Interpreting Article 1, Section 103
Prof. Bill Long 1/15/06
This and the next two essays will lay out various approaches that courts have taken to understanding one of the seemingly most straightforward but actually most important and difficult sections of the Code--1-103. Because Article 1 gives general priniciples that apply throughout the rest of the nine or so articles, we must pay close attention to these general principles of interpretation. Section 1-103 provides:
"Unless displaced by the particular provisions of this code, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions."
This provision has been described by the leading commentary on the UCC as:
"probably the most important single provision in the Code. It continues the applicability of general principles of law and equity except insofar as they are 'displaced by particular provisions' of the Code. Thus many branches of general contract law, of the law of agency, of property law, etc., continue to apply under the Code." (1 White & Summers, Uniform Commercial Code (3d ed. 1988) Introduction, § 5, p. 19.)
The purpose of this and the next essay is to describe what I consider to be three approaches to construing 1-103. For ease of reference I will call them the (1) explicitly displace, the (2) broad principle displacement, and the (3) supplementation approaches.
Two Preliminary Observations
Before exploring these three approaches, I have two initial comments. First, because Article 1 applies throughout the Code, the cases construing 1-103 always construe another Article in the Code, too. Most of these cases interpret Articles 3 and 4, though many deal with Article 2. This explains why I refer below to a case or two from Articles 3 or 4. You don't have to know the substantive provisions of the latter articles--I give them to illustrate the point. Second, the problem I discuss here can be grasped in a nutshell by noticing how the Official Comment to 1-103 has evolved over the years, even though the language of the substantive provision has not changed. In the original version of Article 1 (in place before 2001), Official Comment 1 provided:
"While this section indicates the continued applicability to commercial contracts of all supplemental bodies of law except insofar as they are expliclty displaced by this Act...."
But this "explicitly displaced" language was changed in the 2001 version of Article 1. Official Comment 2 of the current Article 1 was written in the wake of a few decades of cases construing 1-103. Its approach is to emphasize that the principles of the common law and equity may be used to supplement the UCC, they cannot be used to supplant the Code. The Comment goses on to say that "some courts...had difficulty in applying the identical language of former Section 1-103 to determine when other law appropriately may be applied to supplemenet the UCC and when that law has been displaced by the Code. The Comment goes on:
"Some decisions applied other law in situations in which that application, while not inconsistent with the text of any particular provision of the UCC, clearly was inconsistent with the underlying purposes and policies reflected in the relevant provisions of the Code."
It gave as an example of this tendency the Sherbonnet case (discussed in a later essay). The Comment then recognized that confusion arose because of the "explicitly displaced" language in Comment 1 of the pre-2001 version of Article 1. But now the drafters wanted to be unambiguous:
"The 'explicitly displaced' language of that Comment did not accurately reflect the proper scope of UCC preemption, which extends to displacement of other law that is inconsistent with the purposes and policies of the UCC, as well as with its text."
Conclusion
Now we are ready to understand the three theories of "displacement" that grew up between the drafting of the Official Comments to 1-103 of original Article 1 and current Article 1. We should understand these following theories in the context of the new wording of Official Comment 2. That is, the latest version of Article 1 wants to set up a higher wall around the UCC when other bodies of law are implicated. The drafters of the Code want the UCC to trump not only when there is an explicit textual overlap between the Code and other bodies of law, but also when the "purposes and policies" of the Code are implicated.
But all this stuff is academic so far. You need to read the next two essays to see courts at work trying to apply 1-103.
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