Document Type

Article

Publication Title

University of Pittsburgh Law Review

Publication Date

1994

Abstract

A knot of controversy over the merits of federalizing nonregulatory state banking laws by preempting or otherwise displacing them has gathered in an area where state authority to govern commercial law commonly has been taken for granted. The problems pervade recent revisions to the state uniform law provisions of Articles 3 and 4 of the Uniform Commercial Code ("U.C.C." or "Code"), which are intended to codify the law of negotiable instruments, and the laws governing bank collections and payment. The proposed adoption of these changes by the states has raised questions about the proper scope of uniform laws and the extent to which state laws should endorse deference to federal regulatory authority. The implications of these revisions extend beyond abstract concerns about the coherence of the Code when they are considered together with concerns about the demise of federalism in banking and the adequate representation of interests in federal and state rule-making processes.

Originally titled "Commercial Paper" but now limited in scope to "Negotiable Instruments," the new Article 3 incorporates a deferential approach to the expansion of federal control. Section 3-102(c) states that "[r]egulations of the Board of Governors of the Federal Reserve System and operating circulars of the Federal Reserve Banks supersede any inconsistent provision of this Article to the extent of the inconsistency." As the analysis below suggests, this provision increases the likelihood that Federal Reserve authorities will administratively supersede the Code and perhaps other state laws in cases where previously they only supplemented them.

Since the scope provision not only recognizes the federalization of state law but advances it, questions arise about its legal effect and wisdom. Is this provision really necessary? What substantive effects can be anticipated? If one of the notable accomplishments of the U.C.C. is the preservation of a strong role for state lawmaking authority in the area of commercial law, why should a provision of model uniform state law demand its own supersession? If we explore closely the proposed federal administrative preemption of the law of negotiable instruments contained in Revised Article 3, perspective may be gained about the Uniform Commercial Code's prevalent resistance to displacement by federal regulatory law. Part II of this study reviews general principles of federal administrative preemption and displacement of state laws. Part III suggests a framework for understanding the historical importance of the Code and the values of federalism that stand to be undercut by federal administrative displacement. Parts IV and V then examine two existing scope provisions in U.C.C. Articles 3, 4 and 7 in an effort to identify the extent to which these articles have entertained their own supersession. The remainder of this study examines potentially adverse practical consequences and state law constitutional problems flowing from anticipatory displacement provisions.

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