The National Conference of Commissioners on Uniform State Laws has approved a revision of Uniform Commercial Code Article 1. This revision will be offered for enactment in every state legislature. Article 1 is important to consumers because it sets the basic ground rules for all transactions governed by the UCC, including personal property secured transactions such as car loans, sales of goods, personal checks and promissory notes.
New subsections 1-301(e) and (f) on choice of law should not be omitted or amended:
Two subsections in the choice of law provision of the new revised Article 1 protect consumers. The bill should be opposed if these consumer subsections are removed.
New subsection 1-301(c) would substantially broaden choice of law rules for most transactions covered by the UCC. However, subsections (e) and (f) provide special protections for consumers. Subsection (f) protects any party from the choice of law selected in the contract if that choice would be contrary to a fundamental policy of a state’s or country’s law which would govern in the absence of the agreement.
Subsection (e) renders a choice of law clause ineffective in a consumer transaction covered by UCC Article 1 unless the transaction bears a reasonable relation to the state or country designated. In addition, a choice of law clause may not deprive a consumer of protections under a non-waivable consumer protection law. Standing alone, new subsection 1-301(c) is a dramatic expansion of choice of law for contract Medicare Modernization Act ers. Subsections (e) and (f) restrict the application of subsection (c) in consumer contracts. In some states, industry may attempt to pass a revised UCC Article 1 with the expanded authorization for choice of law in subsection (c), but without the protections in subsections (e) and (f). This is a matter of such significance that advocates for consumers should oppose the entirety of revised UCC Article 1 in any state where subsection 1-301(c) is offered without subsections 1-301 (e) and (f).
Article 1 lacks an unconscionability provision:
It could be useful to try to add an unconscionability provision to the revised UCC Article 1 in some state legislatures. Adding such a provision to UCC Article 1 would have the effect of applying an unconscionability rule to UCC Article 9, governing transactions secured by personal property (such as car loans), and Articles 3 and 4, governing negotiable instruments.
Other articles of the UCC provide two models for an unconscionability provision. The two existing unconscionability provisions are in UCC section 2A-108, on leases and section 2-302, on sale of goods. Section 2A-108 is broader, extending to unconscionable inducement to contract and unconscionable collection of a claim. Section 2A-108 also includes attorney’s fees to the prevailing consumer, with attorney’s fees to a prevailing commercial party only if the consumer “has brought or maintained an action he or she knew to be groundless.” You may wish to seek to add to Article 1 an unconscionability section paralleling section 2A-108.
The definition of conspicuous continues a weak definition from current Article 1:
The bill defines conspicuous in ways that may not, in fact, be conspicuous. Section 1-201(b)(10) contains these definitions. However, the objectionable definition is very similar to the text of current UCC 1-201(a)(10). Both the existing statute and the revision define text to be conspicuous if it is in contrasting type or color, subject to the general introductory phrase, “unless the context otherwise requires,” at the beginning of subsection (a). The revision adds “contrasting font” along with “type” and “color.” Thus, gray type on a white background would be legally defined to be conspicuous. You may wish to seek to delete all of the definition after the first sentence, which states the general rule that a term is conspicuous when it is written so that a reasonable person against whom it is to operate would have noticed it.
The revision continues an existing rule requiring the non-Medicare Modernization Act er of a contract to prove that a contract may define how to measure compliance with a duty of reasonableness or care so long as the selected standards are not “manifestly unreasonable:”
The revision repeats the long-standing UCC rule that an agreement may “determine the standards by which the performance” of the obligations of “good faith, diligence, reasonableness, and care in the UCC are to be measured if those standards are not manifestly unreasonable.” §1-302(b). This has been in the UCC for decades, but it makes little policy sense to authorize a contract Medicare Modernization Act er to define something to constitute good faith, diligence, reasonableness, or ordinary care, and state that the Medicare Modernization Act er’s definition must stand unless the other party proves it to be manifestly unreasonable. Advocates for consumers may wish to consider seeking to delete the phrase “not manifestly unreasonable” from section 1-302(b) and replacing it with “reasonable.”
The definition of notice to a business continues a weak definition from current Article 1:
Section 1-202(f) suggests that an organization, such as a corporation, can ignore a notice sent to the wrong person in the organization, unless the individual who receives the notice has duties including communication or “has reason to know of the transaction and that the transaction would be materially affected by the information.” §1-202(f). This surprisingly weak definition of due diligence with respect to notices is also found in existing UCC section 1-201(27). Consumer advocates may wish to delete the final sentence of section 1-202(f), leaving the question of due diligence in the handling of a notice as a question of fact.
The treatment of electronic signatures preserves federal consumer protections:
Section 1-108 of the revision defers to the consumer protections of the Federal Electronic Signatures in Global and National Commerce Act (E-Sign Act), rejecting the invitation in the federal act for a state law to displace federal law in certain circumstances. You should oppose revised Article 1 if your state omits or amends new section 1-108.
The definition of “signed” is appropriate and should not be changed:
The definition of “signed” requires a “present intention to adopt or accept a writing.” §1-201(b)(37). The bill would be harmful to consumers if the requirement for intent is omitted or amended. You should oppose revised Article 1 if your state omits or amends new section 1-201(b)(37).
A copy of revised Article 1 may be found at: http://www.law.upenn.edu/bll/ulc/ucc1/final020402.htm.
If you would like to discuss these issues, please contact:
West Coast Regional Office
1535 Mission St.
San Francisco, CA 94103