When the individual states signed the Constitution to form the United States, they were individually sovereign. The founders based the constitution on a federalist system, where the states have the power, limiting the federal government to a few key tasks, such as national security.
This system allowed each individual state to create most of its own laws, including how the companies in their borders did business. However, business owners found it difficult to do business across state lines due to the differences in state laws. They needed a solution.
The Uniform Commercial Code
In 1892, a commission created standard commerce laws. The Uniform Law Commission, National Conference of Commissioners on Uniform State laws or American Law Institute, worked to create general guidelines that all states could adopt. These laws became the Uniform Commercial Code (UCC).
Each state had the option to adopt these codes into law after they received the UCC in 1951, and all but Louisiana did. In fact, Louisiana adopted the majority of these laws, except for parts of Article 2. In addition, California made some changes and exceptions before its adoption of the code.
The UCC’s purpose
The purpose of the UCC is to govern all financial and business transactions, particularly interstate transactions. It provides contract terms and guidelines that protect all the parties to the contract. The nine articles govern banking and loan processes. The articles also regulate personal property sales, equipment leasing and loan processing.
The Uniform Commercial Code is a set of laws that were not passed by Congress, which is the only federal government body allowed to create laws. Due to its frequent revisions, consider staying up to date on the UCC and learning how it can impact your business and transactions.