Tribal Legal Code Project: Commercial Codes

The importance of the Uniform Commercial Code to aid economic and housing development

The "Self Determination Era" ushered in by the proclaimed abandonment of previously unsuccessful and often-destructive federal policy has given new life to reservation governments(1). As tribal governments exert themselves in an attempt to recover from an age of Federal Government paternalism, reservation governments are examining current reservation conditions and searching for lasting solutions to the problems that face their communities.

The median income of reservation Indians continues to hover at or below the poverty level with reservations experiencing an average poverty rate of 31%. Reservation unemployment levels consistently exceed the federal unemployment statistics and unemployment levels of the surrounding non-reservation communities. At present, Indian unemployment is approximately 46%(2). Similarly, reservation housing conditions are significantly below what many consider modern. Many houses are barely inhabitable. They commonly lack a modern plumbing, electrical service or telephone service. Any one who has worked on reservations can often tell when they enter a reservation by observing the quality of housing. In light of this alarming information, it is not surprising that among the diverse issues identified by tribal governments, economic development and housing development are important issues to reservation populations.

The UCC(3) is an important tool for creating a climate in which reservations can experience positive economic growth. The UCC can also assist in meeting the housing needs of reservation Indians. Manufactured homes are personal property(4) that individual Indians can borrow money to purchase. This is in sharp contrast with "stick built" frame construction that becomes part of the land upon which it sits. The trust characteristic of a considerable portion of Indian Country often makes it difficult for an individual Indian to finance the construction of a home through a conventional home mortgage. The UCC applies to manufactured homes and through the UCC individual Indians would be able to purchase modern housing. Beyond acquisition of the home, the UCC also applies to the purchase of household furnishings such as a stove or furnace.

Washington Mutual Savings Bank, in cooperation with a few Washington Indian tribes have independently created a pilot program to increase the quality of reservation housing through financing manufactured housing purchases that are placed on assigned trust land(5). The tribes have not enacted any portion of the UCC so the terms of the entire transaction have to be reprinted and incorporated into each transaction, the general structure of the program mirrors the requirements of the UCC. The tribes and Washington Mutual should be commended on creatively working together to improve the housing conditions on the reservation. The downside of cooperative programs such as this is that there is only one bank providing services to the reservation. Other financial institutions that desire to enter the reservation must create their own financing package. If a tribe were to enact standard legislation, tailored to the needs of the reservation, the tribal housing authority could pursue other financial institutions to provide similar financing agreements instead of negotiating with each financial institution individually. The tribe benefits from having a standard code for all the financial institutions conducting business within the reservation which in turn provided for easier monitoring. A second benefit would be the presents of competitive market pressures driving down the cost to individual Indians making housing more affordable and thereby further improving reservation housing. A Copy of the Washington Mutual pilot program with the Port Gamble S'Klallam Tribe is included as Exhibit A.

The UCC's role in economic development is undeniable. The UCC is the codification of hundreds of years of commercial activity into a standard of commercial dealings. In adopting a tribal UCC, off reservation business may feel more comfortable in the familiarity of a commercial code. There are many reasons given by off reservation business for not conducting business within the reservations to Indians. One reason often cited is the inability of the parties to establish and secure their position in the deal. Bankers and finance people like predictability. Bankers are accustomed to dealing with risk but need a way to qualify and assess the risk. The UCC Article 9 is one of the tools a banker uses to assess the risk involved in any particular deal. Article 9 governs secured transactions. It establishes the rights and obligations of each party to the deal in all stages of the transaction; first in considering the deal, their security during the life of the deal, and in the event the deal turns sour, the course of conduct to protecting themselves. The alternative to a predictable outcome is the necessity of seeking legal redress through the tribal courts. While the outcome may be the same as if Article 9 were governing law, a trial on the issue adds expense and time(6). The lack of predictability also increases the cost to reservation Indians when they are debtors in these transactions.

Article 9 of the UCC is not the only section important in establishing a secure basis for economic development. The other key Article of the UCC that a tribal counsel should consider adopting is Article 2. Article 2 sets forth provisions for the sale of goods. This section provides default rules for people selling items, whether raw materials such as wire or sheet metal, or completed goods like a refrigerator. It sets out standard provisions for the formation of an enforceable contract. The standard provisions operate as default provisions if not otherwise stated in the contract. Article 2 also provides standards for assessing the quality of the goods, performance under the terms of the contract and the rights and remedies upon breach of the contract.

A tribal UCC assists parties negotiating a contract by specifying the tribal expectations for commercial standards. It also adds credibility to tribal courts by giving the courts a codified set of laws to apply rather than having to rely on common law. Common law is the body of law created over time by judicial rulings. The difficulty of common law is that you do not know the rule of law until the problem arises and the judge makes a decision. Statutory law created by legislative action does not suffer from this problem. In the later case, the Tribal Council establishes the rules and the role of the judge shifts towards deciding whether the parties complied with the rules.

Tribal courts are another commonly referenced reason for not dealing with reservation Indians. There is a pervasive misperception of tribal courts as a protective big brother against which a non-Indian can not win. The application of a codified set of laws like the UCC provides legal predictability and assists in repelling this myth of tribal court bias. The ability to reference existing tribal law applicable within the courts helps place the tribal court on a similar standing as the courts in rural jurisdictions. In rural communities, the sense of community and the interpersonal ties between town members is significant, and yet business transactions occur with regularity without a paralyzing fear of the court system.

General background to the UCC

The Uniform Commercial Code represents the recommendations of the NCCUSL on the best way to do business between parties. As currently drafted the UCC has 12 Articles, 1, 2, 2a, 3, 4, 4a, 5, 6, 7, 8, 9, 10 and 11. The scope of each article is as follows:

• Article 1: General Provisions
• Article 2: Sales
• Article 2A: Leases
• Article 3: Commercial Paper
• Article 4: Bank Deposits and Collections
• Article 4A: Funds Transfers
• Article 5: Letters of Credit
• Article 6: Bulk Transfers
• Article 7: Warehouse Receipts, Bills of Lading and Other Documents of Title
• Article 8: Investment Securities
• Article 9: Secured Transactions; Sales of Accounts and Chattel Paper
• Article 10: Effective Date and Repealer
• Article 11: Effective Date and Transition Provisions

Articles 2-9 are the substantive provisions of the UCC. Article 1 addresses general provisions of the UCC applicable to the other Articles. Article 10 and Article 11 deal with implementation of the code.

The NCCUSL is comprised of code commissioners appointed from each state. The commissioners examine and analyze legal trends from throughout the United States to determine where a uniform set of laws to govern a particular type of law would be useful. As an example and in no way is this an exhaustive list, the NCCUSL has promulgated uniform laws on Uniform Child Custody Jurisdiction and Enforcement Act, Uniform Probate Code and Uniform Interstate Enforcement of Domestic Violence Orders Act. The uniform laws are not simply a compilation of the standard practices in and between the states. They also represent the recommendations of the Code Commissioners on the way things should be. Until a legislative body adopts a particular provision of any uniform law drafted by the NCCUSL, it does not have any mandatory controlling value.

The NCCUSL first decided to draft a UCC in the late 40's. Some portions of the UCC were addressed in earlier uniform laws promulgated by the NCCUSL, but the UCC was the commissioners first effort to create a unified set of regulations that would affect almost every commercial transaction. The NCCUSL first passed the UCC in 1952. Each individual state has since gone on to debate whether to enact the code into state law as written or whether to modify the code to meet to meet the specific needs of the state. Since the NCCUSL first drafted the UCC, all fifty states have passed all or at least portions of it, but each state has made at least a few minor changes prior to enactment.

The UCC is a work in progress. Since first introduction of the code, the Code Commissioners have revised it numerous times. There is currently a proposed revision of Article 1 – General Provisions, Article 2 – Sales and Article 2a – Leases in the drafting stages with the NCCUSL. Code Commissioner's are also working on the creation of a new section, Article 2b - Licenses. Article 9 – Secured Transactions is in the final stages of a significant review and re-codification. The implication for tribal governments considering the adoption of a UCC is that the UCC must be reviewed occasionally. A tribal government must consider whether any changes to the UCC introduced through a revision by the NCCUSL are applicable and beneficial to the reservation economic environment. If so, should the tribe adopt them as tribal law?

The UCC is not a simple code by any stretch of the imagination. It is subject to substantial debate and interpretation by attorneys who practice in the Commercial Law arena. For a non-legally trained individual, the UCC can be a formidable opponent. To assist in the application of the code, the NCCUSL also publish an Official Comment after each code section. Unfortunately, the same people who write the code often write the comments. The official comment is often extremely helpful for UCC practitioners and should be included within a tribal code UCC development project. A good suggestion for a tribe considering to adopt a tribal UCC is to also draft a Plain Language Comment, not more then a few sentences in length, that describes the purpose of that section. The Navajo Nation added this to their code and it is very effective. A copy of the Navajo Nation Code is attached as Exhibit B.

The UCC operates on a few basic presumptions that control the majority of the substantive provisions. The primary assumption is that the parties have equal knowledge and power. This assumption is applicable in some situations but in the vast number of transactions seems inaccurate. This imbalance of power and knowledge is not a reservation phenomenon. Commonly the person with the money or item in demand has a superior position. Often the small business owner is very good at the technical side of the business but is not a trained businessperson. They decide to go into business because of what they like doing but without the knowledge of what it takes to run a business. The bank or supplier is often in a superior position because they have the money or the "stuff" that is needed and commonly more experience. In many smaller communities it is completely possible that the bank or supplier is the only source of the commodity needed. The lack of competitive market forces escalates the power imbalance.

While the UCC is an important tool for the creation of a strong tribal economy, the UCC is not a wonder code that will fix all of the reservation problems. It usefulness is focused at the governance of business dealings which has a spillover to improving tribal housing. However, the UCC is not a consumer protection code. It will help in thwarting or seeking redress from the questionable practices of some business that prey on tribal populations. The tribe should consider enacting a consumer protection code that addresses for example the use of deception, fraud, misrepresentation and concealment if consumer protection is objective. The UCC can be an effective tool for increasing the quality of reservation housing, but it is not a substitute for a good housing or land use code. The UCC is not applicable to transactions involving real property except as effected by improvements made by the addition of personal property. The UCC also does not directly affect the flow of reservation dollars off the reservation. As reservation economies grow, people will spend more money within the reservation boundaries instead of in business surrounding the reservation. This is due to economic forces and not regulatory forces. Tribes enacting a UCC will not change any federal law requirements. For example, certain federal farming programs and some BIA loan guarantee programs require filing financing statements in accordance with the state UCC filing requirements. Any transaction under these programs will have to comply with the federal and thereby state requirements.

Significant considerations in adopting a UCC

One issue that needs to be understood about the UCC is that it is the codification of hundreds of years of commercial transactions from an Anglo-American viewpoint. Not the commercial view point of the entire world. While some of its provisions have found favor in foreign jurisdictions, other portions of the code are different from the usual and customary method of doing business in foreign countries and are not accepted. The same holds true when considering whether to enact a UCC into reservation law. The basic underlying presumption of interpersonal dealings of a tribe considering whether to adopt a UCC may be such that some of the UCC provisions will be have to be changed in order to meet the expectations of the tribal culture and perspective. Embarking on an in-depth discussion of tribal culture and politics as compared with non-Indian presumptions of reservation populations and the non-Indian commercial expectations is far beyond the scope of text. Each tribe must examine the code in relations to its own tribal viewpoint to determine where changes are appropriate. Enacting a tribal UCC without conducting such an examination could have an unintended result by introducing a standard of conduct to the reservation population that is unwanted or which does not fit with the tribal expectations. There is always the potential that if the code does not fit with the commercial practices within the reservation, people will disregard the code. When this occurs, the code intended to simplify and streamline commercial dealings will have just the opposite effect. Conflicts will be drawn into the tribal courtroom and in the tribal counsel chambers. If the code causes hardship or unpopular results to the reservation population then the tribal counsel will have to answer for their actions. The following sections are recommendations that have broad implications for tribal counsels considering the adoption of a tribal UCC. These issues for review should in no way be considered exhaustive.

The following sections address general issues that concern the adoption of a code such as the UCC. Section (a) – (g) address general concerns applicable to all of the UCC. Section (h) – (k) address specific clauses with in articles 2 and 9 that are significant and should be discussed early in the drafting process. For a tribe considering the adoption of Article 9, attached as Exhibit C is a summary sheet outlining the issues addressed by the Model Tribal Code developed by the University of Montana.

Tribal Counsel Support

Any code-drafting project requires the support from the tribal counsel from the outset. This may seem self evident, but enacting a tribal UCC that is appropriate to the tribal environment is potentially a project that will require a commitment of a significant amount of tribal personnel or fiscal resources. It is unlikely that the tribal counsel will be involved in every aspect of developing a tribal code. Drafting a tribal UCC will most likely be the job of the tribal attorney or the business development office. By including the tribal counsel from the out set of the project in discussions and revisions, the tribal counsel can be introduced to the code and informed of the benefits of the code as the project develops. This will facilitate the final enactment of the code when it is completed without having to subject the counsel to hours of code talk. The UCC is an extremely importance piece of commercial legislation but for the majority of individuals it is not "edge of your seat" reading.

Analogous to tribal counsel support is the timing of when to begin a UCC code development project. If at all possible, a project such as this should not be undertaken when there is a potential for a substantial change of personnel on the tribal counsel. A tribal counsel election that replaces a large number of counsel members may cause a shift in counsel priorities. The UCC could be subordinate to other projects of the new counsel. At minimum the election of new counsel members could require the introduction of the new counsel members to the code and informed of the benefits of the project. The importance of this second point depends upon time limitations placed on the project, the scope of the project and the nature of the tribe. If a completed code is expected in a relatively short period of time or the tribal counsel is relatively stable, less consideration must be given to when to begin a UCC code drafting project.

Where to Start

A tribe considering whether to adopt a tribal UCC has many choices of where to begin the project. The tribe could elect to draft an entirely new commercial code based on the tribes needs and expectations. An undertaking such as this would require a significant commitment of resources including personnel and money. The result of such an undertaking could potentially be a code completely unfamiliar to the business, banking and finance community. Unfortunately, unfamiliarity fosters uncertainty and the continuation of an uneducated bias; biases that work against reservation Indians. The alternative outcome is that the tribe would expend considerable effort to reproduce a product very similar to the UCC as drafted by the NCCUSL.

A second possible starting point for enacting a tribal UCC is to redraft the existing UCC in language that involves less legalese. This would require commitment of less time and resources from the tribe to redraft the code, but the drafting process would remain a sizable project. As with drafting a tribal UCC from scratch, the issue of unfamiliarity could again cloud the business arena. The benefit to this approach is a UCC that is more accessible to non-legally trained persons.

A third option and the option used by the majority of the tribes enacting tribal UCC is to take the existing UCC as a base. The tribe then works from this base to create a tribal UCC that meets the needs of the tribe. This method has the benefit of working from a base with which the business, banking and finance people are familiar. It is common for people who work with the UCC to rely on commercially prepared documentation that summarizes the differences between different state versions of the UCC. Were this drafting option selected, it would be helpful for the drafters to prepare a summary sheet of code provisions that differ from the UCC. A similar summary would be useful promoting reservation based business dealings. The summary should specifically indicate that it is for reference purposes only and not as a complete statement of the law. As this is the most commonly utilized approach to tribal UCC drafting, the remainder of this text will be based on the presumption that a tribe engaging in a UCC drafting project will base the tribal UCC on an existing UCC.

What Version of The UCC To Use As A Base

As addressed elsewhere in this text, the UCC is the creation of the NCCUSL based upon the commissioner's view of how business transactions are conducted and how they ought to be conducted. This is one choice of a code to use as a base for drafting a tribal UCC. The issue remains as to which version of the NCCUSL UCC to use as a basis. The current NCCUSL UCC is accepted standard baseline for the UCC. However revisions to Article 9 are in the final stages and revisions to Articles 1 and 2 are in the works. What code provisions to use as a base must be determined by each tribe. Using the current NCCUSL UCC places the tribal UCC at the same starting place as each of the state's UCC's. Within a few years, the revisions to the UCC proposed by the NCCUSL will be before the state legislatures. If states accept the new changes and the tribe has based its UCC on the old NCCUSL UCC there is the potential for a split between the legal expectations of the jurisdictions. Conversely, the tribe can select the recent revisions as the base code thereby placing the tribe on the leading edge of UCC legislation. However, until the states follow suit, there will again be a divide in the legal expectations.

Each state has made a legislative choice to enact at least portions of the UCC. In enacting each portion of the UCC, each state takes the NCCUSL's UCC and makes some changes to the code before the legislature passes it. This modified UCC becomes the controlling law within each state's jurisdiction. This is second possible starting place for tribal UCC drafters. Using this code as the base is has its own problems. The primary consideration is that it is the State's UCC; modified to meet the states needs. The concerns of the state may not be the same as those of the tribe. It has the advantage of starting with a code that business, banking and financial people in the area are familiar with thereby helping to reduce the problems associated with uncertainty.

There is a third option in selecting a base UCC on which to base a tribal UCC. Model tribal codes have been developed. The University of Montana developed a model tribal secured transactions code. A copy of this code is included as Exhibit D. The Model Tribal Code uses a draft of the NCCUSL's recent revisions to Article 9 as a base. The NCCUSL has made revisions to Article 9 not included in the Model Tribal Code. Reliance on any model code raises some interesting issues that are a hybrid of previously stated questions. Who drafted the code? What base code does the Model use? What point of view did the Model code drafter have? Was it to maximize tribal sovereignty, promote financial dealings within the reservation or some combination of the two?

There are no simple answers to these questions. There is no reason the tribes have to follow suit with state law. Tribes are free to make decisions for the benefit of their people. A full discussion and debate of the issues is encouraged.

How much of the Code to Adopt

The NCCUSL created the UCC as a unified set of laws to govern business transactions. The significance of the code in commercial dealings can not be under stated. Due to the size of the UCC, the question of whether a tribe wants to devote the energy and resources towards the adoption of the entire UCC first time around is questionable. This is not to say that a tribe should not consider adopting the entire UCC. In enacting an entire UCC, a tribe runs a risk that if the tribe does not devote enough time and resources to the project there is the potential for over-legislation. Over-legislation is the incorporation of unintended laws and regulations upon the tribe. Regulations that the tribe is not prepared to manage or which do not meet needs of the tribe.

Commentators generally agree that a tribe that adopts an abbreviated code including Article 1 – General Provisions, Article 2 – Sales, and Article 9 – Secured Transactions will provide a good foundation for most business transactions. As the economy of the reservation grows, the tribal counsel can adopt other sections of the code. Article 2a – Sales and Article 3 – Negotiable Instruments are good candidates for future enactment by a tribe.

As mentioned above, the UCC is intended as a comprehensive set of legislation. The UCC commonly cross-references other parts of the code mostly for definitional provisions. In the adoption of only part of the code there may be voids in the legislative scheme. One solution is to do nothing about this and wait for a lawsuit in tribal court. Legal counsel involved in the suit would have the obligation to argue to the judge how the missing terms should be dealt with. Most likely the attorneys would argue the NCCUSL's UCC provisions as persuasive or state law as persuasive. Neither would be mandatory. A second option and probably a more sound decision is to incorporate a provision to deal with these shortcomings. The provision would direct that any missing terms should be defined by a specific version of the code, but only to provide meaning to the code provisions enacted by the tribe. The reference sections do not create a separate and enforceable right.

How to Codify a UCC as Tribal Law

One method for codifying a UCC is simply for the tribe to ratify an existing UCC, either state or the NCCUSL's UCC by Ordinance. This method assumes that the tribe does not want to make any changes to the UCC. There is an inherent danger in passing legislation in this manner. Tribal sovereignty is always a key issue that needs to be protected. The UCC has filing requirements in order to provide notice to other parties. Codifying a UCC by an incorporation ordinance could be viewed as an abdication of sovereignty. State and NCCUSL versions of the UCC contain provisions allowing for repossession of goods provided there is no breach of the peace. However, many reservations specifically forbid repossessions. Filing and repossessions are mentioned only as examples, there may be other unintended baggage that will be drawn onto the reservation if the tribal counsel is not careful. Reference codification of a UCC can also carry all of the supporting interpretation of the code if the ordinance does not specifically address the intent of the Tribal Counsel. The potential for this type of difficulty may increase in PL 280 states. Care must be taken to specify which version of the UCC the tribe is incorporating. Is it the UCC as currently worded or are future revisions to the UCC included? This is particularly significant in light of the revisions of Article 1, 2, and 9 currently in progress by the NCCUSL. This method should probably receive the lowest consideration from tribal counsels but conversely is the one most often recommend by people who do not understand tribal sovereignty. Each state will not enact the UCC as written by the NCCUSL without modifying it to meet that states particular needs. Why expect a tribe to enact a law without carefully considering the potential to harm the tribe and its people?

The second method for codifying a tribal UCC is to incorporate a state's or the NCCUSL's UCC by reference except for specific provisions. Replacement provisions are specifically enumerated within the incorporating ordinance. This is the approach taken by the Lummi Indian Nation. A copy of the Lummi code is included as Exhibit E. There is less of an abdication issue with this type of codification. It is also easier for off reservation people using the code because it is easier to determine which provision the tribe has modified. In order for this to work, the non-reservation people must be able to find the tribal ordinance that adopted the code. In some situations this is not an easy task. The ordinance needs to state specifically whether it is the code as now enacted or as may be modified in the future that the tribe is adopting.

A final method for codifying a tribal UCC is to reprint the UCC provisions the tribe is adopting within the body of the tribal code. The base code, whether modified or not, is reprinted. This method is the preferred method for avoiding any question of what the tribe adopted as a UCC. The abdication argument also looses much of its credibility in using this method. However, it is the most cumbersome method. The UCC is not a small document. It will swell the tribal code by many pages and in order to be an effective method of regulatory control, people who deal with the code in a business setting must be able to retrieve and reverence the code.

Jurisdiction

Tribal regulatory and adjudicatory jurisdiction is not static. It is relatively impossible to refine a precise purely territorial statement of jurisdiction due to the currently required "Indian party" component for tribal jurisdiction. With each court decision on the subject, tribal jurisdiction shifts. Congress also enacts legislation that effects tribal regulatory jurisdiction, sometimes in minor ways but other times significantly. A jurisdiction statement that does not restrict jurisdiction beyond the then current judicial rulings and congressional actions is an important clause to include.

Scope of Code Provisions

Who should be bound to comply with the tribal UCC? The answer to this question is not as apparent as it might originally seem. Of course, a tribal UCC applies where there is an Indian component to a transaction with the reservation boundaries. However, some commentators and attorneys feel that tribes should limit application of the UCC to big transactions (e.g. transactions over $100,000). For some tribes, this is a good decision. Particularly if the tribe is focusing its efforts on tribal enterprises, and there is little "small business" within the reservation. However, this will eliminate the possibility of an individual Indian using the code as a tool for improving tribal housing conditions. For many smaller tribes, high dollar limits may not be realistic.

Placing high dollar requirements for code application draws into question the rationale for endeavoring to enact a UCC in the first place. The purpose of the UCC is to provide a framework for general commerce. The number of large transactions is most likely very limited. For these few transactions, perhaps incorporating the terms of the UCC within the contract provisions(7) or through a choice of law provision would better serve the tribe.

A second approach is to establish a tiered approach within the tribal UCC based on whether the debtor is an individual or business. A particular set of rights and obligations apply to individual debtors. Business debtors require application different rules. For example, individual debtors could be granted a one-time right to cure a default as opposed to a business debtor who would not receive such protections. This approach creates a potential problem for determining the appropriate character of the debtor. An artisan is a prime example of this. He or she may purchase materials and might sell the art produced. Is this personal or business use? What if the artisan has a regular job and any money realized from the sale of the art is supplemental income?

A similar approach to determining the rights and obligations based on the nature of the debtor is to base application of the tribal UCC on the dollar amount of the transaction. Transactions under a specified dollar amount would receive greater protections under the tribal UCC. This approach allows for large-scale business development such as a tribal enterprise but does not hurt this individual Indian. Conceivably, a manufactured home loan could exceed the minimum dollar level for self help repossessions. If a tribe selects this approach, the code should create an exception for loans related to housing.

Repossession

Creditors entering reservations to repossess property has consistently represented a significant problem to reservation Indians and the tribal governments. Not all creditors abuse their power. Many creditors operate successful business within the requirements of the law. However, there has been sufficient abuse that the only way the majority of reservations have been able to curb these abusive actions by creditors has been to completely restrict any repossession within the reservation. The ability of a creditor to exercise self-help repossession in the event of a default is often cited as one of the more important aspect of the UCC. This ability allows creditors to reduce their losses in the event that a business transaction enters default. Arguably some parties may not be willing to deal in Indian Country due to this restriction and this could have a stifling effect on development of a reservation economy. This factor is often cited, yet many transactions occur in spite of these restrictions so perhaps there are other issues controlling the decision making process.

Restricting self-help repossessions is the general rule in Indian County, but it is not universal. Some tribes allow repossessions to occur. Other tribes have negotiated individual deals with a particular bank or financial institution to allow repossessions provided the bank issues appropriate notice to the tribal police department. The Washington Mutual manufactured home loan pilot program includes this type of a provision. Some tribal governments have made a decision that the most effective way to attract outside money onto the reservation to solve a pressing tribal problem is to reach these limited agreements with the banks or financial institutions.

Within a creditor - debtor relationship, there are three possible scenarios applicable to a deal that has gone into default. In the majority of situations under the UCC a secured creditor(8) has the right and is able to repossess property. Any repossession must occur without a breach of the peace. What constitutes a breach of the peace under judicial interpretation is not as limited as one might expect. Provided the creditor can accomplish repossession without a breach of the peace, the creditor is within his or her rights. When it is not possible to repossess collateral without a breach of the peace, a secured creditor must appeal to the court for the issuance of a Writ of Replevin. A Writ of Replevin issued by the court is essentially permission from the court to retake property. In the third creditor - debtor relationship, the creditor is unsecured. Upon default, the creditor must sue in court for damages and then petition the court to attach and sell the property. This third remedy is the most expensive and takes the most time. The creditor must present an entire trial and the judge must rule in the creditor's favor in order to be successful.

Any tribe considering adopting a UCC must address and determine the best solution to the issue of self help repossessions with the reservation. Tribes do not have to allow self-help repossessions in order to enact an effective code. The Navajo Nation UCC and the Standing Rock Sioux UCC do not allow for self help repossessions unless written consent is given by the debtor at the time of repossession. Failure to obtain the written consent mandates that creditors seek court approval before repossession can occur.

Another possible solution to the repossession issue is to treat business debtors differently from individual Indian debtors. The presumption is that business debtors have greater knowledge and power than an individual Indian debtor. As addressed elsewhere, this presumption may not be altogether accurate.

A third possible method for protecting individual debtors while not creating a barrier to business development is to create a minimum transaction value above which repossessions can occur. As an example, the tribe could authorize repossessions of collateral if the total loan amount was more than $30,000. A loan for less than $30,000 would require some type of consent at the time of repossession or court authorization.

Sovereignty

Sovereignty is an inherent part of tribal government's status as in independent government. It is difficult to understate the importance of sovereignty and the immunity that flows from this sovereignty. Although the United States has long exerted its paternalistic plenary power over the tribes, the courts have consistently affirmed tribal sovereign. Often tribal enterprises and corporations inherit tribal sovereign immunity(9). A clause within a tribal UCC is addressing the issue of sovereign immunity is a good idea. Assumedly the tribal UCC would specifically state that the tribal UCC does not waive any tribal sovereign immunity of the government or that of its economic enterprises.

Filing

Filing is an integral part of the UCC. Creditors must file a Financing Statement in order to protect their rights. As with repossessions, this is another difficult area the tribe must consider when debating UCC legislation. The purpose of filing is to give notice to others that some one other that then debtor has an interest in the items identified. The identification of the items can be as specific as a particular piece of machinery or as general as "all equipment" of the debtor. Each state UCC establishes the appropriate location to file in order for a creditor to protect their interest. Failure to properly file the notice can cause the creditor to be last in line among secured creditors even though they were the first party to lend money to the debtor.

Tribes must consider whether they want to take on the responsibility of establishing and maintaining a tribal filing office. In order to give other creditors the notice anticipated under the UCC, creditors must be able to access and rely on the information in the filing office. This requires that the filings be securely stored and maintained and that there is a method for reviewing the filings. This will cost money. Filing fees and record fees can help defray the cost, but it is unlikely the fees will offset all of the cost of maintaining the records. Creation of a tribal filing office gives the tribes the ability to monitor the number and nature of transactions occurring with the reservation. Requiring tribal fillings in order to protect creditor interest helps the tribe assert itself as the proper regulatory authority of the parties. Following the requirements of the tribal UCC demonstrates that parties are aware of tribal regulatory authority and for the potential for other applicable tribal regulations.

The alternative to the tribe taking responsibility for their own filing office is for the tribe to use the states filing office. Some tribes take advantage of the state offices, co-opting them for tribal purposes. Many tribes are unwilling to do this due to the constant wrangling over sovereignty and jurisdiction between the tribe and the state. Unfortunately, tribes must remain ever vigilant in this regard.

Agreement Not To Assert Defenses against Assignee

Assignees of the right to receive payments under a contract usually stand in a superior position under the UCC. The typical contract provision provides that the debtor agrees not to assert any defenses against an assignee of the contract right to receive payments. For the debtor this means that although the product purchased may be defective for some reason, the debtor is still obligated to make payments to the assignee. The debtor must pursue a separate claim against the original creditor or the manufacturer. The argument for allowing these type of contract terms is that is facilities the flow of commerce. There is some validity to this assertion. Parties purchasing the right to receive future payments must have some assurances of the right to receive payments. On the other hand, it does not seem equitable for the debtor to have to make payments for a faulty product.

The injustice of these arrangements is particularly troubling when there is a substantial tie between the manufacturer and the financing company. For example, it is common for "Machine Corp.(10)" to assign the right to receive payments to "Machine Finance Corp." whose primary customer is Machine Corp. and who share common ownership. Tribes may want to consider eliminating or reducing the ability of companies to take advantage of such contract terms. One method is to make such assignment provisions unenforceable. A second option is to create a "substantial relation" doctrine whereby related companies, as determined by such factors as ownership and who is the primary customer, can not assert this defense. In either situation, in order for the debtor to secure relief from the obligation to make payments due to a faulty product, the debtor should be required to give notice to the assignee and the original creditor of any claim.

Tribal Governments That Have Enacted a Tribal UCC

The following tribal governments are or have enacted a tribal version of the UCC. When possible, attempts to confirm the accuracy of the following information were made. Some of the information is second hand information. The intent is that the following information will assist tribes considering adoption of a tribal UCC.

Crow Tribe, Crow Agency, Montana

The Crow Tribe is in final stages of enacting a tribal UCC. At this time, the tribe is considering Articles 1 and 9 for adoption. The tribe used the Model Tribal UCC developed by the University of Montana as a base code.

Hoopa Valley Tribe, Hoopa, California

The Hoopa Valley Tribe recently finished an extensive business code development project. The tribal council adopted the following titles into tribal law. Title 57 addresses the UCC provisions and is based on the Model Tribal UCC developed by the University of Montana. The Hoopa Valley Tribe maintains its own filing office and in case of default does not allow for self-help repossessions unless the debtor consents at the time of repossession.

• Title 50 - Tribal Comprehensive Business Policy Code
• Title 51 - Tribal Corporations and Entities Code
• Title 52 - Tribal Entities Code
• Title 53 - Tribal Business Corporations Code
• Title 54 - Tribal Non-Profit Corporations Code
• Title 55 - Tribal Business Partnership Code
• Title 56 - Tribal Business License and Standards Code
• Title 57 - Tribal Secured Transactions Code
• Title 58 - Federal Government Surplus and Excess Property Code (reserved)
• Title 59 - Tribal Small Business Incentive Program Code
• Title 60 - Tribal Business Miscellaneous Provisions Code.

Lummi Indian Nation, Bellingham, Washington

The Lummi Nation enacted a tribal UCC in December 1985. The Lummi Nation UCC codifies the Articles primarily by referencing the codification of the Washington State UCC except for specific provisions that are printed in the Lummi Nation Code. Section 2-316 of the Lummi UCC makes any contract in which the buyer waives his right to assert the implied warranty of merchantability void.

Mille Lacs Band, Onamia, Minnesota

The Mille Lacs Band has enacted a Uniform Commercial Code codified at Title 18 chapter 3 of the Mille Lacs Band code. Unfortunately, a copy of this portion of the code was not available for review.

Navajo Nation, Window Rock, Arizona

The Navajo Nation has enacted Articles 1, 2, 3, and 9 of the UCC. In general, the code is based on the UCC drafted by the NCCUSL. However, the tribe has modified it to meets their specific needs. The Navajo UCC includes a "Plain Language Comment" to assist in understanding the code. The Navajo UCC is codified at Title 5A, Section 1-9. The Navajo Nation does not allow for repossessions and the tribe maintains its own filing office.

Northern Cheyenne Tribe, Lame Deer, Montana

The Northern Cheyenne Tribal Counsel has enacted some type of a commercial code. Available information indicates that is focused more on consumer protection issues rather than the UCC. The code was not available for review.

Rosebud Sioux Tribe, Rosebud, South Dakota

The Rosebud Sioux Tribe has adopted articles 1, 2 and 9 of the UCC. In general, the tribal UCC uses the UCC as the base code. It is codified at Title 14, Chapters 1, 2 and 9 of their code. Among other changes, the tribal UCC eliminates the "writing" requirement for enforcement of transactions over $5,000. The code does not allow for self-help repossession unless there is consent at the time of repossession. The tribe has made the decision to use the state filing requirements for filing of any security interests.

Standing Rock Sioux Tribe, Fort Yates, North Dakota

The Standing Rock Sioux Tribe initiated the process of adopting a UCC. The best information available indicates they were considering Articles 1, 2, 3, 4 and 9. The information available was an early draft of the documents from 1986. Whether the tribe went on to adopt the article under consideration is unknown.

Exhibit A

Navajo Nation
Uniform Commercial Code

Exhibit B

University of Montana, Indian Law Clinic
Model Tribal Code
Secured Transactions

Exhibit C

Lumini Indian Nation
Uniform Commercial Code

Footnotes

1 President Nixon reversed previous federal policy in July 1970 when he called for a new federal policy to strengthen the Indian of autonomy without threatening the Indian community. Responsibility for programs previously operated by the federal government was to be placed with individual tribes.

2 Income and employment statistics per the National Congress of American Indians.

3 Any reference to the UCC unless otherwise stated is towards the UCC as developed by the National Conference of Commissioners on Uniform State Laws (NCCUSL).

4 The law creates two types of property, real and personal. As a rule of thumb real property is generally land and things affixed to the land. Personal property is everything else.

5 Washington Mutual's tribal lending program was developed by the banks Community Reinvestment Office in Washington State in cooperation with the Port Gamble S'Klallam Tribe and Makah Tribe.

6 Seeking redress though a trial should not be confused with the necessity for obtaining a Writ of Replevin in order to repossess property. Trials and trial preparation are costly, lengthy procedures, the potential for which is enough to cause a business deal negation to fail. The recommendations on Recourse for securing a Writ of Replevin are short proceeding done in open court, presenting evidence to the judge that the parties have an agreement that has resulted in default by the borrower and the secured party is simply seeking permission to retake possession of the property per the parties agreement.

7 Inclusion of the UCC through contract provisions can still cause problems with the contract. In the event of litigation it is possible that a judge could rule that the contract provisions are against the public policy of the tribal government and not applicable or in the worst case scenario the contract is void.

8 A Secured Creditor is a creditor who has loaned money to a debtor so that the debtor can acquire some type of personal property. In exchange for the borrower receiving the money, the debtor gives the creditor rights in some type of collateral. Upon default the creditor can repossess the property and then sell it in order to get the money back.

9 Whether a tribal corporation has sovereign immunity is dependent upon the articles of formation that created the corporation. The issue can only be resolved by an examination of these articles.

10 Machine Corp. and Machine Finance Corp. are fictitious corporations and in no way should the use of these names be construed as a commentary on any company that could be confused with these two fictitious corporations.