What is the UCC?

The UCC is a set of rules that applies to commercial transactions, sales and financial contracts. The National Conference of Commissioners on Uniform State Laws and the American Law Institute created the UCC because differing state laws made it difficult to conduct business across state lines. With uniform commercial codes in place, companies can operate under a standardized method, making it easier and more cost-effective to be a part of the marketplace.

While most states have fully adopted the UCC or only made slight revisions, the UCC still serves as a valuable set of governing rules that establish a baseline for conducting business across the United States.

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General uniform commercial code laws to know

There are nine articles under the UCC, which include:

• Article 1: General provisions
• Article 2: Sales (with an amendment for leases)
• Article 3:Negotiable instruments
• Article 4:Bank deposits and collections (with an amendment for funds transfers)
• Article 5: Letters of credit
• Article 6:Bulk transfers and bulk sales
• Article 7:Warehouse receipts, bills of lading and other documents of title
• Article 8:Investment securities
• Article 9: Secured transactions

Within these articles are general laws you should know. For example, articles five and six work together to provide security to creditors. With these articles in place, a creditor and a buyer of goods can enter into a transaction together, but the creditor must provide documented evidence that they extended credit to the borrower. Article three outlines the requirements for a promissory note to be considered a negotiable instrument.

Article two is a major part of the UCC because it contains over 100 rules. One of the most notable rules is that a seller must deliver their goods to a buyer, and if the seller delivers incorrect goods, they must deliver the correct ones. As long as the seller fixes their mistake, the buyer is obligated to pay for the items.

When the UCC doesn’t apply

The UCC applies mostly to commercial transactions, including sales and leasing of goods, banking transactions and investment securities. However, there are other types of transactions where the UCC doesn’t apply. The top transactions that the UCC doesn’t cover include:

Real estate contracts

Consider a real estate purchase for a warehouse where you’ll manufactureproducts. You need to enter into a commercial real estate contract to purchase this space. Although the contract is for commercial space where you conduct some aspect of your business, it’s not a commercial transaction as outlined in one of the articles and rules of the UCC. Instead, you would follow state and federal governing laws for any issues that arise.

Real estate contracts for both lease agreements and property purchases fall under the state’s real property laws where the property is located.

Employment contracts

Although full employment contracts aren’t too common, you may give a new employee a formal offer letter or agree to certain conditions of employment. You could use your employee handbook as a contract and have language in the handbook that describes it as such. Any employment contracts or agreements, even ones between businesses and employees in different states,would fall under state law and not under the Uniform Commercial Code.

Service contracts

As a business owner, you can enter service contracts when another company hires your business for a service like consultation services regarding their human resources practices or design plans for an office remodel. You can also hire an individual or another company to perform work for your business. For example, you could hire a painting company to refresh your office space or an agency to perform digital marketing services.

In any of these cases, your service contract is between your business and another business or person, so the UCC doesn’t consider the transaction under their rules. Instead, general contract law applies.