The Uniform Commercial Code (UCC) has been updated a set of as of July 1, 2013, and will impact business transactions across the state! The American Law Institute (ALI) and the National Conference of Commissioners on Uniform State Laws (NCCUSL) created the UCC as a set of law to help unify trade standards across the country. All 50 states have adopted the UCC in some form, either adopted verbatim, or modified to fit each state’s needs. As a set of laws, the UCC or the Code helps businesses conduct transactions from money lending/borrowing, to writing contracts for the sale of goods, and more. The NCCUSL and ALI proposed several amendments to the UCC over the years and we describe some of those that Massachusetts has officially accepted effective July 1, 2013. While we attempt to summarize these changes,* be forewarned: the following is as dry as a desert and may be of interest only to businesses, bankers, and lawyers.
Article 1 of the Uniform Commercial Code is the General Provisions, and saw several changes:
- The substantive laws within the UCC only apply within other articles in the UCC.
- “Good Faith” has been redefined as “honesty in fact and the observance of reasonable commercial standards of fair dealing.”
- The concepts of “Course of Performance” and “Usage of Trade” from articles 2 and 2A have become more clearly tools for contract interpretation,
- The Statute of Frauds for transactions not covered by the UCC was removed.
Article 4 has been amended to include Article 4A. Article 4A includes language regarding electronic funds transfers (EFT) and “remittance transfers” that are not treated as EFTs under the federal Electronic Funds Transfer Act (not addressed by Dodd-Frank.)
Article 7 of the Uniform Commercial Code, which covers matters such as Documents of Title, Warehouse Receipts, and Bills of Lading has also been revised with notable changes:
- Electronic documents of title are now allowed with paper ones.
- Paper documents may be converted to electronic ones and vice versa.
- A “control” theory with regards to electronic documents substitutes for the paper concepts of possession and endorsement.
Article 9 of the UCC deals with secured transactions and has the most changes:
The technical revisions, regarding secured personal property, provide:
- Banks are not required to have or disclose a control agreements with secured parties that claim a security interest in a deposit account with the bank; and
- such security interests or the debtor’s authority to deal with collateral, without more, do not subject the secured party to claims in contract or tort for the debtor’s actions.
The amendments contain their own set of transition rules. Existing financing statements that were effective under the former laws are technically no longer effective under the new ones, but will continue to be in effect for now. They will need to conform to the new laws before the lapse of the financing statement. There are numerous other Amendments. One of particular interest states:
- If a debtor moves to a new jurisdiction, or a new debtor in a different jurisdiction becomes bound by the original’s security interest, financing statements filed in the original jurisdiction are effective to perfect a security interest in collateral acquired within the first four months. Secured parties can continue the perfection beyond four months by filing a financing statement or otherwise perfecting under the law of the new jurisdiction within that first period.
Other changes include:
- A filing office will no longer be permitted to reject a financing statement that fails to provide certain information.
- A secured party may file information statements if they believe an amendment or record was filed by someone not supposed to do so.
- The uniform forms of initial financing statement and amendment have been updated to reflect these changes.
*We have attempted to simplify and summarize some of the major points in a fine article dated August 8, 2013 that appeared in the Massachusetts Lawyers Weekly by Edwin E. Smith, a partner at Bingham McCutchen in Boston, who is a uniform law commissioner for Massachusetts.