2025 Colorado Revised Statutes
Title 4 - Uniform Commercial Code (Arts. 1 - 13)
Article 1 - General Provisions (Pts. 1 - 3)

Annotations

Commentary

From its inception, the Article 1 Drafting Committee performed two related, but distinct, tasks — revision of the current text of Uniform Commercial Code Article 1 and harmonization of ongoing UCC projects. This draft represents the product of one of those tasks — revision of the provisions of Article 1. The other task entailed the Drafting Committee serving as a harmonization committee for the purpose of seeking to insure that the Uniform Commercial Code speaks with a single voice to the extent appropriate.

After lengthy analysis and discussion, the Drafting Committee decided to recommend a relatively small number of substantive changes to the law as it is currently set forth in Article 1. Those changes, concerning scope of the Article, applicability of supplemental principles of law, the concept of good faith, choice of law, the relevance of course of performance between the parties, and the existence of an independent statute of frauds, are described in some detail in Part II below. The changes with respect to choice of law are probably the most important changes in this draft and were the subject of more extensive Drafting Committee analysis and deliberation than any other topic.

In addition to these substantive changes, the Drafting Committee decided to make some structural changes to Article 1. These structural changes, intended to make this Article more closely fit with the drafting conventions of the more recently addressed Articles and to lessen some difficulties in interpretation, are described in Part III below. Other than these structural changes, the Drafting Committee generally decided to resist the temptation to make non-substantive changes to provisions that have not been a source of serious problems in the nearly four decades since the widespread enactment of the UCC. A few such changes should be noted, however. First, as in all of the other UCC Articles promulgated in the last decade, provisions have been reformulated in a gender-neutral fashion. Second, in a very small number of cases, minor changes in wording have been made when the current wording has proven confusing. Those changes are noted in the Official Comments following each section but are not otherwise described in this Prefatory Note.

II. Substantive Issues

The following are significant substantive issues raised by changes from current Article 1, in the order of their appearance in the draft:

A. Scope

Article 1 contains a relatively small number of substantive rules, but those rules are of fundamental importance. Occasionally courts and commentators have expressed uncertainty as to which transactions are governed by the substantive rules. Section 1-102 expresses a point that is implicit in current Article 1 — namely, that the substantive rules in Article 1 apply only to transactions within the scope of the other Articles.

B. Applicability of Supplemental Principles of Law

This draft merges subsections (1) and (2) of current Section 1-102 (concerning the underlying purposes and policies of the UCC) and current Section 1-103 (concerning the applicability of supplemental principles of law) into a revised Section 1-103. The provisions have been combined in this Section to reflect the interrelationship between the Code’s purposes and policies and the extent to which other law is available to supplement it. Except for changing the form of reference to the Uniform Commercial Code, subsection (b) of this Section is identical to current Section 1-103. The revised Official Comments to this Section, though, give more helpful guidance as to the distinction between situations in which Code provisions preempt the application of other law and those in which such supplementation is permissible.

C. Good Faith

Section 1-201(19) replaces the current definition of “good faith ” (“honesty in fact in the conduct or transaction concerned”) with the definition adopted by all but one of the recently revised UCC Articles as well as drafts of Revised Articles 2 and 2A — “honesty in fact and the observance of reasonable commercial standards of fair dealing. ” The Section explicitly provides, however, that its definition of “good faith ” is subordinate to the narrower definition in UCC Article 5. In addition to centralizing the developments already taking place in other Articles, the new definition resolves any ambiguity as to the proper definition to apply to the general duty of good faith imposed by Article 1.

D. Choice of Law

Section 1-301 represents a significant rethinking of choice of law issues addressed in current UCC Section 1-105. The new section reexamines both the power of parties to select the jurisdiction whose law will govern their transaction and the determination of the governing law in the absence of such selection by the parties. With respect to the power to select governing law, the draft affords greater party autonomy, but with important safeguards protecting consumer interests and fundamental policies. While the Drafting Committee considered also addressing the related topic of forum selection clauses, it ultimately decided that there was no need for uniform commercial law to govern such clauses.

1. Contractual Designation of Governing Law

Revised UCC section 1-301 addresses contractual designation of governing law somewhat differently than does current section 1-105. Current law allows the parties to any transaction to designate a jurisdiction whose law governs if the transaction bears a “reasonable relation ” to that jurisdiction. Revised Article 1 deviates from this unified approach by providing different rules for consumer transactions than for “business to business ” transactions.

In the context of consumer transactions, revised Article 1, unlike current law, protects consumers against the possibility of losing the protection of consumer protection laws of their home jurisdiction.

In the context of business-to-business transactions, revised Article 1 generally provides the parties with greater autonomy to designate a jurisdiction whose law will govern than does current Article 1, but also provides some safeguards against abuse that do not appear in current Article 1. Following emerging international norms, greater autonomy is provided in subsections (b) and (c) by deleting the requirement that the transaction bear a “reasonable relation ” to the jurisdiction designated in this non-consumer context. It should be noted in this regard that in the case of wholly domestic transactions the jurisdiction designated must be a State. An important safeguard not present in current law is provided in subsection (e). Subsection (e) indicates that the designation of a jurisdiction’s law is not effective (even if the transaction bears a reasonable relation to that jurisdiction) to the extent that application of that law would be contrary to a fundamental policy of the jurisdiction whose law would govern in the absence of contractual designation. Application of the law designated may be contrary to a fundamental policy of the State or country whose law would otherwise govern either because of the nature of the law designated or because of the “mandatory ” nature of the law that would otherwise apply.

2. Choice of Law in the Absence of Contractual Designation of Governing Law

In the absence of an effective contractual designation of governing law, current UCC section 1-105(1) directs the forum to apply its own law if the transaction bears “an appropriate relation to this state. ” This provision, however, is frequently ignored by courts. Revised UCC section 1-301(b) provides simply that, in the absence of contractual designation, the court should apply the forum’s choice of law principles.

E. Course of Performance

Section 1-304 adds the concept of “course of performance, ” currently utilized only in Articles 2 and 2A, to course of dealing and usage of trade as the contextual clues that a court may use to interpret a contract.

F. Statute of Frauds

The Statute of Frauds “for kinds of personal property not otherwise covered ” that appears in current Section 1-206 has been deleted. The Drafting Committee noted that the other Articles of the Uniform Commercial Code make individual determinations as to writing requirements for transactions within their scope, so that the only effect of Section 1-206 was to impose a writing requirement on transactions not otherwise governed by the UCC. The Drafting Committee decided that it is inappropriate for Article 1 to impose such writing requirements.

III. Structural Issues

A. General Organization

Current Article 1 is divided into two parts. Part 1 is entitled “Short Title, Construction, Application and Subject Matter of Act. ” Part 2 is entitled “General Definitions and Principles of Interpretation. ” The rationale for placement of particular sections in one part or the other is occasionally obscure. This draft reorganizes Article 1 into three parts. Part 1 — “General Provisions ” — contains general rules about the UCC as a whole. Part 2 — ”General Definitions and Principles of Interpretation ” — contains the Code’s major definitional section as well as additional rules of interpretation. Part 3 — “Territorial Applicability and General Rules ” — contains substantive rules that apply to all transactions that are within the scope of the Code.

B. Relocation of Substantive Rules Embedded in Definitions

The Drafting Committee identified four cases in which definitions in Section 1-201 were made unnecessarily complicated by substantive rules embedded within them. Extracting those substantive rules and placing them in their own sections enables those rules to be presented more effectively and is more consistent with current drafting principles in many states.

The rules concerning notice and knowledge have been moved from their current location in three subsections of Section 1-201 to a separate substantive section. The Drafting Committee believes that the concepts are more clearly articulated in this fashion.

In current Article 1, the definition of “security interest ” consists of a short paragraph elucidating a basic principle that resolves almost every issue, followed by over 50 lines of clarification and qualification that serve only one function — distinguishing “true leases“ from transactions that are leases in form but security interests in substance. This extended rule even contains a nested definition of the term “present value, ” which it uses as part of drawing the distinction between true leases and security interests. The portion of the definition of “security interest ” that distinguishes true leases from security interests has been moved to a separate substantive section. As a result, the remaining portion of the definition of “security interest ” is shorter and clearer. The definition of “present value ” is moved to its own definitional subsection.

Whether a person acquires rights “for value ” is at present the subject of a definitional provision in current Section 1-201(44). Yet, as the NCCUSL Committee on Style correctly noted to the Drafting Committee, the provision is more appropriately articulated as a free- standing rule. It has been moved to Section 1-204.

Research References & Practice Aids

C.R.S. Title 4

State Notes

Notes

This article was numbered as article 1 of chapter 155, C.R.S. 1963. The provisions of this article were repealed and reenacted in 2006, resulting in the addition, relocation, and elimination of sections as well as subject matter. For amendments to this article prior to 2006, consult the Colorado statutory research explanatory note and the table itemizing the replacement volumes and supplements to the original volume of C.R.S. 1973 beginning on page vii in the front of this volume. Former C.R.S. section numbers are shown in editor’s notes following those sections that were relocated.

Research References & Practice Aids

For article, “Commercial Law”, which discusses Tenth Circuit decisions dealing with commercial law, see 61 Den. L.J. 205 (1984); for article, “Commercial Law”, which discusses Tenth Circuit decisions dealing with commercial law, see 62 Den. U.L. Rev. 79 (1985); for article, “Commercial and Corporate Law ” which discusses Tenth Circuit decisions dealing with commercial law, see 64 Den. U.L. Rev. 165 (1987); for comment, “Bad Faith Lenders”, see 60 U. Colo. L. Rev. 417 (1989); for a discussion of Tenth Circuit decisions dealing with commercial law, see 67 Den. U.L. Rev. 649 (1990).