Construction and Interpretation of UCC

In interpreting the Uniform Commercial Code (“UCC”), the courts apply the same principles of statutory construction that would be applied in determining the meaning of any other legislative enactment[i].

The cardinal rule of statutory construction is to ascertain and carry out the real legislative intent and in ascertaining that intent, the courts consider the language of an enactment in its natural and ordinary signification[ii].  If there is no ambiguity or obscurity in the language of a statute, there is usually no need to look elsewhere to ascertain the intent of the legislature.

When interpreting any provision of the UCC, the courts bear in mind its overriding purposes and objectives.  These objectives include the uniform application of commercial law among the states and the presumption in favor of predictability and finality of commercial transactions[iii].

Although the official comments to the UCC are a valuable aid to construction, they have not been enacted by the legislature, and the plain language of the statute cannot be varied by reference to the comments[iv].

The interpretation of a UCC provision in a particular state is governed by the general rules of statutory construction adopted in that state. However, when interpreting uniform laws, such as the UCC, the court may look to decisions from other states for guidance[v].

The UCC expressly provides that it must be liberally construed and applied to promote its underlying purposes and policies.  A liberal construction must be given to the sections of a law so as to secure to them a reasonable meaning, to effectuate the intention of its framers, and make it workable and serviceable to the important business to which it relates[vi].

The UCC is to be interpreted to produce certainty so that the rights of the parties can readily be determined.  A liberal construction of the UCC should be applied to permit the continued expansion of commercial practices through custom, usage, and agreement of the parties.

Also, the remedies provided by the UCC are to be administered liberally with the aim of placing the aggrieved party in as good a position as if the other party had fully performed[vii].

However, the UCC is intended to be read as a whole, so that the full meaning of a question of commercial law can be adequately answered[viii].  Also, each section should be read in conjunction with others in order to ascertain the intent of the legislature[ix].

Statutes cannot be interpreted in a vacuum.  The goal of statutory interpretations is to give effect to the purpose of the statute[x].  To give effect to the purpose of the statute as intended by the legislature, the context in which the words are used is more important than precise grammatical rules or dictionary definitions.

The UCC imposes upon the parties the obligation to deal with each other in good faith[xi].  Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing[xii].

The existence of good faith is determined by a subjective test and there is no reasonable care standard included in the faith requirement[xiii].  The duty of good faith, however, only guides the construction of contracts and does not create independent duties of the contracting parties[xiv].

U.C.C. § 1-205 states that the express terms of an agreement and an applicable course of dealing between parties should be construed wherever reasonable as consistent with each other.  If an express agreement and course of dealing cannot be reasonably construed as consistent, then the express terms control over the course of dealing[xv].

Section captions are part of the text of the UCC and not mere surplusage[xvi].  However, a section of the UCC cannot be interpreted so as to apply to a situation that does not come within the scope of the section or its caption.

[i] Jefferson v. Jones, 286 Md. 544 (Md. 1979).

[ii] MarylandNational Capital Park & Planning Com. v. Rockville, 272 Md. 550 (Md. 1974).

[iii] Husker News Co. v. Mahaska State Bank, 460 N.W.2d 476 (Iowa 1990).

[iv] Frericks v. General Motors Corp., 278 Md. 304 (Md. 1976).

[v] Check Reporting Services, Inc. v. Michigan Nat’l Bank-Lansing, 191 Mich. App. 614 (Mich. Ct. App. 1991).

[vi] Universal Lightning Rod, Inc. v. Rischall Electric Co., 1 Conn. Cir. Ct. 623 (Conn. Cir. Ct. 1963).

[vii] Land v. Cessna Aircraft Co., 466 So. 2d 1265 (Fla. Dist. Ct. App. 1st Dist. 1985).

[viii] Hunick v. Orona, 99 N.M. 306, 307 (N.M. 1983).

[ix] Girard Trust Corn Exchange Bank v. Warren Lepley Ford, Inc., 1957 Pa. Dist. & Cnty. Dec. LEXIS 311 (Pa. C.P. 1957).

[x] El-Ce Storms Trust v. Svetahor, 223 Mont. 113, 117 (Mont. 1986).

[xi] Oloffson v. Coomer, 11 Ill. App. 3d 918 (Ill. App. Ct. 3d Dist. 1973).

[xii] U.C.C. § 2-103 (1) (b).

[xiii] Adams v. First State Bank, 300 Ark. 235 (Ark. 1989).

[xiv] Baxter Healthcare Corp. v. O.R. Concepts, 69 F.3d 785 (7th Cir. Ill. 1995).

[xv] Echo, Inc. v. Whitson Co., 121 F.3d 1099 (7th Cir. Ill. 1997).

[xvi] Roquemore v. National Commerce Bank, 837 S.W.2d 212, 216 (Tex. App. Texarkana 1992).


Inside Construction and Interpretation of UCC