This post is the second installment in a series that aims to demystify US contract law for global companies, covering six key principles—each of which are subject to jurisdiction-specific nuances—that distinguish it from many non-US jurisdictions and what to expect if your contract is interpreted by a US court.
Know the rules of the game: Which law will govern your contract?
The United States is not governed by one single body of contract law—the rules can change depending on which state’s law governs and the subject matter of the contract. So, two threshold questions should be on every non-US company’s checklist before signing. First, which state’s law applies? Contractual interpretation varies significantly across states—for example, New York courts tend to stick to the plain meaning of contract language, while California courts are more willing to look at context—making your choice-of-law provision a more consequential decision than it may appear. And second, does the UCC apply? For contracts involving the sale of goods, the Uniform Commercial Code—adopted in similar form across all 50 states—supplies its own default rules on topics ranging from delivery to payment to implied warranties, sometimes whether the parties intended it to or not. Getting these two questions right at the outset can prevent significant surprises down the line.
Prioritize precision: Freedom of contract reigns supreme.
US contract law emphasizes broad freedom of contract, empowering parties to assign risk and designate the rules governing their relationship. This means courts rarely imply provisions or “fill gaps” with statutory terms, in contrast to courts in many other legal systems. Consequently, meticulous and detailed drafting is essential.
Beware the handshake: Informal agreements can bind you.
Under US law, an agreement does not always need to be formal or written to be enforceable—under the right circumstances, an oral agreement can sometimes be binding. For example, a Delaware court has enforced a settlement agreement made over the phone, including an oral promise to change the structure of a publicly traded company’s board, even though the parties had not yet papered the deal.[1]
Formalize it: Know when writing is non-negotiable.
Conversely, a legal doctrine known as the Statute of Frauds requires that certain types of contracts must be in writing. These include long‑term agreements, property agreements, and high‑value sales of goods, among others. Parties relying solely on an oral agreement may mistakenly believe they have a binding contract, only to find it is unenforceable, depending on the subject matter involved.
Say what you mean and mean what you say: Contract language is paramount.
When parties do have a written contract, the precise language of that agreement is paramount. Under the “parol evidence rule,” extrinsic evidence is typically inadmissible to interpret a contract’s clear terms. And an “integration clause”—which says that it represents the parties’ final and complete agreement—is a powerful tool for reducing unpredictability. We will unpack both concepts further in later posts in this series.
Future-proof your contract: Anticipate changes in circumstances.
While some jurisdictions may mandate renegotiation when parties face changed circumstances, US contract law generally does not. Parties seeking flexibility should keep that in mind, building it into their agreements at the outset.
Entering the US market is a significant opportunity, and US contract law, while demanding, rewards those who understand its rules. Precision is not bureaucracy; it is protection. A well-drafted US contract, tailored to the rules that will govern, is an effective tool for managing risk and building durable commercial relationships. As this series continues, we’ll go deeper on key concepts—from critical clauses to managing relationships—to help you approach US contracting not as a minefield, but as a framework to use to your advantage.
[1] See Sarissa Capital Domestic Fund LP v. Innoviva, Inc., C.A. No. 2017-0309-JRS (Del. Ch. Dec. 8, 2017).
