During the 2025 session of the South Dakota legislature, yet another bill was proposed to adopt non-uniform amendments to South Dakota’s version of the Uniform Commercial Code (“UCC”). As most bankers know, the UCC is a set of commercial laws governing multiple topics, including sales and leases of goods, checks, securities, and secured transactions in personal property. Bankers rely on the UCC on a daily basis when documenting promissory notes, taking collateral as security for loans, and providing checking accounts to customers. South Dakota has generally adopted the UCC as recommended by the Uniform Law Commission, which is the non-profit entity formed by lawyers, judges, legislators, and law professors charged with providing non-partisan, well-conceived and well-drafted legislation to bring clarity and stability to critical areas of state statutory law.
Non-uniform amendments by states jeopardize the UCC’s goal of national uniformity and predictability in commercial legal matters. Further, and importantly for a small state like South Dakota, non-uniform amendments telegraph an “anti-business” attitude, causing commercial interests to consider the additional legal and strategic risks presented by doing business in South Dakota. By way of example, following the Governor’s veto of the UCC updates to address cryptocurrency and digital assets during the 2023 session, the legislature was forced to accept “non-uniform” edits to the updates to Article 9 and new Article 12 in order to obtain the Governor’s signature on the UCC bill during the 2024 session. One of the non-uniform amendments resulted in an odd legal classification wherein Bitcoin (and any other cryptocurrency adopted as the legal currency of a country) received a different classification from all other cryptocurrencies. Based on the non-uniform classification, the method of obtaining and perfecting a security interest in Bitcoin is different than for other cryptocurrencies.
As a result of the classification oddity presented by the non-uniform amendment, commercial entities operating in South Dakota need to keep this distinction in mind when they take custody and accept and perfect liens in different types of cryptocurrencies. While seemingly an innocuous change designed to placate an ill-informed concern, the result has rippled through the commercial markets, with national commercial players being forced to revise standardized documents to work around South Dakota’s non-uniform amendments when structuring secured transactions in South Dakota. South Dakota’s non-uniform provisions are now called out during national presentations involving the UCC (and not in a favorable way!). Commercial lawyers and business leaders crave the uniformity and predictability of the UCC.
During the 2025 session, yet another ill-conceived bill was proposed to adopt non-uniform amendments to the UCC (HB 1122). In this instance, the bill proposed amendments to the existing provisions of Article 8 governing securities. This included an attack on the securities entitlement provisions underpinning modern indirect securities holding and trading systems. Following significant educational efforts by the bankers’ lobby and other commercial interests, HB 1122 was voted down in the House of Representatives on February 7, 2025.
The UCC is admittedly a complex set of interrelated statutes. The articles of the UCC are taught to law students as part of several commercial law courses offered in every law school in the country. For that reason, legislators should exercise discretion in proposing non-uniform amendments without a fulsome understanding of the ramifications. Hopefully our state’s legislators will continue to understand that when it comes to the UCC, it is “Hip to Be Square” and that non-uniform amendments deserve significant scrutiny.
If you have questions, please contact Davenport Evans Lawyers at 605-336-2880 or [email protected].
Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the state’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit www.dehs.com.