It is believed that the first consumer transaction involving cryptocurrency occurred on May 22, 2010, when computer programmer Laszlo Hanyecz purchased two pizzas for 10,000 Bitcoins.  Commerce has changed considerably since then, but state laws concerning commercial transactions have not kept pace.  Enter the digital assets and technologies amendments (the “2022 Amendments”) to the Uniform Commercial Code (UCC).  The 2022 Amendments, promulgated by the Uniform Law Commission and American Law Institute, are the most significant revisions to the UCC since Mr. Hanyecz’s historic pizza purchase in 2010.

The 2022 Amendments were drafted with cryptocurrency, distributed ledger technologies (including blockchain), and artificial intelligence in mind, but they are intended to encompass existing and potential future forms of electronic commerce and finance as well. Most importantly, they include a new Article 12 which sets out the fundamental rules governing the rights of purchasers of digital assets defined as “Controllable Electronic Records” (CERs).  Article 12 uses a functional concept of control to provide for purchasers who obtain control of CERs a status equivalent to that of holders in due course of negotiable instruments. But the 2022 Amendments go beyond that to affect most of the Articles of the UCC.

This is the first installment in Moses Singer’s series on the 2022 Amendments, in which we will be reviewing and analyzing the 2022 Amendments to the different articles of the UCC.  We begin in the middle of the UCC with Article 5 on Letters of Credit, which has the fewest amendments.

The 2022 Amendments introduce two simple but significant and much-needed updates to Article 5. 

The first Article 5 update, in §5-104, is similar to amendments made scores of times throughout the UCC to make clear that signed electronic records have the same legal effect as signed tangible documents.  In this case, the formal requirements for a letter of credit are simplified to requiring only a record that is signed, using the new general definition of “sign” to accommodate the increasing use of electronic signatures for purposes of authentication or adoption, and deleting any requirement that an electronic signature be “in accord” with agreement or standard practice.  The revised section reads as follows:

§5-104. Formal requirements.

A letter of credit, confirmation, advice, transfer, amendment, or cancellation may be issued in any form that is a signed record and is authenticated: (1) by a signature; or (2) in accordance with the agreement of the parties or the standard practice referred to in [Section 5-108(e)].

Note that under revised §1-201(b)(37), “signed” means, “with present intent to authenticate or adopt a record: (i) [to] execute or adopt a tangible symbol; or (ii) [to] attach to or logically associate with the record an electronic symbol, sound, or process.”  Thus, this change to §5-104 removes ambiguity across jurisdictions as to whether electronic signatures are permissible in issuing letters of credit. 

The second change is the addition of new subsection §5-116(d).  The new subsection underscores branch separateness by explicitly stating that branches are deemed to be located at the address indicated in the undertaking.  This amendment was not made in response to any new technology, but rather in response to an Oklahoma federal court opinion that mistakenly interpreted the branch separateness rule appearing in the prior version of § 5-116 as applying only to letters of credit that lack a governing law clause.  There is no good reason why the general default rule (deeming the letter of credit issuer to be located at the address of the issuing branch) should apply only if the letter of credit lacks a governing law provision.  Of course, the parties may provide for a different address in the letter of credit.  The new section reads as follows: 

§5-116. Choice of law and forum.

(c) For the purpose of jurisdiction, choice of law, and recognition of interbranch letters of credit, but not enforcement of a judgment, all branches of a bank are considered separate juridical entities and a bank is considered to be located at the place where its relevant branch is considered to be located under this subsection (d).

(d) A branch of a bank is considered to be located at the address indicated in the branch's undertaking. If more than one address is indicated, the branch is considered to be located at the address from which the undertaking was issued.

The 2022 Amendments are currently being enacted in states across the United States.  As of the date of publication of this Client Alert, five states have codified the 2022 Amendments (Colorado, Indiana, New Mexico, North Dakota and Washington), while 23 states have introduced legislation to codify all or portions of the 2022 Amendments. 

Join us for our next installment when we analyze the 2022 Amendments to UCC Article 1 (“General Provisions”).