HB 102-UNIFORM COMMERCIAL CODE  2:28:18 PM CHAIR FRENCH announced the consideration of HB 102. [Before the committee was CSHB 102(JUD).] REPRESENTATIVE GRUENBERG, sponsor of HB 102, introduced Ms. Thurbon and explained she is appearing today as the commissioner on state laws and she will answer the questions. HB 102 is at the request of the members of the Alaska Commission on Uniform State Laws and it updates Articles 1 and 7 of the Uniform Commercial Code (UCC). Article 1 provides definitions and general provisions for the UCC. Article 7 pertains to warehouse receipts, bills of lading, and other documents of title. The bill makes a number of technical changes to these Articles to bring Alaska into alignment with over 30 states. He explained that the uniform laws are drafted and revised by the commissioners who are several hundred people from around the country and include law professors, top attorneys, judges, and members of the attorneys general staff. These commercial codes are updated every few years to make sure that they keep up with technology. 2:31:25 PM REPRESENTATIVE GRUENBERG said there is a provision in Article 1 that requires in all UCC dealings there be a duty of good faith and fair dealing. There are a number of Alaska Supreme Court cases that require that in the execution and performance of contracts. CHAIR FRENCH added that it applies to any commercial contract. REPRESENTATIVE GRUENBERG said yes; that is codified in Section 1. Title 34.35 Liens, has an old statute that deals with warehousing and talks about storing oats, grains, and cattle. That statute is being updated and cross referenced to UCC Article 7. 2:33:02 PM SENATOR WIELECHOWSKI thanked Representative Gruenberg his work on the UCC. It's a lot of work and requires attention to detail. "I know that's something you certainly have a reputation for and I appreciate you doing this," he said. REPRESENTATIVE GRUENBERG introduced his staff and said he isn't aware of any opposition to the bill. It's been vetted through the bar association business law section, specifically the folks who represent warehousemen. CHAIR FRENCH said he's pleased to see the good faith provision in Section 1; it's good to make it explicit. He noted that the phrase "covenant of good faith and fair dealing" has been recast to say "have a duty to act fairly and in good faith" and asked if those are equivalent. REPRESENTATIVE GRUENBERG responded, "Absolutely." He added that he and legislative attorney Theresa Bannister crafted that phrase. 2:35:21 PM TERRY THURBON, State Delegate, Uniform Law Commission, said updating the UCC has been a legislative priority this year to get up to speed with what other states have done. For example, the warehouse provisions are amendments that have been available since 2003. The general provisions in Article 1 have been available since 2001. Respectively, Article 1 provisions have been adopted in 35 states and three states other than Alaska have introductions this year. 32 states have already adopted the warehousing provisions and three states other than Alaska have amendments to adopt this year. "We're getting toward truly having uniformity with these updates," she said. All 50 states have some version of various titles of the UCC. MS. THURBON offered that the bill is quite long, but it's quite simple in the sense that the substantive changes are relatively few. Much of the 60 pages update terminology and make conforming changes to fit with the few substantive changes. The UCC provisions start in Section 8 and she will only speak to those UCC provisions. Apart from the modernization of the warehousing provisions in Article 7 that Representative Gruenberg described, there are a handful of changes in Article 1, which are the UCC general provisions. 2:37:57 PM MS. THURBON said the committee that was charged with updating the general provisions found a handful of problems that weren't discovered until people tried to live with the general provisions. In part that's because the other Articles of the UCC that deal with secure transactions, leases, and sales have evolved over time while the general provisions have not been updated. When the committee looked at updating the general provisions it found five or six places that needed substantive changes. One was as simple as clarifying the scope of the applicability of these general provisions to make it clear that they only apply to UCC covered transactions. Previously there was a frauds provision in statute, which deals with when you have to have an agreement in writing in order for it to be enforceable. Previously the provision seemed to reach beyond the UCC covered transactions to be a general statute of frauds. That's been cleaned up. That's the kind of thing that this revision does. It also made a better selection on the choice of laws. Previously, the only choice of laws that folks could make for which law applies to govern their transactions was that the law had to have some connection to the parties. With a couple of protective exceptions to protect consumers and some other public policy oriented protections, these updates allow sophisticated folks who want to enter into a commercial transaction to designate any law as the governing law. As Representative Gruenberg mentioned, the good faith provision in the UCC was updated to define good faith as honesty in fact and the observance of reasonable commercial standards of fair dealings. It tracks a bit better with what was done with the good faith concept and some of the other provisions of the UCC. 2:40:38 PM The changes to the warehousing provisions allow for the use of electronic documents of title and evidence of ownership in the transfer of title. This is widely supported by the warehousing and transportation sectors that are already using electronic documents of title. The laws in some states simply haven't yet caught up with that. CHAIR FRENCH noted that this is somewhat similar to the revisor's bill that the committee recently heard. The bill is enormous and full of technical language and at some level you just have to trust the experts who have vetted it. That being said, he related that he likes to conduct an acid test. He explained that he turns to a random page in the bill and asks a pointed question or two. If that area stands up to scrutiny, he gets the feeling that a few segments of the bill have been closely examined. I trust you, Representative Gruenberg, and the experts who brought the bill but we do have our duties of due diligence, he said. 2:42:04 PM CHAIR FRENCH directed attention to page 28, line 19, Section 33, pertaining to liability for nonreceipt or misdescription. He noted that "or" replaces "of" at the beginning of line 19 and asked if she agrees that that's the right substitution. MS. THURBON said she sees his concern. REPRESENTATIVE GRUENBERG remarked, "That's weird." CHAIR FRENCH suggested that it's a series of marks or labels. REPRESENTATIVE GRUENBERG offered that Ms. Bannister may have a technical answer. MS. THURBON said she can make sense of the sentence with the substitution. Without looking at the drafting comments that the conference put together she can imagine that they were perhaps trying to characterize kind quantity or condition as something that would be a description in and of itself on the packaging, or on the document of title. It may be an intentional correction whereas "of" may have been viewed as having been a typographical error that was initially introduced. 2:45:19 PM CHAIR FRENCH reviewed the descriptions and stated agreement. CHAIR FRENCH directed attention to page 51, line 8, and said he objects to striking the word "the" before the phrase "ordinary course of business". REPRESENTATIVE GRUENBERG said he agrees; the same change has been made several times on the page. He related that when he brought that up, he was told that the Uniform Act was drafted to eliminate the word "the". SENATOR WIELECHOWSKI directed attention to page 2, and noted that the term "livestock" has been changed to "animals" and it's quite a policy change to subject pets to lien. He asked if that was a conscious change. REPRESENTATIVE GRUENBERG responded it was his thought is that it should apply to any animals. In urban areas in particular, people have pets rather than livestock. 2:47:47 PM CHAIR FRENCH asked if a lien on a dog really is on the dog or the owner's checking account. REPRESENTATIVE GRUENBERG responded that it would be a possessory lien. CHAIR FRENCH observed that in that case, the most the kennel would get is possession of the dog. REPRESENTATIVE GRUENBERG responded that the kennel could sell the animal. Page 3, line 11, is existing statute and it states that the owner of the property shall pay the value of the property plus 50 percent. Later in the UCC it talks about getting damages, which would be incidental and consequential. That is cross referenced in Section 7; Article 7 of the UCC makes it clear that these are cumulative. You're not limited to one or the other as in the past, he said. "I didn't want there to be any continuing question as to whether they both stood on equal footing," he added. CHAIR FRENCH closed public testimony and said he's satisfied with the bill. 2:49:36 PM SENATOR WIELECHOWSKI expressed concern with the change in Section 4 regarding animals. It bothers me that someone could take their dog to a kennel and then for whatever reason not being able to pay their bill and the kennel would keep the person's beloved dog, he said. CHAIR FRENCH observed that the point is that the person could take their dog home and later have a dispute in court over the money issue. SENATOR WIELECHOWSKI agreed. He related that his dogs are in a kennel right now and he'd be furious if the kennel kept his dogs if he couldn't pay what could be an exorbitant fee. SENATOR WIELECHOWSKI moved a conceptual amendment to strike all reference to "animal" in Section 4 and reinsert the references to "livestock". 2:52:08 PM CHAIR FRENCH asked the sponsor if he agrees that only Section 4 is affected. REPRESENTATIVE GRUENBERG responded it appears to apply to Section 4, lines 16 and 17, lines 27 and 28, lines 29 and 30. He suggested that on lines 27 and 28 the reference could be limited to "livestock" so the statute would no longer reference "horses, cattle, hogs, sheep or other livestock." He added that he has no objection to that. 2:53:31 PM CHAIR FRENCH asked Senator Wielechowski to restate the conceptual amendment. SENATOR WIELECHOWSKI stated that the conceptual amendment is to reference "livestock" as opposed to "animal care" [in Section 4]. On line 16, delete the phrase "animal care" and insert "livestock; on line 27, delete the word "animals" and reinsert the phrase "horses, cattle, hogs, sheep, or other livestock"; on line 29, reinsert the word "upon" delete the word "animals" and reinsert the word "livestock"; and on line 30, delete the word "animals" and reinsert the word "livestock." CHAIR FRENCH asked if there is objection. REPRESENTATIVE GRUENBERG suggested on lines 28 and 29 to not revert to the word "upon" and keep the word "on" since that is more conventional use today. On lines 27 and 28, do not reinsert the phrase, "horses, cattle, hogs, sheep or other" and use the word "livestock" instead. CHAIR FRENCH asked Senator Wielechowski if he agrees with the suggestion. SENATOR WIELECHOWSKI said he agrees and would restate the amendment in the terms suggested by Representative Gruenberg. CHAIR FRENCH found no objection and announced that Amendment 1 carries. Finding no further amendments or discussion, he solicited a motion. 2:55:21 PM SENATOR WIELECHOWSKI moved to report CS for HB 102, as amended, from committee with individual recommendations and attached fiscal note(s). There being no objection, SCS CSHB 102(JUD) was reported from the Senate Judiciary Standing Committee.