such agreement this Act applies
to transactions bearing an appropriate relation to this state.
(2) Where one of the following provisions of this Act
specifies the applicable law, that provision governs and a
contrary agreement is effective only to the extent permitted by
the law (including the conflict of laws rules) so specified:
Rights of creditors against sold goods: Section 2-402.
Applicability of the Article on Leases: Sections 2A-105 and
2A-106.
Applicability of the Article on Bank Deposits and
Collections: Section 4-102.
Governing Law in the Article on Funds Transfers: Section 4A-507.
Bulk sales subject to the Article on Bulk Sales: Section 6-103.
[If a state adopts the repealer of Article 6, this item should be
deleted.]
Applicability of the Article on Investment Securities: Section
8-106.
Perfection provisions of the Article on Secured Transactions:
Section 9-103.
1-106. Remedies to Be Liberally Administered.
(1) The remedies provided by this Act shall be liberally
administered to the end that the aggrieved party may be put in as
good a position as if the other Party had fully performed but
neither consequential or special nor penal damages may be had
except as specifically provided in this Act or by other rule of
law.
(2) Any right or obligation declared by this Act is
enforceable by action unless the provision declaring it specifies
a different and limited effect.
1-107. Waiver or Renunciation of Claim or Right After Breach.
Any claim or right arising out of an alleged breach can be
discharged in whole or in part without consideration by a written
waiver or renunciation signed and delivered by the aggrieved
party.
1-108. Severability.
If any provision or clause of this Act or application thereof
to any person or circumstances is held invalid, such invalidity
shall not affect other provisions or applications of the Act
which can be given effect without the invalid provision or
application, and to this end the provisions of this Act are
declared to be severable.
1-109. Section Captions.
Section captions are parts of this Act.
PART 2
GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION
1-201. General Definitions.
Subject to additional definitions contained in the subsequent
Articles of this Act which are applicable to specific Articles or
Parts thereof, and unless the context otherwise requires, in this
Act:
(1) "Action" in the sense of a judicial proceeding includes
recoupment, counterclaim, set-off, suit in equity and any other
proceedings in which rights are determined.
(2) "Aggrieved party" means a party entitled to resort to a
remedy.
(3) "Agreement" means the bargain of the parties in fact as
found in their language or by implication from other
circumstances including course of dealing or usage of trade or
course of performance as provided in this Act (Sections 1-205 and
2-208). Whether an agreement has legal consequences is determined
by the provisions of this Act, if applicable; otherwise by the
law of contracts (Section 1-103). (Compare "Contract".)
(4) "Bank" means any person engaged in the business of
banking.
/* As with other definitions within the UCC, this definition does
not require that the person be properly licensed to do a banking
business. If a persons acts as a bank, regardless of the legality
of that for criminal purposes, the UCC will treat them as a
"bank" for contract law purposes. */
(5) "Bearer" means the person in possession of an instrument,
document of title, or certificated security payable to bearer or
indorsed in blank.
(6) "Bill of lading" means a document evidencing the receipt
of goods for shipment issued by a person engaged in the business
of transporting or forwarding goods, and includes an airbill.
"Airbill" means a document serving for air transportation as a
bill of lading does for marine or rail transportation, and
includes an air consignment note or air waybill.
(7) "Branch" includes a separately incorporated foreign branch
of a bank.
(8) "Burden of establishing" a fact means the burden of
persuading the triers of fact that the existence of the fact is
more probable than its nonexistence.
(9) "Buyer in ordinary course of business" means a person who
in good faith and without knowledge that the sale to him is in
violation of the ownership rights or security interest of a third
party in the goods buys in ordinary course from a person in the
business of selling goods of that kind but does not include a
pawnbroker. All persons who sell minerals or the like (including
oil and gas) at wellhead or minehead shall be deemed to be
persons in the business of selling goods of that kind. "Buying"
may be for cash or by exchange of other property or on secured or
unsecured credit and includes receiving goods or documents of
title under a preexisting contract for sale but does not include
a transfer in bulk or as security for or in total or partial
satisfaction of a money debt.
(10) "Conspicuous" A term of clause is conspicuous when it is
so written that a reasonable person against whom it is to operate
ought to have noticed it. A printed heading in capitals (as:
Non-Negotiable Bill of Lading) is conspicuous. Language in
the body of a form is "conspicuous" if it is in larger or other
contrasting type or color. But in a telegram any stated term is
"conspicuous". Whether a term or clause is "conspicuous" or not
is for decision by the court.
/* Taking consideration of this away from the jury. */
(11) "Contract" means the total legal obligation which
results from the parties' agreement as affected by this Act and
any other applicable rules of law. (Compare "Agreement".)
(12) "Creditor" includes a general creditor, a secured
creditor, a lien creditor and any representative of creditors,
including an assignee for the benefit of creditors, a
trustee in bankruptcy, a receiver in equity and an executor or
administrator of an insolvent debtor's or assignor's estate.
(13) "Defendant" includes a person in the position of
defendant in a cross-action or counterclaim.
(14) "Delivery" with respect to instruments, documents of
title, chattel paper, or certificated securities means voluntary
transfer of possession.
(15) "Document of title" includes bill of lading, dock
warrant, dock receipt, warehouse receipt or order for the
delivery of goods, and also any other document which in the
regular course of business or financing is treated as adequately
evidencing that the person in possession of it is entitled to
receive, hold and dispose of the document and the goods it
covers. To be a document of title a document must purport to be
issued by or addressed to a bailee and purport to cover goods in
the bailee's possession which are either identified or are
fungible portions of an identified mass.
(16) "Fault" means wrongful act, omission or breach.
(17) "Fungible" with respect to goods or securities means
goods or securities of which any unit is, by nature or usage of
trade, the equivalent of any other like unit. Goods which are not
fungible shall be deemed fungible for the purposes of this Act
to the extent that under a particular agreement or document
unlike units are treated as equivalents.
(18) "Genuine" means free of forgery or counterfeiting.
(19) "Good faith" means honesty in fact in the conduct or
transaction concerned.
(20) "Holder," with respect to a negotiable instrument,
means the person in possession if the instrument is payable to
the bearer or, in the case of an instrument payable to an
identified person, if the identified person is in possession.
"Holder" with respect to a document of title means the person in
possession if the goods are deliverable to bearer or to the order
of the person in possession.
(21) To "honor" is to pay or to accept and pay, or where a
credit so engages to purchase or discount a draft complying with
the terms of credit.
(22) "Insolvency proceedings" includes any assignment for
the benefit of creditors or other proceedings intended to
liquidate or rehabilitate the estate of the person involved.
(23) A person is "insolvent" who either has ceased to pay
his debts in the ordinary course of business or cannot pay his
debts as they become due or is insolvent within the meaning of
the federal bankruptcy law.
/* Two definitions of one term: The equity test (not paying in
the ordinary course of business) is used here, althhough
allowances are made for balance sheet insolvency. This is one
area in which the UCC is lacking. It is one thing to define terms
in a special way for the purpose of making a codification of law.
This definition incorporates another law by reference, making it
difficult to understand the UCC meaning of the word by sole
reference to the UCC. */
(24) "Money" means a medium of exchange authorized or
adopted by a domestic or foreign government as a part of its
currency.
(25) A person has "notice" of a fact when
(a) he has actual knowledge of it; or
(b) he has received a notice or notification of it; or
(c) from all the facts and circumstances known to him at
the time in question he has reason to know that it exists.
A person "knows" or has "knowledge" of a fact when he has
actual knowledge of it. "Discover" or "learn" or a word or
phrase of similar import refers to knowledge rather than to
reason to know. The time and circumstances under which a notice
or notification may cease to be effective are not determined by
this Act.
(26) A person "notifies" or "gives" a notice or
notification to another by taking such steps as may be reasonably
required to inform the other in ordinary course whether or not
such other actually comes to know of it. A person "receives" a
notice or notification when
(a) it comes to his attention; or
(b) it is duly delivered at the place of business through
which the contract was made or at any other place held out by him
as the place for receipt of such communications.
(27) Notice, knowledge or a notice or notification received
by an organization is effective for a particular transaction from
the time when it is brought to the attention of the individual
conducting that transaction, and in any event from time to time
when it would have been brought to his attention if the
organization had exercised due diligence if it maintains
reasonable routines for communicating significant information to
the person conducting the transaction and there is reasonable
compliance with the routines. Due diligence does not require an
individual acting for the organization to communicate information
unless such communication is part of his regular duties or unless
he has reason to know of the transaction and that the transaction
would be materially affected by the information.
/* This definition appears to eliminate the use of the doctrine
of "forgotten notice" in which large companies seek to avoid the
effect of a notice that they received due to the fact that
someone resigned, etc. */
(28) "Organization" includes a corporation, government or
governmental subdivision or agency, business trust, estate,
trust, partnership or association, two or more persons having a
joint or common interest, or any other legal or commercial
entity.
(29) "Party", as distinct from "third party", means a
person who has engaged in a transaction or made an agreement
within this Act.
(30) "Person" includes an individual or an organization
(See Section 1-102).
(31) "Presumption" or "presumed" means that the trier of
fact must find the existence of the fact presumed unless and
until evidence is introduced which would support a finding of its
non-existence.
(32) "Purchase" includes taking by sale, discount,
negotiation, mortgage, pledge, lien, issue or re-issue, gift or
any other voluntary transaction creating an interest in property.
(33) "Purchaser" means a person who takes by purchase.
(34) "Remedy" means any remedial right to which an
aggrieved party is entitled with or without resort to a tribunal.
(35) "Representative" includes an agent, an officer of a
corporation or association, and a trustee, executor or
administrator of an estate, or any other person empowered to act
for another.
(36) "Rights" includes remedies.
(37) "Security interest" means an interest in personal
property or fixtures which secures payment or performance of an
obligation. The retention or reservation of title by a seller of
goods notwithstanding shipment or delivery to the buyer (Section
2-401) is limited in effect to a reservation of a "security
interest". The term also includes any interest of a buyer of
accounts or chattel paper which is subject to Article 9. The
special property interest of a buyer of goods on identification
of those goods to a contract for sale under section 2-401 is not
a "security interest", but a buyer may also acquire a "security
interest" by complying with Article 9. Unless a consignment is
intended as security, reservation of title thereunder is not a
"security interest", but a consignment in any event is subject to
the provisions on consignment sales (Section 2-326).
Whether a transaction creates a lease or security interest
is determined by the facts of each case; however, a transaction
creates a security interest if the consideration the lessee is to
pay the lessor for the right to possession and use of the goods
is an obligation for the term of the lease not subject to
termination by the lessee, and
(a) the original term of the lease is equal to or greater
than the remaining economic life of the goods,
(b) the lessee is bound to renew the lease for the
remaining economic life of the goods or is bound to become the
owner of the goods,
(c) the lessee has an option to renew the lease for the
remaining economic life of the goods for no additional
consideration or nominal additional consideration upon compliance
with the lease agreement, or
(d) the lessee has an option to become the owner of the
goods for no additional consideration or nominal additional
consideration upon compliance with the lease agreement.
A transaction does not create a security interest merely because
it provides that
(a) the present value of the consideration the lessee is
obligated to pay the lessor for the right to possession and use
of the goods is substantially equal to or is greater than the
fair market value of the goods at the time the lease is entered
into,
(b) the lessee, assumes risk of loss of the goods, or
agrees to pay taxes, insurance, filing, recording, or
registration fees, or service or maintenance costs with respect
to the goods,
(c) the lessee has an option to renew the lease or to
become the owner of the goods,
(d) the lessee has an option to renew the lease for a fixed
rent that is equal to or greater than the reasonably predictable
fair market rent of the use of to goods for the term of the
renewal at the time the option is to be performed, or
(e) the lessee has an option to become the owner of the
goods for a fixed price that is equal to or greater than the
reasonably predictable fair market value of the goods at the time
the option is to be performed.
For purposes of this subsection (37):
(x) Additional consideration is not nominal if (1) when the
option to renew the lease is granted to the lessee the rent is
stated to be the fair market rent for the use of the goods for
the term of the renewal determined at the time the option is to
be performed, or (ii) when the option to become the owner of the
goods is granted to the lessee the price is stated to be the fair
market value of the goods determined at the time the option is to
be performed. Additional consideration is nominal if it is less
than the lessee's reasonably predictable cost of performing under
the lease agreement if the option is not exercised;
(y) "Reasonably predictable" and "remaining economic life
of the goods" are to be determined with reference to the facts
and circumstances at the time the transaction is entered into;
and
(z) "Present value" means the amount as of a date certain
of one or more sums payable in the future, discounted to the
date certain. The discount is determined by the interest rate
specified by the parties if the rate is not manifestly
unreasonable at the time the transaction is entered into;
otherwise, the discount is determined by a commercially
reasonable rate that takes into account the facts and
circumstances of each case at the time the transaction was
entered into.
(38) "Send" in connection with any writing or notice means
to deposit in the mail or deliver for transmission by any other
usual means of communication with postage or cost of transmission
provided for and properly addressed and in the case of an
instrument to an address specified thereon or otherwise agreed,
or if there be none to any address reasonable under the
circumstances. The receipt of any writing or notice within the
time at which it would have arrived if properly sent had the
effect of a proper sending.
(39) "Signed" includes any symbol executed or adopted by a
party with present intention to authenticate a writing.
(40) "Surety" includes guarantor.
(41) "Telegram" includes a message transmitted by radio,
teletype, cable, any mechanical method of transmission, or the
like.
(42) "Term" means that portion of an agreement which
relates to a particular matter.
(43) "Unauthorized" signature or indorsement means one made
without actual, implied or apparent authority and includes a
forgery.
(44) "Value". Except as otherwise provided with respect to
negotiable instruments and bank collections (Sections 3-303,
4-210 and 4-211) a person gives "value" for fights if he acquires
them
(a) in return for abiding commitment to extend credit or
for the extension of immediately available credit whether or not
drawn upon and whether or not a charge-back is provided for in
the event of difficulties in collection; or
(b) as security for on in total or partial satisfaction of
a re-existing claim; or
(c) by accepting delivery pursuant to a pre-existing
contract for purchase; or
(d) generally, in return for any consideration sufficient
to support a simple contract.
(45) "Warehouse receipt" means a receipt issued by a person
engaged in the business of storing goods for hire.
(46) "Written" or "writing" includes printing, typewriting
or any other intentional reduction to tangible form.
1-202. Prima Facie Evidence by Third Party Documents.
A document in due form purporting to be a bill of lading,
policy or certificate of insurance, official weigher's or
inspector's certificate, consular invoice, or any other document
authorized or required by the contract to be issued by a third
party shall be prima facie evidence of its own authenticity and
genuineness and of the facts stated in the document by the third
party.
1-203. Obligation of good faith.
Every contract or duty within this Act imposes an obligation
of good faith in its performance or enforcement.
1-204. Time; Reasonable Time; "Seasonable".
(1) Whenever this Act requires any action to be take within
a reasonable time, ant time which is not manifestly unreasonable
may be fixed by agreement.
(2) What is a reasonable time for taking any action depends
on the nature, purpose and circumstances of such action.
(3) An action is taken "seasonably" when it is taken at or
within the time agreed or if no time is agreed at or within a
reasonable time.
1-205. Course of dealing and Usage of Trade.
(1) A course of dealing is a sequence of previous conduct
between the parties to a particular transaction which is fairly
to be regarded as establishing a common basis of understanding
for interpreting their expressions and other conduct.
(2) A usage of trade is any practice or method of dealing
having such regularity of observance in a place, vocation or
trade as to justify an expectation that it will be observed with
respect to the transaction in question. The existence and scope
of such a usage are to be proved as facts. If it is established
that such a usage is embodied in a written trade code or similar
writing the interpretation of the writing is for the court.
/* Another place where the UCC mandates that certain issues are
legal ones and are to be ruled on by the Court instead of by a
jury. */
(3) A course of dealing between parties and any usage of
trade in the vocation or trade in which they are engaged or of
which they are or should be aware give particular meaning to and
supplement or qualify terms of an agreement.
(4) The express terms of an agreement and an applicable
course of dealing or usage of trade shall be construed wherever
reasonable as consistent with each other; but when such
construction is unreasonable express terms control both course of
dealing and usage of trade and course of dealing controls usage
of trade.
(5) An applicable usage of trade in the place where any
part of performance is to occur shall be used in interpreting the
agreement as to that part of the performance.
(6) Evidence of a relevant usage of trade in the place
where any part of performance is to occur shall be used in
interpreting the agreement as to that part of the performance.
1-206. Statute of frauds for Kinds of Personal Property Not
Otherwise Covered.
(1) Except in the cases described in subsection (2) of this
section a contract for the sale of personal property is not
enforceable by way of action or defense beyond five thousand
dollars in amount or value of remedy unless there is some writing
which indicates that a contract for sale has been made between
the parties at a defined or stated price, reasonably identifies
the subject matter, and is signed by the party against whom
enforcement is sought or by his authorized agent.
/* The UCC is not the same from state to state, and this section
in the "generic" draft uses $5,000. Other states use $500 or
other amounts. */
(2) Subsection (1) of this section does not apply to
contacts for the sale of goods (Section 2-201) nor of securities
(Section 8-319) nor to security agreements (Section 9-203).
1-207. Performance or acceptance under Reservation of Rights.
[This section has moved to UCC 1-308. Text below is preserved
for archival purposes.]
(1) A party who, with explicit reservation of rights,
performs or promises performance or assents to performance in a
manner demanded or offered by the other party does not thereby
prejudice the rights reserved. Such words as "without prejudice",
"under protest" or the like are sufficient.
(2) Subsection n(1) does not apply to an accord and
satisfaction.
1-208. Option to Accelerate at Will.
A term providing that one party or his successor in interest
may accelerate payment or performance or require collateral or
additional collateral "at will" or "when he deems himself
insecure" or in words of similar import shall be construed to
mean that he shall have power to do so only if he in good faith
believes that the prospect of payment or performance is impaired.
The burden of establishing lack of good faith is on the party
against whom the power has been exercised.
1-209. Subordinated Obligations.
An obligation may be issued as subordinated to payment of
another obligation of the person obligated, or a creditor may
subordinate his right to payment of an obligation by agreement
with either the person obligated or another creditor of the
person obligated. Such a subordination does not create a
security interest as against either the common debtor or a
subordinated creditor. This section shall be construed as
declaring the law as it existed prior to the enactment of this
section and not as modifying it.
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U.C.C. Code