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Saturday, May 17, 2008

Not-Quite-Mid-Year UCC Legislative Update

Out of deference to friends and colleagues updating casebooks and statutory supplements for publication prior to the start of fall classes, as well as friends and colleagues teaching contracts or commercial law courses this summer or preparing or updating their own teaching materials for the fall, here's the early edition of this year's Mid-Year UCC Legislative Update.

Revised Article 1 (2001)

As of January 1, 2008, twenty-nine states -- Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Rhode Island, Texas, Utah, Virginia, and West Virginia -- had enacted Revised Article 1, and twenty-eight of those enactments were in effect (Kansas's version has a delayed effective date of July 1, 2008).

As of May 17, 2008, four more states -- Pennsylvania (HB 1152), South Dakota (SB 93), Tennessee (SB 3993), and Vermont (HB 563) -- have enacted Revised Article 1 thus far this year.  All four enactments will take effect on or before July 1, 2008.  With only one other pending bill -- Illinois SB 2080 -- having made any progress (the Illinois Senate passed it unanimously on April 9 and it is currently scheduled for a hearing before the Illinois House Judiciary Civil Law Committee on May 20), it appears that 2008 will yield the fewest new enactments since 2004.  That said, Revised Article 1 will be law in at least two-thirds of the states by July 1.

As I have discussed previously, the two primary bones of contention during the enactment process have been uniform R1-301's choice-of-law rules and uniform R1-201(b)(20)'s "good faith" definition.  None of the thirty-three enacting states has adopted uniform R1-301; instead, all have chosen to either leave their pre-revised 1-105 in place or to enact a substitute 1-301 with language consistent with pre-revised 1-105.  (Louisiana subsequently amended its substitute 1-301 to diminish the distinction between choice-of-law rules applicable to UCC and non-UCC transactions; but, a fuller exploration of that amendment is another topic for another day.)  There had been less uniformity with regard to defining "good faith."  Twenty-three states -- including Pennsylvania, South Dakota, and Vermont -- have enacted uniform R1-201(b)(20)'s "honesty in fact and the observance of reasonable commercial standards of fair dealing" definition; while ten states -- including Tennessee -- have retained pre-revised 1-201(19)'s "honesty in fact in the conduct or transaction concerned" definition, reserving the requirement of commercial reasonableness for merchants under 2-103(1)(b) & 2A-103(3).  If enacted as it currently reads, Illinois SB 2080 would make uniform R1-301 0-for-34 and would make Illinois the eleventh enacting state to retain the bifurcated good-faith standard.

In response to the widespread failure of uniform R1-301, NCCUSL has approved and the ALI will consider later this month a substitute uniform R1-301, which -- as so many states have already done while enacting Revised Article 1 -- retains the essence of pre-revised Section 1-105.

Amended Articles 2 & 2A (2003)

The 2003 amendments to Article 2 and 2A continue to stagnate.  Bills proposing their enactment have died unceremonious deaths in Kansas and Nevada.  Oklahoma amended Sections 2-105 and 2A-103 of its commercial code to add that the definition of "goods" for purposes of Articles 2 and 2A, respectively, "does not include information," see 12A Okla. Stat. Ann. §§ 2-105(1) & 2A-103(1)(h) (West Supp. 2008), and amended its Section 2-106 to add that "contract for sale" for purposes of Article 2 "does not include a license of information," see id. § 2-106(1).  The net effect is similar to having enacted Amended §§ 2-103(k) & 2A-103(1)(n), both of which exclude information from the meaning of "goods" for purposes of Article 2 and 2A, respectively.  Attempts to further amend Articles 2 and 2A in Oklahoma have been unsuccessful and no other state's legislature has considered a bill proposing to enact the 2003 Article 2 and 2A amendments.

Amended Articles 3 & 4 (2002)

For several years now, those who teach UCC Articles 3 and 4 have had to caution students that New York and South Carolina had not adopted the 1990 revisions of Article 3 and 4, on which most payments teaching materials focus much of their attention.  More recently, we have had to decide how much emphasis to give the 2002 amendments to Article 3 and 4 -- which, until April 15, only five states (Arkansas, Kentucky, Minnesota, Nevada, and Texas) had enacted.

By affixing his signature to SB 936 on April 15, Governor Mark Sanford made law a sweeping revision of South Carolina's Articles 3 and 4 that has the effect of enacting the 1990 revisions as amended by the 2002 amendments.

New York SB 4120 proposes comparably sweeping changes to New York's versions of Article 3 and 4. However, SB 4120 has not made any progress since it was introduced and referred to the Senate Judiciary Committee on March 27, 2007, and re-referred to the Committee on January 9, 2008.

The only other bill currently pending that proposes adopting the 2002 amendments to UCC Articles 3 & 4 (along with certain conforming amendments to other articles) is Oklahoma HB 2588, which was introduced on February 4, 2008.  On February 5, HB 2588 was referred to the House Judiciary and Public Safety Committee, which voted on February 28 to recommend passage.  No further action has been reported as of May 17, 2008.

Revised Article 7 (2003)

As of January 1, 2008, twenty-eight states -- Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Indiana, Iowa, Kansas, Maryland, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Rhode Island, Texas, Utah, Virginia, and West Virginia -- had enacted Revised Article 7, and twenty-seven of those enactments were in effect (Kansas's version has a delayed effective date of July 1, 2008).

As of May 17, 2008, Pennsylvania (HB 1152) and Tennessee (HB 3950) have enacted Revised Article 7 thus far this year.  Both enactments will take effect on or before July 1, 2008.   

The only other pending bills are Illinois SB 2080 and Massachusetts HB 4302 -- both of which combine Revised Articles 1 & 7.  As discussed above, Illinois SB 2080 appears to be making progress toward enactment.  Massachusetts HB 4302, by contrast, appears to be headed nowhere.

[Keith A. Rowley]

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