Problems in the adoption of the Uniform Commercial Code…

Problems in the adoption of the Uniform Commercial Code by a Civil Law Jurisdiction: the Louisiana case

Georgina Prieto

Introduction

As of now, the state of Louisiana’s version of the U. C. C. omits Articles 2 (on Sales), 2a (on Leases), 6 (Bulk on Sales), 9 (on Secured Transactions in Personal Property), 10 (on Effective Date and Repealer) and 11 (on Transition Provisions. Articles 7 (on Warehouse Receipts, Bills of Lading and Other Documents of Title) and 8 (on Investment Securities) were adopted in 1978 but its Article 8’s version follows the U. C. C. as amended in 1962. The 1977 revision of Article 8 has not been enacted in Louisiana (see 2(A) ULA, Master Edition).[1]

Since Louisiana’s version of the U. C. C. omits those articles enumerated above, it cannot be called a uniform code; moreover, since its format is not at all in the tradition of a civil law code, it cannot be called a “code”. Hence, the statute has been designated: “Commercial Laws” of Louisiana.

It should be noted that, in spite of omissions and changes, the sequence of sections in Title 10 of the Louisiana Revised Statutes follow those of the Uniform Commercial Code. Articles of the U. C. C. become Chapter in Title 10; but part and section numbering remains the same. Thus, in dealing with out the state lawyers, judges and others, the same set of numbers can be used. For example, a reference to U. C. C. Section 3-105 is to R. S. 10:3-105; and, the Louisiana adaptation of U. C. C. Section 1-205 may be cited as R. S. 10: 1-205.

Throughout the Uniform Commercial Code, a Cooperative relationship between Code and Non-Code law can be found. The Code frequently merely restates common-law rules. For examples: under Article 2 the obligation of the buyer to pay and, of the seller to tender, remain concurrent conditions, of each other; if either party wishes credit, he must bargain for it; U. C. C. Sections 2-507 and 2-511.

Similarly, Article 3 retains the common law doctrine that taking a negotiable instrument either in payment for or to secure an antecedent obligation constitutes the giving of value; U. C. C. Section 3-303. This section of the U. C. C. makes clear that in the law of negotiable instruments value and consideration are not synonymous. The baseline proposition as stated in Section 3-303(a) is that a holder takes for value only to the extent that the agreed consideration has been performed. This limitation established by Section 3-303(a) notwithstanding, in Section 3-303(b) it is specified that taking an instrument in payment of or as security for an antecedent debt constitutes the giving of value.

Another occasion where the Code does not require demonstrated reliance is where the holder gives a negotiable instrument for the negotiable instrument in question. (See U. C. C. Section 3-303(2)). The mere possibility that the negotiable instrument given will end up in the hands of a holder in due course is the justification for saying that value has been given in such transaction.

The drafters of Louisiana’s commercial statute have made a considerable effort to eliminate some of the aforementioned common law terminology from those articles of the U. C. C., which have been adopted. An example is Section 3-419 of the Louisiana legislation. This section deals with liabilities and defenses without regard to the common law concept of conversion referred to in the uniform text of that provision. An effort has also been made to stop common law and equity from penetrating the civil law traditions by the process of Code supplementation.

In the case of Daube v. Bruno,[2] the Supreme Court of Louisiana explained that the Louisiana legislature adopted the substance of the Uniform Commercial Code’s Section 3-419(1)(c) except for the deletion of the reference to conversion. In so doing, said the court, the lawmakers heeded the advice of the scholars who contend that it is unwise to import conversion theory into Louisiana law because established civil law actions are more appropriate and, in many respects, superior remedies.

Louisiana’s Supreme Court reasoned that, unlike other articles of the U. C. C., Article 3 is not a preemptive, systematic and comprehensive treatment of its area of coverage. Thus, said the Court, “it cannot be applied as a closed system from which most commercial paper questions can be deductively reasoned. Instead, resort must be had to the general tort law of conversion, and caution must be exercised not to extend coverage of a particular section of Article 3 beyond its scope…” Daube v. Bruno.[3]

These observations made by the Court appear to be a recognition that Article 3 is still a common law code, notwithstanding the deletion of some common law terms by the Louisiana legislature when it adopted parts of the Code. The Supreme Court of Louisiana concluded in Daube that, despite Louisiana’s deletion of the term “conversion” from Section 3-419, the provision must be read as identifying a few patterns of wrongful or improper conduct in the handling of instruments. The Court then held that the action by the true owner of the check against the bank for payment of the instrument in question was not an action of a negotiable instrument but was a delictual action subject to liberative prescription of one year.

Despite the Court’s observations made in the Daube case in relation to Article 3, the Code has been found to control in those parts, which are adopted in Louisiana as they appear in the U. C. C. In Darby v. Doucet,[4] for example, the Louisiana Court of Appeals held that Sections 3-415 rather than the Louisiana law of obligations, governs the rights of an accommodation comaker of a note. The comaker, said the court, is entitled to an action against the accommodated maker for the sum paid to the creditor.

Title 10 is designated in Section 1-101 as the “Commercial Laws” of Louisiana. Title 10 is divided into five Chapters”.

Chapter 1: Genera Provisions

Chapter 3: Commercial Paper

Chapter 4: Banks Deposits and Collections

Chapter 5: Letters of Credit

Former Title 7 on Bill and Notes was repealed: this matter is now covered in sections of Title 10. The former Uniform Bills of Lading Law (L. S. A. R. S. 45:901 to 45:955) and the former Uniform Warehouse Receipts Act (R. S. 54:1 to 54:58) are also now part of Title 10.

Besides the laws mentioned above, the subject matter of the former Uniform Stock Transfer Law (R.S. 12:621 to 12:643) as well as the matter relating to clearing corporations (R.S. 12:651) have been incorporated to the “Commercial Laws” of Louisiana (as the title has been designated in 10: 1-101).

Comparison with the U. C. C.

Chapter 1

10:1-101

As previously explained, Section 1-101 designates Title 10 as Louisiana’s “Commercial Laws”.

10:1-102

The drafters omitted the word “underlying” in subsection 1 and 2 because it seemed useless; it was considered enough to state the “purposes and policies” without characterizing them as “underlying”. Subsection (2)(c) was amended to show that Title 10 merely “promotes” but cannot accomplish uniformity.

10: 1-103

The original U. C. C. text was rejected. The Louisiana statute makes clear that the rest of Louisiana law implements the commercial law if a situation is not covered by the latter.

10: 1-104

This section is similar to its U. C. C. counterpart.

10: 1-105

This section (added in 1974) is similar to U. C. C. Section 1-105 but the references made in the U. C. C. to Sections 2-402; 6-102(4), 8-106 and 9-103 were deleted. Louisiana has not adopted Articles 6 and 9; its version of Article 8 dates from 1978.

Subsection 1 states the rights of the parties in a multi-state or foreign trade transaction to choose their own laws subject to the rules given in subsection (2). The comment makes clear that especially in Article 9 parties taking a security interest or asked to extend credit which may be subject to a security interest, these must have sure ways to find out whether and where to file and where to look for possible existing filings. “Section 9-103”, reads the U. C. C. comment “should be consulted as to the rules for perfection of security interests and the effects of perfection and non-perfection.”

10: 1-107

Is similar to U. C. C. Section 1-107.

10: 1-108

Section 1-108 (Severability) of the U. C. C. was deleted entirely. The Comment notes that there is a severability clause in the enacting statute.

10: 1-109

Was deleted entirely; considered contrary to Louisiana policy.

10: 1-201

This section deals with general definitions. The Comment points out several differences with the U. C.C.:

(a) “Bill of Lading”: The U. C. C. definition refers to “marine” or rail transportation”. The Louisiana statute was amended to refer to “marine or land” transportation so as to include bus or trucks transportation.

(b) “Conspicuous”: The last sentence was deleted because it was considered inappropriate in Louisiana.

(c) “Delivery”: The clause “actual or constructive, from one person to another” was included. It is pointed out in the Comment that the omission of this clause in the U. C. C. has been the subject of litigation.

(d) “Notice”: The last two sentences of the official U. C. C. text were deleted because they were regarded as unnecessary.

(e) “The following definitions found in the U. C. C. were entirely deleted:

(1) “Action”: regarded as conflicting with La. C. C. P. Arts. 421 and 1031.

(2) “Aggrieved Party”: considered unnecessary.

(3) “Agreement”: U. C.C.’s definition considered incomplete, inaccurate and unnecessary.

(4) “Banks”: considered a poor and unnecessary definition.

(5) “Buyer in ordinary course of business”: definition tied to Article 2 (Sales) of the U. C. C., which has not been adopted in Louisiana.

(6) “Contract”: U. C. C. definition considered incomplete, inaccurate and unnecessary.

(7) “Defendant”: considered unnecessary since term is defined in C. C. P. Art. 1040.

(8) “Fault”: definition considered as incomplete and mislead­ing.

(9) “Genuine”: U. C. C. definition considered too restrictive.

(10) “Security Interest”: Definition tied up to Article 9, which has not been adopted in Louisiana.

10: 1-201

Is similar to its U. C. C. counterpart.

10: 1-203

Is similar to its U. C. C. counterpart.

10: 1-204

Is similar to its U. C. C. counterpart.

10: 1-205

Is similar to its U. C. C. counterpart.

10: 1-206

U. C. C. Section 1-206 was entirely deleted because Articles 2277, 2278 and 2241 of the La. C. C. cover the area.

10: 1-207

Is similar to its U. C. C. Section 1-207.

10: 1-208

Is similar to its U. C. C. Section 1-208.

10: 1-209

This section of the U. C. C. was not adopted. The drafters regarded this section as an optional one that has not been favorably received generally.

Chapter 3

This Article represents a complete revision and modernization of the Uniform Negotiable Instruments Law. Is should be noted here that this Article does not apply in any way to the handling of securities; Article 8 deals with that subject.

Article 3 consists of eight parts.

  1.  Part 1: Short Title, Form and Interpretation

10: 3-101

Is similar to U. C. C. Section 3-101 in form but reads as follows: “This Chapter shall be known and may be cited as Commercial Laws-Commercial Paper”.

10: 3-102

(On Definitions) Is similar to U. C. C. Section 3-102.

10: 3-103

Is similar to U. C. C. Section 3-103. This section makes clear that Article 3 is restricted to commercial paper drafts, checks, certificates of deposit and notes as defined in Section 3-104(2).

Subsection 1 expressly excludes any money (which is negotiable at common law or under separate statutes). Subsection also excludes documents of title (like bills of lading or warehouse deposits, which fall under Article 7) and investment securities, which falls under Article 8.

10: 3-104 to 10: 3-123

Sections 10: 3-104 to 10: 3-123 are all similar to the U. C.C.’s corresponding sections.

  1.  Part 2: On Transfer and Negotiation

10: 3-201

The language in subsection (2) was changed to avoid reference to an Article 9. Security interest. Article 9 has not been adopted in Louisiana. Otherwise, this section is similar to the U. C. C.

10: 3-202 to 10: 3-208

Sections 3-202 to 3-208 are similar to the U. C. C.

  1. Part 3: Rights of Holder

10: 3-301 to 10: 3-307

These sections are similar to their U. C. C. counterparts.

  1. Part 4: Liability of Parties

10: 3-401 to 10: 3-419

All of these sections are similar to the corresponding sections of the U. C. C. in the same way as the U. C. C. Section 3-415 refers to the Contract of Accommodation Party and Section 3-416 to the Contract of Guarantor. These sections define and delineate the obligations of the accommodating party whether he is an accommodation maker, an acceptor or an accommodation indorser. They also define the obligations of an indorser who guarantees payment as well as those of the guarantor who has only given a guaranty of collection.

  1. Part 5: Presentment, Notice of Dishonor and Protest

10: 3-501 to 10: 3-511

These sections are all similar to the U. C. C.’s corresponding sections.

  1. Part 6: Discharge of Parties

10: 3-601 to 10: 3-606

These sections are similar to the U. C.C. counterparts.

  1. Part 7: Advice of International Sight Draft

10: 3-701

Consists of only one section, which is similar to its U. C.C. counterpart.

  1.  Part 8: Miscellaneous

10: 3-801

Is similar to U. C.C. Section 3-801.

10: 3-802 to 10: 3-804

Were left blank. These sections were deleted because they were considered unnecessary to the principle of uniformity and because they tend to conflict with Louisiana law.

10: 3-805

Is similar to U. C. C. Section 3-805. This chapter applies to any instrument whose terms do not preclude transfer and is otherwise negotiable but not payable to order or bearer, except that there can be no holder in due course of such an instrument.

10: 3-806

Former R. S. 7: 251 which was part of the old Negotiable Instruments Law was retained.

10: 3-807

Former R. S. 7: 252 was also retained; this section refers to figures to express sum.

CHAPTER 4

On “Banks Deposits and Collections consist of five parts:

Part 1

10: 4-401 to 10:4-109

All of these sections are similar to the U. C. C.’s corresponding sections except for Section 4-102(2) where the reference to the U. C.C.’s Article 8 was deleted.

Part 2

10: 4-201 to 10: 4-214

All of the sections in this part dealing with depositary and collecting banks are similar to their U. C. C. counterparts.

Part 3

10: 4-301 to 10: 4-303

All the three sections of this part dealing with payer banks are similar to U. C. C. Sections 4-301 to 4-302.

Part 4

10: 4-401 to 10: 4-407

This section which deal with the relationship between payer bank and its customer are similar to U. C. C. Sections 4-401 to 4-407.

Part 5

10: 4-501 to 10: 4-504

All of these sections dealing with the collection of documentary drafts are similar to U. C. C. Sections 4-501 to 4-504.

Chapter 5

Letters of Credit

10: 5-101

This section is similar to U. C. C. Section 5-101.

10: 5-102

This section is similar to U. C. C. Section 5-102.

10: 5-103

A change was made in subsection (1)(a) which defines Credit or Letter of Credit to indicate that a credit has to “clearly state whether it is revocable or irrevocable and, in the absence of such statement, shall be presumed to be irrevocable”.

The definitions “Contract of Sale” (which refers to U. C.C. Section 2-106) and “Security” (referring to U.C.C. Section 8-102) were omitted. This section was added in 1974 and Louisiana adopted Article 8 in 1978. Article 2 has never been adopted.

10: 5-104 to 10: 5-106

These sections are similar to their U. C.C. counterparts.

10: 5-107

The additional language was added in subsection (4) to make sure that this section is read in context with 10: 5-109.

10: 5-108 to 10: 5-110

These sections are similar to their U. C. C. counterparts.

10: 5-111

Parts of Subsections (1) and (2) were deleted in order to avoid all references made in the U. C. C. to Articles 7 and 8.

10: 5-112 to 10: 5-117

These sections are similar to Sections 5-112 to 5-117 of the U. C. C.

Chapter7. Warehouse Receipts, Bills of Lading and other documents of title (Acts 1978, No. 164, Section 1 Enacted Chapter 7)

Part 1

10: 7-101 to 10: 7-105

All are similar to the U. C.C.’s corresponding sections.

Part 2

10: 7-201 to 10: 7-203

Are similar to U. C. C. Sections 7-201 to 7-203.

10: 7-204

Subsections 3 and 4 of its U. C. C. counterpart were deleted. Among other things, subsection 3 would allow a contractual shortening of prescription which was found undesirable in Louisiana.

10: 7-205

Is similar to U. C. C. Section 7-205.

10: 7-206

Is also similar to U. C. C. Section 7-206.

10: 7-207

Is similar to Section 7-207 of the U. C. C.

10: 7-208

This section is similar to Section 7-208 of the U. C. C.

10: 7-209

This section was entirely re-written for stylistic reasons as wells as to clarify the rights contained in the U. C. C. text.

10: 7-210

For stylistic reason, the phrase “in the case of a public sale, the time and place thereof” was added to the U. C. C. text in the second sentence of Subsection one.

Also, the word “conversion” was deleted in Subsection 9 and replaced with the word “misappropriation” so as to conform with Louisiana terminology.

Part 3: Bill of Lading: Special Provisions

10: 7-301 to 10: 7-302

The sections are similar to the U. C. C. Sections 7: 301 and 7: 302.

10: 7-303

The word “depositary” found in Subsection 2 was substituted for the word “bailee” in order to conform with Louisiana terminology.

10: 7-304

The word “depositary” was in two instances substituted for the word “bailee” in Subsection 5 for the same reason given above.

10: 7-305

This section is similar to Section 7:305 of the Uniform Commercial Code.

10: 7-306

This section is similar to U. C. C. Section 7:306.

10: 7-307

Several stylistic changes were made in the U. C. C. text: the parentheses were removed, a comma was placed after the word “transportation” and the word “including” was deleted. Likewise, whenever the word “bailee” appeared, the word “depositary” was substituted for it.

10: 7-308

The same changes pointed out in 10: 7-210 were made in this section for the same reason.

10: 7-309

The word “man” (found in Subsection (1) WAS CHANGED TO “person”, the word “conversion” (found in Subsection 2) was changed to “misappropriation”.

Subsection 3 was entirely deleted for the same reasons for which 10: 7-204(3) was deleted.

Part 4. (Warehouse Receipts and Bills of Lading: General Obligations)

10: 7-401

The word “depositary” was substituted for “bailee” in Subparagraph (c) in order to conform with Louisiana terminology.

10: 7-402

This section is similar to U. C. C. Section 7:402.

10: 7-403

The word “depositary” was used instead of “bailee” in Subsections 1, 2 and 3.

The phrase found in U. C. C. Section 7: 403(1)(b) reading “but the burden of establishing negligence in such cases is on the person entitled under the document” was deleted; it was considered unimportant and many states have disregarded it.

The phrase found in Subsection 1(d) reading “pursuant to the provision of the Article on Sales (Section 2-705)” was deleted because this section has not been adopted in Louisiana.

10: 7-404

The word “depositary” was used instead of “bailee”.

Part 5 (Warehouse Receipts and Bills of Lading: Negotiation and Transfer)

10: 7-501

This sections is similar to Section 7-501 of the U. C. C.

10: 7-502

The words “agency or estoppel” were deleted because it was considered unnecessary to limit the right involved to those existing under the law of agency or estoppel.

The word “depositary” was substituted for the word “bailee”; the word “misappropriation” was substituted for the word “conversion”. The changes were made to conform with Louisiana terminology.

10:7-503

The phrase “an interest protected by law” was used instead of the phrase contained in the U. C. C. “a legal interest or a perfect security interest in them” because the latter deals with concepts found in Article 9, which Louisiana has not adopted.

Also, the last clause of Subsection 7(a) of the U. C. C. which makes reference to Section 2-403 and Section 9-307 was replaced by the phrase “under any applicable law”. Sections 2-403 and 9-307 do not exist in Louisiana; the La. version is intended to cover ownership rights under Louisiana law as well as under other states’ law.

10: 7-504

Subsections 2, 3 and 4 (U. C. C. Section 7: 504 (2)(3)(4) were deleted because these U. C. C. subsections are based upon Art. 2 which Louisiana has not adopted. The area is covered by applicable Louisiana laws.

10: 7-505

The word “depositary” was used instead of “bailee”.

10: 7-506

This section is similar to U. C. C. Section 7-506.

10: 7-507

This section is similar to U. C. C. Section 7-507.

10: 7-508

This section is similar to U. C. C. Section 7-508.

10: 7-509

The words “contract to sell” were used instead of “contact for sale”.

Part 6 (Warehouse Receipts and Bills of Lading: Miscellaneous Provision)

10: 7-601

In Subsection (2) everything found in the U. C. C. after the word “thereby” was deleted because its source was the common law concept of “conversion”.

10: 7-602

The word “depositary” was used instead of “bailee”.

10: 7-603

The term “interpleader” is used in the U. C. C.; in Louisiana the term “concursus” in used for the similar Louisiana proceeding. Therefore, the term “concursus” was substituted for “interpleader”.

Part 7 (Fraud Through the Use of a Document of Title)

10: 7-701

There is no counterpart to this section in the Uniform Commercial Code.

Chapter 8. Investment Securities

Although the title of Article 8 has not been changed, its coverage has been broadened to include both, securities which are reifed, i.e., represented by certificates or other instruments, and those which are not. The former are defined as “certificated securities” while the latter –which are now expressly covered by the Uniform Commercial Code –are designed in revised Article 8 as “uncertificated securities”.

Louisiana has not enacted the 1977 revision of Article 8. Thus its version of Article 8 deals only with “certificated securities” which constitutes the entire subject matter of pre-1977 Article 8.

Notas al Calce

[1] Louisiana adopted the 1972 Revision of Article 9 (on Secured Transaction) by its enactment of Law 528 in 1988; this Law becomes effective on January 1, 1990.
[2] 493 So. 2d. 606 (La 1986)
[3] supra, at p. 608.
[4] 482 So. 2d. 986 (1986)