Navigating the UCC

       The Uniform Commercial Code can be divided into two major categories: Transactions in Goods and Payment Systems.  Transactions in goods include: Sales [Article 2]; Leases [Article 2]; Movement/Storage [Article 7]; and Secured Transactions [Article 9].  Payment systems include: Negotiable Instruments [Article 3]; Bank Deposits and Collections [Article 4]; Letters of Credit [Article 5]; and Electronic Funds Transfers [Article 4A.  It is very important to remember that these payment systems are governed by the Code regardless of whether or not the underlying transaction is governed by the UCC.  Thus, a promissory note executed in connection with a real estate transaction will still be governed by the law contained in Article 3.

       As you approach the text of the UCC, several things are very important to bear in mind.  First, the overwhelming majority of the Code is predicated upon commercial transactions that have repeated themselves over time.  Though the text may appear to be ‘dry’ [a word I have heard used often in describing the UCC], the reality is that the Uniform Commercial Code is a very dynamic statute and when facts are added to the text, it becomes very vibrant and alive.  Remember, the essence of the Code is the transaction of business, and that world is extremely active and dynamic.

       The second thing to bear in mind as you approach the Code is the drafting style.  The UCC is drafted in what I call a vertical style, while the transactions themselves unfold laterally.  For example, as you review Article 2, you will see that Part 1 deals with the Title, Construction and General Construction; Part 2 deals with Form, Formation, and Readjustment of the Contract; Part 3 deals with General Obligation and Construction of the Contract; Part 4 with Title, Creditors and Good Faith Purchasers; Part 5 Performance; Part 6 Breach, Repudiation and Excuse and Part 7 Remedies.  Each of these areas represents a vertical block of drafting.

       When examining a transaction, either as a draftsperson of litigator, one will necessarily start with the basic question of whether or not a transaction is within the scope of the UCC and then within the precise Article that you believe applicable.  As you will see as we work through the UCC, it is not always clear as to whether a particular transaction is governed by the Code, nor is it always clear what Articles apply.  Once however, you have crossed that threshold, you will essentially move laterally through the Code sections making special notation of those sections most applicable to your case or client’s position in the drafting process.  Once these are in place, you will refocus on those sections which are of the greatest applicability and proceed accordingly.

       In the upcoming posts, drafting and litigation strategies will be discussed.