Creating the Eyes Through Which to View and Process the Uniform Commercial Code: Part 2

In the previous post, we began our discussion of Section 1-103 of the Uniform Commercial Code, and noted the mandate by the drafters of the UCC, to the courts, to ‘liberally construe and apply’ the Code.  This liberal construction and application of the UCC is to be undertaken to further very specific, broad based goals embodied in Section 1-103(a)(1)(2)(3).

Under Section 1-103(a)(1), the courts are directed to liberally construe and apply the Code to ‘simplify, clarify, and modernize’ the law governing commercial transactions.’  This will have application in drafting and litigation.  In the drafting context, parties should seek to embody these principles in their contract, and further, to explicitly recognize them in the actual drafting.  For example, if the parties to a particular transaction seek to structure it in a unique way, something different than might normally be expected in such a situation, the parties might select an applicable policy and state it in the  contract along with the provisions agreed upon.  This increases the likelihood that the agreement between the parties will be recognized by the court. 

In the litigation context of course, the facts are in place; however, the process is basically the same. Once the facts have been deciphered—never as easy as it should be—the parties to the litigation create their strategies.  One of the very important strategies to undertake in any UCC litigation is to be certain that the positions you are presenting to the court line up with policies which support your claims.  You may seek to convince the court that the new way you have approached your transaction is consistent with the Code policy of ‘modernization’ or will somehow bring clarify or simplify’ the law governing commercial transactions.  In this situation, you are simply guiding the court to the desired result through the liberal construction and application of the UCC to accomplish the desired policy objectives of the Code itself.

The same type of analysis would apply for Section 1-103(1)(b) where the stated policies are:

(2) to permit the continued expansion of commercial practices through custom, usage, and  agreement of the parties;

           

Diagrammatically, the process looks like the following:

Once again under Section 1-103(1)(b) we see the concept of ‘expanding commercial practices’ embodying the overlying policy of the UCC to promote commerce.  Of particular significance under Section 1-103(1)(b), and throughout the Uniform Commercial Code as a whole, is recognizing, at a very high level, what is happening in a particular industry, customs which are observed, and the importance of the agreement between the parties.  These will be discussed in detail in upcoming posts.