Doing Business with China and What the Uniform Commercial Code (UCC) Has to Do with It

dual language contract law

United States domestic business lawyers live and breathe the Uniform Commercial Code (UCC). Let’s turn to Wikipedia for an explanation of how the UCC came into being and why it is so important:

The Uniform Commercial Code (UCC or the Code), first published in 1952, is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in all 50 states within the United States of America. This objective is deemed important because of the prevalence of commercial transactions that extend beyond one state (for example, where the goods are manufactured in state A, warehoused in state B, sold from state C and delivered in state D). The UCC deals primarily with transactions involving personal property (movable property), not real property (immovable property).

The UCC is the longest and most elaborate of the uniform acts . . . . The Code, as the product of private organizations, is not itself the law, but only recommendation of the laws that should be adopted in the states. Once enacted in a state by the state’s legislature, it becomes true law and is codified into the state’s code of statutes. When the Code is adopted by a state, it may be adopted verbatim as written by ALI and NCCUSL, or it may be adopted with specific changes deemed necessary by the state legislature. Unless such changes are minor, they can affect the purpose of the Code in promoting uniformity of law among the various states.

The Code, in one or another of its several revisions, has been enacted in all of the 50 states, as well as in the District of Columbia, the Commonwealth of Puerto Rico, Guam and the U.S. Virgin Islands. Louisiana has enacted most provisions of the UCC with the exception of Article 2, preferring to maintain its own civil law tradition for governing the sale of goods.

Because the UCC is pretty much the law in all 50 U.S. states, if you are an American company in the business of buying or selling virtually any kind of product, your transactions are likely to be governed by the UCC, whether you know it or not. The UCC has truly become a guidebook on how businesses should act in handling most matters relating to the buying and selling of products. Above all else, its benefit lies in the certainty it creates.

Lawyers and businesspeople have come to depend and rely on the UCC to cover them in their product transactions. Oftentimes, this means they do not even bother with various contractual provisions, knowing the UCC will cover their omissions. Unfortunately, this attitude is bleeding into the international arena where the UCC typically does not apply.

Super-lawyer Dan Hull, over at What About Paris? recently wrote on this in his post, entitled, If your U.S. client trades abroad, the UCC won’t always give you the answer, and he has this to say:

If you buy and sell in the global markets, the UN Convention on Contracts for the International Sale of Goods (CISG) is your new friend.

It’s not off-the-wall for a longstanding client to call on a Friday afternoon with a question about a clause in a 10-year old contract under which the client, a U.S. widget manufacturer, is selling widgets to a Norwegian distributor. “No problem,” you think. And you tell her: “Let me look at the Uniform Commercial Code, preliminarily. We’ll start there, of course. I will call you back.”
Be careful there, fancy-lawyer guy.

Commercially, we live in a world that never sleeps. Every minute, even during these nervous months, deals are struck and goods change hands. In cases of international sales of goods, the Uniform Commercial Code–or UCC, adopted by 49 states to create a standardized law for commercial transactions in the U.S.–is often preempted by the federally-adopted United Nations Convention on Contracts for the International Sale of Goods (often referred to as the “CISG”).

A multinational treaty that provides a uniform law for international sales of goods, the CISG was signed in 1980–and has been ratified by over 70 countries. While the CISG is similar to the UCC, there are differences, and some are major. For example, unlike the UCC, the CISG generally does not require any contract for the sale of goods to be in writing. More importantly, unless the terms of a sales contract between parties from participating countries expressly exclude the CISG, the CISG is deemed to govern the contract.

By the way, don’t guess on Contracting States, or signers, either. The U.S. adopted the CISG in 1988. Australia, most of Europe and parts of Asia, Africa and South America have also adopted the CISG.

China is a signatory to CISG and so if you are buying and selling goods with a company there, you should familiarize yourself with it because it may put terms into your contracts, though for the most part (at least so far) Chinese courts tend to ignore it.

6 responses to “Doing Business with China and What the Uniform Commercial Code (UCC) Has to Do with It”

  1. U.S. attorneys should always remember that the U.S. invoked CISG’s Article 95, opting to not be bound by subparagraph (1)(b) of article 1 of this Convention.
    Unless a contract with a U.S. party & a non-contracting State party expressly notes that it will be bound by CISG or another standard, the governing law must be determined by the court. The default choice of law could be either the U.S. (UCC) or the non-contracting party’s law.
    It can be a complex evaluation and attorneys would be wise to research the matter thoroughly.

  2. U.S. attorneys should always remember that the U.S. invoked CISG’s Article 95, opting to not be bound by subparagraph (1)(b) of article 1 of this Convention.
    Unless a contract with a U.S. party & a non-contracting State party expressly notes that it will be bound by CISG or another standard, the governing law must be determined by the court. The default choice of law could be either the U.S. (UCC) or the non-contracting party’s law.
    It can be a complex evaluation and attorneys would be wise to research the matter thoroughly.

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