1. Characteristics of the Commercial Code
2. Articles of the UCC
3. Real Estate Contracts
4. Service Contracts

When does California commercial code apply? These laws are used to establish business guidelines for those who engage in commerce in the state, based on the federal Uniform Commercial Code (UCC). Some of the areas covered by the California commercial code include leases, bank deposits, sales, negotiable instruments, fund transfers, bulk transfers and bulk sales, letters of credit, documents of title, warehouse receipts, secured transactions, and investment securities.

Characteristics of the Commercial Code

Merchants, those who profit from commercial goods purchases and sales, benefit from these streamlined regulations. The UCC governs the sale and transfer of personal property, but not real estate transactions or financing. This code strives to create consistency in state guidelines that regulate business dealings, since most merchants engage in business across state lines.

The UCC was published originally in 1952 and since has been frequently revised. These laws are recommended, but states are not required to adopt them. California's commercial code largely mirrors the UCC, with some variations. In addition to merchants, the UCC is also applicable to small-business owners and entrepreneurs. It was first developed to solve two U.S. business problems:

  • The complex and diverse legal requirements for businesses in each state
  • Differences in state law that made interstate commerce difficult

The UCC is organized in nine articles, each associated with a specific area of commercial law. Under the UCC, entities can draft their own contracts. Provisions that are not included in those contracts will be supplemented with those in the UCC if applicable. The UCC is designed to minimize legal formalities, streamline routine transactions, and rely on the customs of each industry.

The National Conference of Commissioners on Uniform State Laws and the American Law Institute periodically review and revise the UCC, including cross-references to prior acts and the official comments, which are treated as authority by the states when constructing their codes.

Secured property is the most common type of UCC transaction. The UCC has a central filing office that reviews all documents for compliance with the statutes. They are either accepted or rejected, then filed so they can be requested by the public.

Articles of the UCC

All nine UCC articles were adopted by California as follows:

  • Article 1 deals with general provisions, definitions, and rules of interpretation.
  • Article 2 deals with sales, excepting security transactions, and those to specialized classes of buyers, such as farmers.
  • Article 3 applies to negotiable instruments except for payment orders, securities, or money.
  • Article 4 deals with a bank's liability for deposits. Article 4A covers funds transfers and payment orders made by the bank.
  • Article 5 deals with letters of credit.
  • Article 6 applies to asset liquidation and bulk sales.
  • Article 7 applies to goods storage and bailment.
  • Article 8 is associated with investment securities.
  • Article 9, secured transactions, applies to all transactions that create a security interest, agricultural liens, sales of accounts, promissory notes, intangibles, and consignments.

Real Estate Contracts

Real estate contracts are one of the main exceptions to the UCC. If you sign a contract to purchase a new warehouse, building, or factory, the laws regulating this contract are not found in the California commercial code. Instead, they are in the cases, laws, and regulations that are specifically associated with real estate.

In California, real estate purchases are governed by a real property sales contract used to purchase the property from the buyer over time by making monthly payments. When the full contract amount is paid, the title is transferred from the seller to the buyer. This type of contract is defined and governed by California's civil code, which also covers contract transfers, records, and installment payments.

Service Contracts

The UCC also does not govern service contracts, such as those used in businesses like auto repair, house painting, interior decorating, software development, equipment repair, and so on. The laws governing these contracts are typically found in state insurance laws. They also rely on the general principles of contract law, usually found in the common law of the state. In general, this type of contract should specify what the service provider will and will not do. The UCC also does not apply to employment contracts.

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