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The Uniform Commercial Code Drafting Process: Will Articles 2, 2B and 9 Be Fair to Consumers?

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The Uniform Commercial Code Drafting Process: Will Articles 2, 2B and 9 Be Fair to Consumers? Washington University Law Review Volume 75 Issue 1 Consumer Protection and the Uniform Commercial Code January 1997 The Uniform Commercial Code Drafting Process: Will Articles 2, 2B and 9 Be Fair to Consumers? Gail Hillebrand University of California, San Diego Follow this and additional works at: https://openscholarship.wustl.edu/law_lawreview Part of the Commercial Law Commons, Computer Law Commons, and the Consumer Protection Law Commons Recommended Citation Gail Hillebrand, The Uniform Commercial Code Drafting Process: Will Articles 2, 2B and 9 Be Fair to Consumers?, 75 WASH. U. L. Q. 69 (1997). Available at: https://openscholarship.wustl.edu/law_lawreview/vol75/iss1/3 This Symposium is brought to you for free and open access by the Law School at Washington University Open Scholarship. It has been accepted for inclusion in Washington University Law Review by an authorized administrator of Washington University Open Scholarship. For more information, please contact [email protected]. THE UNIFORM COMMERCIAL CODE DRAFTING PROCESS: WILL ARTICLES 2, 2B AND 9 BE FAIR TO CONSUMERS? GAEL HILLEBRAND TABLE OF CONTENTS I. INTRODUCTION AND SCOPE OF CHANGES TO THE UCC AFFECTING CONSUMERS ARISING IN ARTICLES 2, 2B, AND 9 .............................. 73 A. ProposedChanges to Basic ContractLaw for the Sale of Goods Would Both Help and Harm Consumers..................................... 75 B. New Law on Software Licensing and On-Line ServicesFavors Licensors..................................................................................... 76 C. The Draft Revisions to Article 9 FavorCreditors .......................... 79 * B.A., Economics, University of California at San Diego; J.D., Boalt Hall School of Law, University of California at Berkeley. Litigation Counsel, West Coast Regional Office, Consumers Union. She joined the office in 1985. Before joining Consumers Union, Ms. Hillebrand clerked for the Honorable Robert Boochever of the Ninth Circuit U.S. Court of Appeals and practiced with the San Francisco office of McCutchen, Doyle, Brown & Enersen. At Consumers Union, Ms. Hillebrand engages in legislative and administrative advocacy, brings litigation when necessary, and manages the credit and finance team of the West Coast Regional Office. She focuses mainly on the issues of banking, consumer credit, consumers' legal rights and remedies, the Community Reinvestment Act, and the Uniform Commercial Code revision process. Consumers Union is a nonprofit membership organization chartered in 1936 under the laws of the State of New York to provide consumers with information, education, and counsel about goods, services, health and personal finance, and to initiate and cooperate with individual and group efforts to maintain and enhance the quality of life for consumers. Consumers Union's income is solely derived from the sale of Consumer Reports, its other publications and services, and from noncommercial contributions, grants, and fees. In addition to reports on Consumers Union's own product testing, Consumer Reports with approximately five million paid circulation, regularly carries articles on health, product safety, marketplace economics, and legislative, judicial, and regulatory actions which affect consumer welfare. Consumers Union's publications and services carry no outside advertising and receive no commercial support. Ms. Hillebrand's publications include: The Redrafting of UCC Articles 2 and 9: Model Codes or Model Dinosaurs?, 28 LOY. L.A. L. REV. 191 (1994); The Revision of UCC Article 9: Issues for Consumers, 27 UCC L.J. 179 (1994); UCC Articles 3 and 4 in the California Legislature: A New Focus on Consumer Protection in Uniform Law Proposals, 47 CONSUMER FIN. L.Q. REP. 123 (1993); Revised Articles 3 and 4 of the Uniform Commercial Code: A Consumer Perspective, 42 ALA. L. REV. 679 (1991). The author wishes to disclose that she is not a disinterested observer of the uniform law process. As an attorney for Consumers Union, she has participated as an observer to the Article 2 and 9 drafting committees, has submitted comments on Article 2B, and has responded to invitations by legislative staff for analyses on how the revised UCC Articles 3, 4 and 8 could affect consumers. Washington University Open Scholarship 70 WASHINGTON UNIVERSITY LAW QUARTERLY [VOL. 75:69 D. The Article 2B and 9 Drafts Reveal Serious Unanswered Questions About Whether the Uniform Law DraftingProcess Will Produce UCCRevisions Which Are Fairto Consumers ....... 80 II. STRUCTURAL BARRIERS TO DEVELOPMENT OF SOUND POLICY AFFECTING CONSUMERS IN THE UNIFORM LAW PROCESS ................ 81 A. Expense ofAdvocating the ConsumerInterest in a Multiyear, M ultistate Process...................................................................... 82 B. Lack ofPracticeBackground in ConsumerIssues by Decisionmakers .......................................................................... 83 C. Heavy Participationby Industry Observers Can Affect the Dynamics ofa UCCDrafting Committee's Discussion............ 88 D. Policy Implications of the StructuralBarriers to Consumer Participationin the UCCRevision Process............................... 92 III. POLICY ISSUES FOR CONSUMERS IN ARTICLES 2, 2B, AND 9 ............. 93 A . A rticle 2 ......................................................................................... 93 1. Reasons Why Articles 2 and 9 Should Address Consumer Issues .................................................................................. 93 2. Improvementsfor Consumers in the Article 2 Draft.............. 96 a. Treatment ofStandardForm Contracts,Section 2-206 .... 96 b. Treatment ofExpress Warrantiesby Remote Sellers, Section 2-405 ............................................................ 99 c. Disclaimerof the Implied Warranty ofMerchantibility, Section 2-408(c)............................................................ 101 3. The Article 2 DraftStill Needs Strong Restrictions on Variation by Agreement oflts Pro-ConsumerProvisions... 104 4. Areas Where the Article 2 DraftMay Harm Consumers......... 105 B. Impact ofArticle 2B on Consumers as Licensees ............................ 108 1. Improvementsfor Consumers Needed in Article 2B ................ 109 2. Areas Where Article 2B Reduces the Rights ofLicensees andIncreases the Rights ofLicensors .................................. 110 a. Possible Interference with the PureSelf-Help Rejection Remedy for Consumers ................................ 110 b. Disclaimerof WarrantiesAgainst Viruses....................... 111 c. Article 2B Creates a StatutoryRight to Invade the Home or Business Computer of a Software User and Remove Software ................................................... 112 d. The Article 2B Draft WouldAuthorize Most Unexpected Terms in StandardForm Licenses........... 113 https://openscholarship.wustl.edu/law_lawreview/vol75/iss1/3 1997] THE UCC DRAFTING PROCESS e. The DraftPermits Easy Elimination ofthe Implied Warranty ofMerchantability........................................ 114 f The Article 2B DraftDoes Not ProvideMeaningful Remedies for Mass-Market Licensees.......................... 115 g. Section 2B-703 on ContractualModification of Remedies Exemplifies Article 2B 'sRemedial Im balance...................................................................... 116 h. The Article 2B Draft Expands the Availability of Specific Performanceto Enforce a Licensee s Obligationto Make FuturePayments .......................... 117 i. Other Issues........................................................................ 117 C. The ProposedRevisions to Existing Article 9 Solve Key Problemsfor Creditors While Making More Modest Improvements, and Some Harmful Changes,for Consumers...... 119 1. The Changes to Article 9 Will Facilitatethe Taking ofNew Types ofArticle 9 Collateraland Provide OtherNew Rights to Secured Creditors.................................................. 119 2. The Procedure That the Article 9 Drafting Committee Has Used to Address Consumer Issues Has Providedfor Careful Thought on the Issues but Also CreatedAdded HurdlesforAny Pro-ConsumerChange .............................. 122 3. Results of the Article 9 ConsumerSubcommittee Process....... 123 4. There is No Adequate Basisfor Introducinga New Defense to Statutory Damages into Article 9 ..................................... 124 5. The BroadenedDefinition of a PurchaseMoney Security Interest Selected by the Article 9 Drafting Committee Will Harm Consumers .......................................................... 127 6. The Article 9 DraftDeprives Courts ofthe Doctrine of Constructive Strict Foreclosure............................................ 130 7. The IncreasedFocus on Intangible CollateralMakes It Necessary to Modernize the Restriction on After- Acquired ConsumerProperty to Reach Intangible Consumer Property............................................................... 132 8. The Draft Fails to FullyAddress a Key Problem That ConsumersHave Faced Underthe Code: Low Values on Dispositionof Collateral...................................................... 133 a. The Problem ofLow Values on DispositionSales ........... 133 b. Solutions to the Issue ofLow Values on Disposition Sales .............................................................................. 138 Washington University Open Scholarship 72 WASHINGTON UNIVERSITY LAW QUARTERLY [VOL. 75:69 9. The Drafting Committee Has Voted to Address the Serious Issue ofLow Prices at DispositionSales Where the Buyer Is the Creditoror an Entity Affiliated with
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