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Publication Date

12-1996

Document Type

Special Contribution

Abstract

The National Conference of Commissioners on Uniform State Laws and the American Law Institute, cosponsors of the Uniform Commercial Code ("UCC"), have approved comprehensive changes to Articles 3 and 4. The Revised Articles were initially presented to the various states for approval in early 1991. As of September 1996, forty-four jurisdictions have adopted the Revised Articles, most with few, if any, variations to the official text.'Revised Articles 3 and 4 became law in Georgia effective July 1, 1996.

Few debate that Prior Articles 3 and 4, which were drafted more than forty years ago, were in need of revision. Article 3 was the most dated article of the UCC. It was merely a revision of the previous uniform act, the Uniform Negotiable Instruments Law, which was drafted in 1896, and was based primarily on eighteenth and nineteenth century British case law. Some of the concepts and language of Prior Article 3 were quite archaic. It should be noted that Revised Article 3 does not radically depart from previous law. Revised Article 3 carries forward the basic doctrines of negotiable instruments law embodied in Prior Article 3. Moreover, the organization of the new statute generally follows that of the old statute. But the revision does update Article 3 to modernize language and take into account technological developments and changes in business practice. In addition, the revision resolves conflicting lines of case authority.

Similarly, Prior Article 4 was seriously outdated, having emerged as part of the "1958 Official Text" of the UCC. However, Magnetic Ink Character Recognition ("MICR")-the encoding of identifying numbers on checks that made automated check processing possible-did not become operable until 1959. Thus, Prior Article 4, drafted in a time of manual processing of checks, was inadequate to deal with the automated processing of checks based on MICR technology. Prior Article 4 was saved to some extent by section 4-103, which allows the parties to vary the terms of that article by agreement, and provides that Federal Reserve regulations and letters, clearinghouse rules, and the like, have the effect of agreements. But the movement from a paper-based payments system to an electronic-based payments system made it apparent that Prior Article 4 needed to be reformed. Revised Article 4 accommodates technical developments in automated check processing and check truncation. Although some changes have been made to accommodate Federal Regulation CC" (which relates to mandated funds availability), those provisions most heavily impacted by Regulation CC remain intact and are retained for nonpreempted provisions and for items other than checks. Although the drafting committee initially intended to extensively coordinate Article 4 with Regulation CC, it ultimately abandoned this effort due to the extensive preemption that exists, and also because of the different character of the provisions in Article 4 and Regulation CC. In addition, the Federal Reserve Board has revised, and will continue to revise, Regulation CC administratively. State legislative processes move much more slowly than these administrative processes, making it very difficult to keep Article 4 and Regulation CC closely coordinated.

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