Legislators divided on definition of money in proposed update to commercial transaction law

When someone sells a used car, their financial transactions are protected under something called the Uniform Commercial Code. The same is true when someone buys a television from an electronics store, or engages in any one of the thousands of commercial transactions of goods that occur daily in Maine. 

This set of laws provides both sides of these transactions, whether individuals or businesses, with legal protections. While UCC is state law, it has essentially been the law of the land across the United States since it was uniformly enacted in the 1960s, therefore it also provides a consistent foundation for all commercial transitions. 

However, that uniformity may be diminishing because of disagreement over the definition of money. 

An organization made up of practicing lawyers, judges, legislators and law professors called the Uniform Law Commission released proposed amendments in 2022 to account for new technologies that have emerged since the last update at the turn of the century, notably digital currencies.

So far, 11 states have adopted the proposed amendments but five of those states did so only after removing the updated definition of money. This definition is now the main point of disagreement in Maine as legislators prepare to consider adopting these amendments next session in a carried over bill. 

On Thursday, the legislative subcommittee tasked to review the amendments heard from experts of commercial transaction law, who urged adoption of the changes in full. However, the subcommittee did not reach consensus on a proposal to bring before the full Judiciary Committee in 2024.  

The two members who comprise the subcommittee remain divided. Rep. Steve Moriarty (D-Cumberland) supports adopting the amendments in full, whereas Sen. Eric Brakey (R-Androscoggin) is opposed to including the updated definition of money. 

Under the pre-2022 version of this definition, money was generally understood to include only tangible coins, bills and notes. The 2022 revision adds “money in an electronic form.” 

The recommendations explain that because it is unknown how these currencies will develop, its definition takes into account the possibility that countries could adopt intangible tokens as money, often referred to as central bank digital currency. So, the text goes on to define money as “a medium of exchange currently authorized or adopted by a domestic or foreign government.” 

Five states – Nevada, Colorado, Indiana, Alabama and New Hampshire — chose to exclude this new definition of money in their codes, following initial claims from the South Dakota Freedom Caucus (a contingent of South Dakota Republican lawmakers) that doing so would be an endorsement for a national digital currency. 

Experts of commercial transaction law who spoke with the subcommittee on Thursday disagreed with that interpretation, explaining that such an endorsement is not plausible since states cannot propose currency. They also advised the subcommittee to adopt the amendments in full to ensure the UCC can continue to operate as intended.  

Andrew Kaufman, who teaches commercial law at the University of Maine School of Law, said the strength of the UCC has been its uniform enactment. 

“Particularly in the commercial arena, making deals happen, bringing parties together, assuring predictability of outcome is much more difficult when you don’t have a common understanding of what the law is,” Kaufman said. 

The definition of money is found in Article 9, which Charles Mooney helped adjust as co-reporter for the UCC drafting committee. Mooney said if Maine were to follow the five states that have opted out of the definition, it would not significantly impair operations at this time. However, adopting the updated definition would provide security should digital currencies become the thing of the future. 

“One can imagine that it would be useful to have a private property law to deal with those, just as we’ve always had with tangible money,” Mooney said. 

But there would also be an immediate impact. Kaufman said the definition change clarifies how Bitcoin can be used, which changed in the U.S. when El Salvador adopted Bitcoin as national currency in 2021.

Under Article 9, as currently worded, “if something is money anywhere in the world, it’s money everywhere in the world,” Kaufman said. El Salvador’s change therefore made Bitcoin money in the U.S. But, since the UCC remained the same, a gap emerged particularly when it comes to borrowing and lending money. 

Before Bitcoin was considered money, it could be considered a “general intangible” giving the lender control over it for repossession purposes if a borrower defaults. Since Bitcoin is now money, there is less security. Money can only be perfected as a security interest if it can be possessed, but the digital nature of Bitcoin makes this unfeasible. 

The updated definition solves this by categorizing existing digital currencies, such as Bitcoin, as “digital assets,” Kaufman said. 

Following input from these experts, Moriarty and Brakey could not reach agreement on one proposal to bring to the full committee. Brakey, who said he personally uses cryptocurrencies and has put up Bitcoin as collateral, said he finds the updated framework mostly valuable. However, he would only be comfortable approving the updated definition if the legislature added a statutory provision to prohibit Maine from ever accepting central bank digital currency  as legal tender, he said.  

The subcommittee will not meet again before the 2024 session. Analysts will draft versions with and without the updated definition included to be presented to the full judiciary committee next session.