UCC Update

The National Conference of Commissioners on Uniform State Laws, the Institute’s partner in drafting the Uniform Commercial Code, considered proposed revisions to a number of UCC Articles at its recent annual meeting in Tucson.

Revisions to Articles 3 (Negotiable Instruments) and 4 (Bank Deposits and Collections), which were considered and approved at the Institute’s Annual Meeting in May, received the final approval of the Conference in July. No substantive changes were made to the draft that had been considered by the ALI. After the text and Comments are finalized, they will be ready for submission to the States for enactment.

Proposed Amendments to Article 2 (Sales) and Article 2A (Leases), on which the two organizations have been working for more than a decade, were previously considered and approved by the ALI membership at the 2001 Annual Meeting in advance of consideration by the Institute’s Council. The Conference, at its Annual Meeting in 2001, then made significant changes to the scope provision of Article 2, along with two less significant changes to other provisions, but withheld its final approval from the draft. At this year’s meeting, the Conference was presented with a new draft on scope, which it adopted before finally approving the draft. The new provisions leave intact the current language of Section 2-102 that defines the Article’s scope as "transactions in goods." The definition of "goods" formerly in Section 2-105, has, however, been moved to Section 2-103 and changed to exclude "information," which is not itself a defined term. The proposed Official Comment to the definition makes it clear that this exclusion is of "information not associated with goods." Thus, Article 2 would not directly apply to a download of information. Whether and to what extent Article 2 applies to a transaction that includes both goods and information is to be determined from all the facts and circumstances. Nonetheless, according to the Comment, the sale of "smart goods" such as an automobile would be fully covered by Article 2, even though it incorporates many computer programs. A corresponding change was made in the definition of goods in Article 2A on Leases. The full text of the new language on scope, as well as of a new Prefatory Note to the proposed Article 2 Amendments, can be found on the Institute’s website.

The Council of the Institute, which did not have an opportunity to consider any of the Article 2 and 2A Amendments last year, will now consider them in their entirety this fall. Any fundamental changes to the package of amendments approved by the membership in 2001, including the new language on scope, will also require membership approval before the Article 2 and 2A Amendments can be proposed for enactment by the States.

Revisions to Article 7 (Documents of Title) received tentative approval at the NCCUSL meeting. They will come for the first time to the ALI Council in October and to the membership in May. If the Institute approves, the Revised Article 7 can receive final approval from NCCUSL in 2003.