Legal insight · Cross-Border Matters · U.S. Services
Korean companies and business owners seeing a U.S. contract for the first time usually notice first that it is long and complex. In practice, business-to-business contracts in the United States often regulate far more detail than the contracts commonly used in Korea, so at first it can be hard to know where to begin.
The essence of a contract, however, is not that complicated. The core is to confirm the rights and obligations of each party, and who bears which responsibility, and to what extent, when a problem arises. Going one step further, an important part of contract review and negotiation is to anticipate an actual dispute and adjust key provisions, such as the scope of and exceptions to liability, in the client's favor.
Rather than those detailed provisions, this article looks at a more basic problem that Korean companies and business owners easily miss when signing contracts in the United States: if something clearly agreed during the contracting process is missing from the final contract, can that agreement later be asserted as part of the contract?
What if it was agreed but is not in the contract?
In consultations, similar situations come up quite often. Over a considerable period of discussions with a U.S. counterparty, emails were exchanged on important terms such as price, scope of work, exclusivity or cost allocation, and the counterparty agreed. Then, while the final contract was being prepared, some of those terms were left out and the contract was signed without them.
The client may think: "It is not in the contract, but we clearly agreed and the emails are still there." In fact, the counterparty's agreement is sometimes recorded quite clearly in emails or elsewhere.
Anyone used to contract practice in Korea may easily assume that such materials allow the agreed terms to be asserted. Korean courts, too, do not read only the wording of a contract mechanically; they interpret its content by considering various circumstances, including how the contract was concluded and the intentions of the parties.
With U.S. contracts, however, particular care is needed before relying on that assumption.
What does an Entire Agreement Clause mean?
Business-to-business contracts in the United States commonly include an Entire Agreement Clause, also called a merger or integration clause. It generally provides that the final contract contains the complete agreement between the parties on the transaction and supersedes earlier discussions, agreements and representations.
So even if you agreed with the counterparty on important terms such as price or scope of work during negotiations, if those terms were not reflected in the final contract, you may later face limits in asserting the contract's content on the basis of an agreement made outside it.
In particular, where several drafts were exchanged during negotiations or detailed terms were settled by email, it is necessary to check separately whether those terms are actually reflected in the contract that is finally signed.
What happens to an agreement left in emails?
Equally important to understand is the Parol Evidence Rule under U.S. contract law. Once the parties have entered into a final written contract, there may be limits on adding to or changing its terms on the basis of oral promises or written agreements made before or at the same time as the contract.
Despite the word "parol," the rule is not limited to oral promises. Emails and other writings exchanged before the contract was signed can also be affected.
Of course, an entire agreement clause does not always make materials outside the contract meaningless. The outcome can vary depending on how far the final contract covers the parties' agreement, the purpose for which the outside materials are being used, and the governing law.
Still, it is a mistake to assume that having the counterparty's consent to an important term in an email is the same as having that term in the final contract.
With U.S. contracts, compare the final contract again
The practical principle is therefore clear: if you agreed on something important, it must be reflected accurately in the final contract.
In particular, if drafts were exchanged several times, compare the final contract against the negotiation record again to confirm that the key points agreed during negotiations, such as price, cost allocation, scope of work and exclusivity, are all reflected.
Even if both sides understood the same thing when the contract was signed, the people in charge may later change, the company's position may shift, or the business relationship may deteriorate. Rather than trying, after a dispute arises, to assert the original agreement by relying on negotiation materials outside the contract, it is important at the signing stage to confirm that the key rights and obligations are clearly set out in the final contract itself.
In the end, what matters in a U.S. contract is not simply whether you agreed. A contract negotiation can be considered complete only once you have also confirmed that what you agreed is properly reflected in the final contract.