Business Law Intro
Business law, simply stated, refers to the body of law that governs business and commercial transactions. It encompasses all of the laws that dictate the formation, operations, and regulations of a business. Such laws aim to protect the rights and conduct of all parties involved in business relationships by ensuring the establishment of contracts that legally bind merchants, suppliers, sellers, buyers, manufacturers, distributors, and so on to specific terms.
Typically, there are two primary types of business laws, and it is important that any company hoping to operate successfully understand both. Substantive business law refers to the set of laws that governs how the members of a society interact with one another. For example, eating a meal at a restaurant and leaving without paying would be in opposition of the aforementioned laws . Since most people don’t want to pay for their meals, such an action would create a surplus of problems for everyone involved in this transaction. As such, this particular law would dictate exactly what would happen in this situation gone wrong.
Procedural business law, on the other hand, refers to the legal processes that must be followed by all parties involved. For example, a contract with broken terms would have to be dealt with using specific procedural steps which would include filing a complaint and perhaps even going to court to settle the matter. A single business law tends to encompass different areas of the law. Doing business in the United States requires adherence to an enormous range of laws that affect every conceivable relationship between individuals and businesses. Business law applies to all areas of the business industry and its workers.
Definition of Uniform Commercial Code in Business Law
The Uniform Commercial Code, or UCC, is a body of laws that apply to business and commercial transactions across the United States. It was first adopted in 1952, replacing the Code of Contracts for the International Sale of Goods and then expanded upon in the years that followed, being officially approved by all 50 states, as well as Washington, D.C., Puerto Rico and the Virgin Islands. The purpose of the UCC is to provide a consistent set of guidelines and regulations regarding commercial business law so that there’s no confusion between states in interstate transactions and every company involved knows what to expect at every point of the transaction process.
In addition to providing businesses with a uniform set of guidelines, the UCC also serves the purpose of directing determinations regarding conflict-of-law rules, which means it helps determine which set of laws should be applied in the event of a dispute. Because of the broad and general nature of the UCC, it also provides flexibility to accommodate most types of commercial transactions, allowing businesses of all sizes to ensure their dealings with each other are productive and beneficial.
UCC Business Law Articles
In addition to its varying degrees of relevance and applicability, the UCC is divided into nine distinct articles containing comprehensive regulations for many areas of commercial law. Article 1 contains the general definitions and principles applicable to all articles. Article 2 addresses Sales. Article 2A addresses Leases. Article 3 addresses Negotiable Instruments. Article 4 deals with Bank Deposits and Collections, while Article 4A covers Funds Transfers. Article 5 is specifically for Letters of Credit, and Article 6 addresses Bulk Transfers and Bulk Sales. Article 7 is dedicated to Warehouse Receipts, Bills of Lading, and Other Goods. Finally, Article 9 covers Secured Transactions of any type of collateral other than real property, and most likely will be the most important article of the UCC for the reader of this post.
Application of UCC in Business
Businesses utilize the United States Code and the Uniform Commercial Code (UCC), including the Pennsylvania UCC, directly in their day-to-day activities. A business may use any or all of the UCC in the following areas: formation of contracts; tender of delivery; passing of title; and/or financing through loans or other financial arrangements.
Formation of contracts. The UCC is central to the formation of most commercial contracts. The UCC defines goods that are the subject of a sales transaction as all things that are moveable, except for money and investment securities. The UCC also provides for the acceptance of orders and the means of communicating vs. waiving contractual terms. The UCC has a two year statute of limitations for breach of contract.
Tender of delivery. The UCC’s Article 2 details what constitutes a tender of deliver of goods. UCC Section 2-503 defines delivery by shipment, inspection and payment in the course of performance, to name a few. Tender of delivery of goods occurs when the parties have agreed on the delivery and the seller makes the goods available to the buyer. Upon delivery, the seller is entitled to payment.
Passing of title. The UCC defines the passing of title in UCC Section 2-703 as when the seller has completed performance regarding the physical delivery of the goods. The UCC determines when title passes from seller to buyer, but not all property law systems are the same. UCC Section 2-401(2) provides that a contract for sale of goods may not be enforced against a purchaser unless there is an actual physical delivery of the goods.
Financing. The UCC governs the sale of securities and syndication issues. A corporation may borrow money from a bank in order to make a purchase of goods. The bank will require the corporation to give the bank a security interest in the asset being purchased in the event that the bank has to foreclose on the purchased asset. The UCC contains a system for perfecting the security interest by filing a UCC financing statement in the state in which the assets are located.
Advantages of Application of UCC in Business Law
Incorporating the UCC into business law has many benefits for all parties involved. First and foremost, the standards set out in the UCC provide a sense of uniformity for those conducting interstate commerce. There is an expectation that a common set of standards exists across state lines for business transactions, and the UCC provides that baseline. Having the UCC as the standard also makes business practices more predictable . Stakeholders have a reduced risk of encountering an unfamiliar procedure when conducting business between states.
In the absence of a consistent set of expectations, there would be a greater scope of potential legal disputes that could arise. This includes disagreements over the terms of the deal. A business agreement that does not address current issues can create confusion. Not everyone may be on the same page. The UCC decreases the possibility of this confusion by offering a standard set of organizing principles.
Disadvantages of Application of UCC
Beyond the initial shock of deciphering the UCC, businesses often encounter challenges in the implementation of the UCC guidelines themselves. These may include issues such as how to effectively notify customers of a potential "set-off" or how to execute a "cleansing" paragraph as described above. State variances present other challenges. For example, California is one of the few states which requires a statutory notice in order for the seller of goods to forego a right to reclaim goods under the UCC. Another potential hurdle is the requirement that the UCC in most states be clearly incorporated by reference into an agreement (at least in this regard, the UCC REGS are generally useful). Other states do not require such a specific incorporation and provide more liberal standards for incorporation of the UCC by reference into commercial contracts. And, as mentioned above, the UCC regulations are both state and contract specific. It is important to consult with an attorney to ensure that appropriate language is used. Finally, it is important to note that the UCC has been the subject of extensive litigation in various jurisdictions resulting in a myriad of law from which to wade through. This alone can present a significant challenge to the layperson.
The following list, though not exhaustive, is meant to serve as a helpful starting point for how to address some of the challenges discussed above.
- Work with experienced and reputable counsel in the drafting of the UCC REGS;
- Review existing contracts, and if permitted by your business model, insert clauses incorporating the UCC and the UCC REGS by reference into those contracts;
- Add the UCC REGS to your Terms and Conditions and/or to a master agreement, explaining how contracted customers should place orders and the effect of the UCC REGS on their orders;
- Include clauses that are proper for your use, such as a General Integra Agreement or ORM-2, with your standard order acknowledgment; and
- Consult with counsel if you have questions on how to interpret the UCC and UCC REGS.
Business Law and UCC in Future
The application of the UCC continues to evolve and shape the future of business law. Several emerging trends have the potential to significantly impact how businesses operate, from both a technological and transactional standpoint.
One area of potential change is the integration of blockchain technology into the UCC. Several states have already passed laws, such as the Arizona Uniform Electronic Transaction Act, which set the stage for electronic transactions governed by Article 9. This technology could streamline collateral transfers and increase transparency in business transactions. The article also works to regulate the buying and selling of digital assets.
The growth of the sharing economy may also affect future UCC applications. Businesses that participate in this economy, which typically do not take possession of the collateral, may promote additional Article 9 issues. The UCC has already adopted certain amendments for these types of arrangements.
Finally, drone technology could impact how Article 9 is applied generally. Drones currently face regulatory restrictions and compliance obligations, but as this technology emerges, it is expected to affect how Article 9 is applied and, possibly, construed.
As technology continues to develop, so will the application of the UCC. Attorneys in the business law field should stay attuned to these changes to assist their clients with future transactions.
Conclusion of UCC in Business Law
Whether your goal is to create an enforceable contract or to collect on a judgment, you must come to terms with the Uniform Commercial Code. No matter what business you conduct, it is likely you will enter into a transaction that the UCC touches somehow. Even by "buying-out" a partner and dividing assets , you may be unwittingly forming a new contract governed by UCC rules.
Moreover, as we have seen in the increasing rise of e-commerce, the Uniform Commercial Code continues to grow and expand. In a global economy, the UCC’s purpose is to maintain order and uniformity for international businesses. The UCC will continue to evolve as technology advances and forms of commerce change.
