1-301 and Uniform Commercial Code and revised article one

I have asked you to study new 1-301 for today, and I plan to point out a few changes that it effected from the old 1-105, its predecessor section. Rather than just going through the changes one after another, I thought I would quote from Professor John White, one of the leading commentators on the UCC and one of a dozen members on the final drafting committee for the revised Article 1. These comments are taken from 3 DePaul Business & Commercial Journal 519 (2005) which recorded his words from a conference on the UCC held at DePaul last April. I will give his quotation, beginning on p. 526, and then the footnotes on which he bases his comments.

I am asking you to look at the new or revised Article 1 on this issue not because it is operative in any state, but because it reflects what we might say is the best current legal thinking. This is thinking that may be indicative of a trend that will "catch on" in the ensuing years or decades but which, because it faces the hard realities of the political process in individual states, is unlikely to be enacted immediately. Thus, if you are practicing in any jurisdiction, you will probably be under the old Article 1 (and section 1-105), but now you know what thoughtful lawyers and professors are thinking about these issues. White says:

"Let me talk for one minute or two about Section 1-301. [FN21] This is the most contentious part of revised Article 1. It replaces old 1-105 on choice of law. I don't know about the last two jurisdictions, Montana and Arkansas, but all of the other eight jurisdictions that have adopted Article 1 have omitted revised 1-301 in their versions. One part of it authorizes two parties to adopt the law of a jurisdiction, even though they have no relationship to that jurisdiction. [FN22] So that if you and I are in Fort Worth, Texas and we want to use New York law, we can. Under the conventional rules of choice of law--including the Restatement--we could not do that. We've all seen cases that disregard a choice of law term in a contract because there is no sufficient contact with the state whose law is chosen. Revised 1-301 will change that.

Secondly Section 1-301 makes clear that Article 1 and the choice of law provisions in Article 1 are inapplicable unless the transaction is somehow under another Article of the UCC. [FN23] So if you and I signed a contract for the sale of services not covered by Article 2 or any other article of the UCC, 1-301 doesn't apply and the choice of law provisions in Article 1 don't apply. But assuming that our transaction is for the sale of securities and under Article 8 or that it is for the sale of goods and so under Article 2, Article 1 would apply and 1-301 would apply, and it would allow us to choose the law of any state.

The principal controversy in 1-301 is 1-301(e). [FN24] I was on the Article 1 committee late in the game, so I bear a small responsibility for this, and I apologize to you for not opposing it. If one of the parties to a transaction is a consumer, first of all, you can only choose law of a state that has a relation to the transaction. But the controversial provision says "Application of a law of a state or country determined pursuant to subsection (c) or (d) may not deprive the consumer of the protection of any rule of law governing a matter within the scope of this section which both is protective of consumers and may not be varied by agreement." [FN25] What does that mean? It means that if I live in Minnesota and there is a non-variable consumer provision of Minnesota law that somehow affects something under the UCC, I carry that law with me when I deal with you over the internet in California. In other words, even though you include a choice-of-law provision choosing California law, and even though the seller is in California, I am not deprived of this right that I have under Minnesota law. Can you imagine what the internet merchants and catalog sellers thought of that rule? They said, 'What are you talking about? Do we have to know the consumer law of every state?' And the answer was, "maybe yes." One concession made to these sellers was to exclude certain face-to-face transactions; if you come to California and you buy a lawn mower from me and take possession in California, then you lose your right to the Minnesota statute.

The main answer of the drafters was that this won't happen often. There is very little non-variable law that would apply to an Article 2 transaction. Non-variable rules are more likely to apply to consumer leases, or to notice requirements on repossession or things like that. That may be true, but this provision really got sellers excited, and the consequence of this particular language is that 1-301 has not, to my knowledge, been adopted in any of the states that have adopted revised Article 1.

Of course, this means that the salutary provision, which would have allowed businesses to choose unrelated law, is thrown out and the adopting states typically insert a form of old 1-105. So it's unfortunate that was lost, but so be it. In the materials that will be handed out, there is an elaborate discussion of 1-301. Because it is unlikely to be adopted, I am not going to talk more about it here today."

And the footnotes.

[FN21]. U.C.C. § 1-301 (2004).

[FN22]. Id.

[FN23]. U.C.C. § 1-301(b) (2004).

[FN24]. U.C.C. § 1-301(e)(2) (2004).

[FN25]. Id.

One final point. The 10 jurisdictions that had adopted a Revised Article 1 when White gave his talk 9 months ago are: AL, AR, DE, ID, MN, MT, TX, VA and the Virgin Islands. I guess I am missing one at this point. I will get back to you on it.

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