12.4 UCC Articles 1, 2, 3 & 9

The Uniform Commercial Code (UCC) is a model commercial statute. States adopt it, sometimes with local amendments. It is state law, not a federal code, but it is uniform enough that the PCCE tests official-text principles. This section is the four articles the blueprint names: Article 1 (general provisions), Article 2 (sales of goods), Article 3 (negotiable instruments), and Article 9 (secured transactions). When Article 2 is silent, common-law contract rules fill the gap (UCC 1-103).

Article 1 — general provisions and good faith

Article 1 supplies definitions, rules of interpretation, and duties that run through the Code.

Good faith. Every contract or duty within the UCC imposes an obligation of good faith in its performance and enforcement (UCC 1-304). Revised Article 1 defines good faith as honesty in fact and the observance of reasonable commercial standards of fair dealing (UCC 1-201(b)(20)). The older honesty-only definition for nonmerchants has been broadly replaced. Good faith does not create an independent cause of action that rewrites a clear deal, but it polices discretion — requirements contracts, good-faith price setting, enforcement of security interests.

Article 1 also ranks evidence of meaning: express terms, then course of performance, course of dealing, and usage of trade (UCC 1-303). It treats records and authentications in a way that includes electronic forms. Freedom of contract is the default; many rules are gap-fillers the parties can vary, except obligations of good faith, diligence, reasonableness, and care (UCC 1-302).

Article 2 — sale of goods

Article 2 applies to transactions in goods (UCC 2-102). Goods are things that are movable at the time of identification to the contract (UCC 2-105) — inventory, equipment, crops, the manufactured widget. Article 2 does not govern pure services, real estate, or a straight assignment of accounts (that last item is Article 9).

Hybrid contracts mix goods and services (a sale plus installation; a construction job that includes materials; some software deals). Most jurisdictions use the predominant-purpose test: which aspect predominates? If goods, Article 2; if services, common law. A minority uses a gravamen test (which part of the deal is in dispute). On the PCCE, name the predominant-purpose test and do not treat a law-firm retainer as a sale of goods.

Merchants (UCC 2-104) deal in goods of the kind or otherwise hold themselves out as having knowledge or skill peculiar to the practices or goods involved. Special merchant rules include the firm offer, the 2-207 additional-term mechanics, the implied warranty of merchantability (2-314), and the merchant-confirmation Statute of Frauds exception.

Firm offer — UCC 2-205. An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable for lack of consideration during the time stated, or if no time is stated for a reasonable time, but in no event may the period of irrevocability exceed three months. An assurance on a form supplied by the offeree must be separately signed. Contrast a common-law option, which needs consideration.

Statute of frauds — UCC 2-201. A contract for the sale of goods for $500 or more (classic official-text amount) is not enforceable unless there is a writing sufficient to indicate that a contract has been made, signed by the party against whom enforcement is sought. The writing need not contain all terms; a term may be mistaken except quantity. Exceptions again: specially manufactured goods not suitable for sale to others, a court admission, goods paid for or accepted, and the merchant confirmation that is not objected to within ten days.

Perfect tender versus substantial performance. UCC 2-601 is the perfect tender rule: if the goods or the tender fail in any respect to conform, the buyer may reject the whole, accept the whole, or accept any commercial unit or units and reject the rest. That is deliberately stricter than the common-law substantial performance doctrine used for construction and many services contracts. Softeners exist: the seller's right to cure (2-508) if time remains or the seller reasonably believed the goods would be acceptable; installment-contract rules (2-612); and acceptance, revocation of acceptance (2-608), and good-faith limitations. Do not import substantial performance as the starting rule for a single-delivery sale of goods.

Other Article 2 exam magnets: formation can be any manner sufficient to show agreement, including conduct (2-204); gap-fillers for open price (2-305), delivery, and payment; risk of loss rules; and warranties — express (2-313), merchantability (2-314), fitness for a particular purpose (2-315).

Article 3 — negotiable instruments

Article 3 governs negotiable instruments. Two families:

• A note is a two-party promise: the maker promises to pay the payee. Promissory notes and certificates of deposit sit here.
• A draft is a three-party order: the drawer orders the drawee to pay the payee. A check is a draft drawn on a bank and payable on demand.

Negotiability (UCC 3-104) requires a writing signed by the maker or drawer, containing an unconditional promise or order to pay a fixed amount of money, payable to bearer or to order, payable on demand or at a definite time, and not stating any unauthorized additional undertaking. Nonnegotiable paper can still be a contract; it just does not travel under Article 3's holder rules.

Indorsements move order paper and can change its character:

Holder in due course (HDC) is the Article 3 super-plaintiff. A holder who takes the instrument for value, in good faith, and without notice that it is overdue or has been dishonored or of any claim or defense (UCC 3-302) takes free of most personal defenses (failure of consideration, fraud in the inducement, ordinary contract defenses between the original parties). Real defenses still cut through: infancy, duress that voids, fraud in the factum, illegality that makes the obligation void, discharge in insolvency, alteration, and forgery. Paralegals do not need every HDC wrinkle; they need the concept and the note-versus-draft vocabulary.

Article 9 — secured transactions

Article 9 governs security interests in personal property and fixtures — the creditor's interest that secures payment or performance of an obligation. The debtor keeps the collateral; the secured party has rights if the debtor defaults.

Attachment (UCC 9-203) is when the security interest becomes enforceable against the debtor. Three conditions must coincide:

1. Value has been given;
2. The debtor has rights in the collateral (or the power to transfer them); and
3. Either the debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control pursuant to a security agreement.

A security agreement is the contract. A financing statement is the public notice. Do not confuse them.

Perfection is what generally protects the secured party against other creditors and a bankruptcy trustee. Principal methods:

• Filing a UCC-1 financing statement (the ordinary method for most goods and many intangibles).
• Possession of the collateral (goods, instruments, tangible chattel paper).
• Control (deposit accounts, investment property, electronic chattel paper, letter-of-credit rights).
• Automatic perfection in limited cases, notably a purchase-money security interest (PMSI) in consumer goods.

A UCC-1 must provide the debtor's correct legal name (errors that make the name seriously misleading are fatal), the secured party's name, and an indication of the collateral. It is filed in the central filing office (usually the secretary of state) of the debtor's location; fixture filings and some as-extracted-collateral or timber filings are local. An initial financing statement is generally effective for five years and is continued by a timely continuation statement.

Priority. Among perfected security interests, the usual rule is first to file or perfect. A PMSI — a security interest that enables the debtor to acquire the collateral (seller-financed or enabling-loan) — can take superpriority. A PMSI in goods other than inventory or livestock is generally perfected if the secured party perfects when the debtor receives possession or within 20 days thereafter. An inventory PMSI needs authenticated notification to conflicting secured parties and timely perfection.

On default, Article 9 supplies repossession without breach of the peace, commercially reasonable disposition, surplus and deficiency accounting, and strict-foreclosure rules. Those details are secondary to attachment, perfection, priority, PMSI, and the financing statement.

Paralegal tasks: UCC-1 filings and contract checklists

This is applied Domain 2 work.

UCC-1 workflow. Confirm the debtor's exact registered organizational name — a search of the organic public record, not the trade style on the invoice. Identify the collateral class in language that does not under-describe. Prepare the UCC-1, file in the correct office, calendar the five-year lapse, and run a post-filing search to confirm the record. File amendments for name changes, and terminations when the debt is gone. A search of prior filings is part of due diligence on a loan or an asset purchase.

Contract checklist (goods or mixed): parties' legal names; description and quantity of goods; price and payment terms; delivery and risk of loss; warranties and disclaimers (mention 2-316 if you disclaim); remedies and any liquidated-damages clause; conditions; integration or merger clause; governing law and forum; signatures and authority; Statute of Frauds writing if the price is $500 or more; whether a firm offer or option exists; and, if credit is involved, whether a security agreement and UCC-1 should travel with the contract. Hybrid deals get a predominant-purpose note so counsel knows whether Article 2 or common law supplies the default rules.

Worked path. A merchant seller sends a signed letter: "We offer 400 units at $20 each; this offer is firm for 60 days." That is a 2-205 firm offer — irrevocable without consideration for 60 days, which is under three months. The $8,000 price puts the eventual contract inside 2-201. If the buyer later finances the purchase and authenticates a security agreement covering the units, the lender's interest attaches when value is given and the buyer has rights in the goods. Perfection against other creditors is typically a UCC-1 filed under the buyer's exact legal name. If the lender is the seller financing the purchase, think PMSI and the 20-day perfection window. The paralegal files the UCC-1, searches to confirm, and does not treat the security agreement itself as the public filing.