Institute Approves Restatement Drafts and Revisions to UCC Articles 3 and 4

At its 79th Annual Meeting in May the Institute approved Proposed Revisions to Articles 3 (Negotiable Instruments) and 4 (Bank Deposits and Collections) of the Uniform Commercial Code and for the most part tentatively approved Restatement Drafts on Restitution, Agency, and Torts. The Meeting also included extensive review of Discussion Drafts on Transnational Civil Procedure and International Jurisdiction and Judgments.

The Proposed Revisions to UCC Articles 3 and 4, though presented for the first time for consideration by the Institute, were approved without controversy. By a voice vote the members made mandatory, rather than optional, an amendment to Article 3 that provides that an instrument issued in a consumer-credit transaction for which the required FTC notice making the instrument “subject to claims and defenses” is omitted “has the same effect as if the instrument included such a statement.” The vote thus rejected the possibility of allowing holder-in-due-course status in connection with such an instrument and achieved consistency with an analogous provision in Revised Article 9. The Article 3 and 4 Revisions were subsequently given final approval as well by the National Conference of Commissioners on Uniform State Laws. See "UCC Update" in this issue.

Tentative Draft No. 2 of Restatement Third, Restitution and Unjust Enrichment, the bulk of which dealt with the extent to which volunteers, whether in emergency situations involving risks to others or in matters of self-interested intervention, are entitled to restitution from those whom they have benefited, was tentatively approved in its entirety. Reporter Andrew Kull was nevertheless urged, in revising the material, to clarify and sharpen the distinctions intended between professionals, who are presumed to be entitled to reimbursement for their services, and gratuitous actors, who are not; he was also asked to take into greater account the need to reimburse nonprofessional rescuers for their injuries and out-of-pocket expenses. In addition, Professor Kull agreed to make it clearer that there may be other appropriate claims that can be asserted in such cases in lieu of those based upon restitution.

Tentative Draft No. 3 of Restatement Third, Agency, was tentatively approved with the exception of §§ 5.03 and 5.04, dealing with imputation to the principal of a fact known by an agent and with how it is determined, for purposes of imputation, that the agent is acting adversely to the principal. Much concern was expressed on the floor about the need for a subtler treatment of the problem of imputation in the context of a large corporation, where partial knowledge may be dispersed among many agents and where it may be difficult to distinguish whether an agent is acting on behalf of the corporation or adversely toward it. A motion, animated by concern that the draft’s proposed rule on imputation could prevent a trustee in bankruptcy from recovering from a negligent auditor because of the knowledge of a disloyal agent and proposing instead a broader, totality-of-the circumstances test, was withdrawn when Reporter Deborah A. DeMott agreed to take the concerns expressed into account and to rework §§ 5.03 and 5.04 accordingly. The revised sections will be brought back for review at a future Meeting.

With respect to Tentative Draft No. 2 of Restatement Third, Torts: Liability for Physical Harm (Basic Principles), the membership gave its tentative approval to §§ 6, 7, 26, 27, and 28, except for Comment c to § 28. That lengthy Comment, which dealt with the applicable standards for establishing the causation of harm by toxic substances, provoked prolonged controversy both about whether the Restatement should be dealing so extensively with evidentiary matters and about whether its description of how courts evaluate scientific evidence of this nature was accurate. As with Agency, a series of motions aimed at revising Comment c was eventually withdrawn when Reporters Michael D. Green and William C. Powers, Jr., agreed to reconsider and rework the Comment in light of the criticisms received and to bring the result back for further review. A voice vote seeking to determine whether or not the scope of the Comment should be restricted in such a way as to limit its treatment of the admissibility of scientific evidence showed a house closely divided on the issue. Sections 6 and 7 on Duty, which had been remanded to the Reporters for further revision last year, survived a number of motions calling for further revision, but the Reporters agreed to change the characterization in § 7 of "determinations of no duty and modifications of the duty of reasonable care" as "unusual" to "exceptional." It was made clear that all the materials tentatively approved would eventually be brought back for final review in the form of a complete and fully integrated draft. Chapter 6, on the scope of liability, which was included in Tentative Draft No. 3 for discussion only, was not considered at all this year because of the limitations of time.

The ALI/UNIDROIT Principles and Rules of Transnational Civil Procedure were discussed this year for the third time on the Annual Meeting floor, but this time there was greater opportunity to address specific formulations and many helpful suggestions for improvement were made. The work will continue to be reviewed over the next two years in forums around the world, with the Reporters now expecting to seek the Institute’s final approval of the text in 2004. It was indicated that by that time the Rules, with which the project began, are likely to have been fully integrated with the Principles.

In contrast, the proposed Foreign Judgments Recognition and Enforcement Act emanating from the International Jurisdiction and Judgments project was presented for discussion by the membership for the first time in 2002. The most controversial issue presented by the draft was whether the proposed Act should include a requirement of reciprocity as a condition for enforcing the judgments of a foreign state, and a nonbinding sense-of-the-house vote taken at the conclusion of the discussion appeared strongly to back such a requirement. Because of time constraints the members were unable to complete their review of the draft. A revised version taking into account the comments and suggestions received is expected to be submitted for fuller consideration next year.

A complete listing of actions taken on the drafts considered at the 2002 Annual Meeting will appear in the fall issue of the Reporter. An edited transcript of the entire Annual Meeting will subsequently be published in the 2002 Proceedings.