Article 2 Update

The National Conference of Commissioners on Uniform State Laws and the Institute have worked for more than a decade to revise Article 2 (Sales) of the Uniform Commercial Code. In May of 1999, the Institute’s Annual Meeting gave final approval to what was then denominated the Proposed Final Draft. In July of that year, however, the leaders of the Conference determined that opposition from key industries was likely to prevent the draft from achieving wide acceptance among the states. They therefore withdrew Article 2 from consideration at the Conference’s Annual Meeting. The two groups, the ALI and NCCUSL, then decided to make another attempt to achieve a new Article 2. A new joint Drafting Committee and a new Reporter were named by the two organizations to address both Article 2 and Article 2A (Leases).

In the spring of 2000, the ALI determined that the process was not far enough along for final decisions to be made on Revised Article 2 at this year’s Annual Meeting (review of Revised Article 2A had been deferred pending resolution of the status of Article 2). The lively consideration at the May Annual Meeting was therefore solely to assist the Drafting Committee. Only informal advisory votes were taken. There were, however, two important straw votes. One favored pretransaction availability of contract terms, especially in the context of e-commerce. A second favored a clear statutory statement that coverage of the Article extends to so-called "smart goods," products (such as a refrigerator or a car) that include computer programs important to their performance.

NCCUSL had tentatively scheduled Revised Article 2 for final action at its Annual Meeting in early August. Although progress had been made on the draft since May, the "smart goods" or "scope" issue remained open and unresolved. NCCUSL’s leadership thus once again determined that the Article not be presented for final action.

Presenting the scope issue on the floor of the NCCUSL meeting, Professor William H. Henning, Chair of the Drafting Committee, described the positions being advanced by various interested groups and some of the alternative formulations under consideration, including one that arose at a spontaneous rump session of some drafters and observers. That proposal would treat the issue in a new section separate from the scope section. It would attempt to include within stated coverage of Article 2 embedded software programs that are integral to the functioning of the product. Particular sections of Article 2 would be enumerated in the statute as applying to programs that are determined to be "integral." Differences of view remain about whether judges should apply other Article 2 sections by analogy. The Drafting Committee will meet again in the fall in an attempt to resolve these and any other remaining issues.

Article 2 is scheduled to come before the ALI Council in October and, if necessary, again in December. It is at least possible that there will be a draft suitable for final ALI and NCCUSL action at the two organizations’ 2001 Annual Meetings. It is also possible that those responsible will conclude that the improvements to current Article 2 that are possible at this time are insufficient to justify the effort and the risks that ratification by the states will impose. That would mean ending this effort to craft a new Article 2 and perhaps recommending to the states only a group of technical amendments.

Meanwhile, NCCUSL and the Institute are working together on improvements to Articles 1 (General Provisions), 3 (Negotiable Instruments), 4 (Bank Deposits and Collections), 4A (Funds Transfers), and 7 (Documents of Title) of the UCC.