Interstate business is governed by the Commerce Clause of the U.S. Constitution. The other set of laws that most affects interstate business is the over 100 state laws that have been enacted under the proposals of the Uniform Commercial Code.
What is the Commerce Clause?
The Commerce Clause consists of Article 1, Section 8, Clause 3 of the U.S. Constitution. This clause gives Congress the power to regulate interstate commerce, although the exact federal limits of power under this clause are a constant court battle. Most of the debate is about which kinds of interstate commerce are legitimately regulated at the federal level. In general, modern Supreme Court decisions have limited federal powers over interstate commerce to trade and production.
For example, in the 2012 court case over the legality of the Patient Protection and Affordable Care Act, the Supreme Court ruled that health care insurance did not fall under the Commerce Clause. However, it also ruled that Congress did have the power to impose a punitive federal tax under its taxation powers.
During judicial interpretation, the Commerce Clause is usually paired with the Necessary and Proper clause, which is the final clause at the end of Article 1, Section 8. It states that Congress has the power:
“To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.”
Some clauses in Section 9 of the U.S. Constitution make the intent and restrictions of the Commerce Clause a little clearer:
“No Tax or Duty shall be laid on Articles exported from any State.”
“No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another: nor shall Vessels bound to, or from, one State, be obliged to enter, clear, or pay Duties in
Thus, regardless of the exact limits of federal power, the primary purpose of the Interstate Commerce Clause may be to keep interstate commerce moving with as few restrictions caused by conditions in different states as possible. For example, in Houston East & West Texas Railway Co. v. U.S., 234 U.S. 342 (1914), the Supreme Court ruled that Congress had the power to prescribe the final and dominant rule whenever a state’s attempt to govern transportation within its borders affected control of interstate transactions.
However, differing standards within states necessarily disrupt interstate commerce. This leads directly to the Uniform Commercial Code.
What is the Uniform Commercial Code?
The Uniform Commercial Code is an attempt to harmonize U.S. state law for sales and other commercial transactions, mostly involving personal property rather than real property. At the time of this writing, over 200 laws have been enacted by the National Conference of Commissioners on Uniform State Laws (NCCUSL), although only about half have been adopted by one or more states.
None of the laws approved by the NCCUSL are federal laws. Instead, they are legislative proposals to the 50 state legislatures, which may choose to adopt a proposal or ignore it. If a proposal is adopted, the state legislature then enacts a law that is roughly the same as the proposed Uniform Law, but with unique variations to take account of prior law or special local conditions.
In addition, the NCCUSL may also revise its proposals to take account of new conditions or information. These revisions do not become part of state law unless the state legislature chooses to revise its own law.
As a result, the hoped-for harmonization of the UCC is anything but harmonized. In fact, the Uniform Probate Code exists in at least two separate versions, the original code and the constantly updated list of adoptees and revisions. This confusion is most visible in the “battle of the forms.”
However, the UCC has not been a complete failure. For example, the Uniform Negotiable Instruments Law was briefly in effect in every state, and is still widely adopted in its proposed federal form. Even so, the Uniform Commercial Code is still mostly theoretical ideal, rather than reality.