Comments on: Playing Games With the Date Next to the Signature

By: Jorge Mafud

Jorge Mafud — Tue, 09 Jun 2009 01:34:41 +0000

Hello, as a Mexican lawyer I am truly amazed of the importance you guys in the US give to the backdating issue… being franc, backdating is a common practice in Mexico, in fact, it is not customary for drafters to include a “date” line below the signature of each party’s representative… we usually just date the contract and that’s it… the date the parties agree to use will be, for legal purposes, the date when rights and obligations are born for the parties…

I used to work in the mexican branch of an american company and most of the mexican offices and managers couldn’t understand all the big fuzz about the dates in the papers…

I can almost be sure no one has ever been imprisoned for backdating or forward-dating in Mexico…

Best Regards.

Jorge Mafud

By: Jason

Jason — Fri, 29 May 2009 08:05:13 +0000

Rick:
Sounds like what you refer to as “backdating” is not the backdating of actual signatures, but rather using an “effective date” as the date that contractual obligations begain. If the signatures contain the actual date that the parties signed then it is unclear where the fraud would occur in the contract (of course if one party realized the revenue as of the effective date and not of the signature date, that would be an issue).

By: Rich Santalesa

Rich Santalesa — Fri, 29 May 2009 04:48:30 +0000

Ken: Good points. Backdating, as in my example, does conduct a legal fiction that the prior contract was in force throughout. And the new MSA or amendment could recount reasons for the dating (and on occasion does), though in such circumstances each party is often chagrined that neither caught the expiration.

However, your point as to potential third or non-party rights (e.g. subcontractors, etc) is a serious issue that must be carefully considered in any such practice, and backdating under such circumstances where non-party rights were curtailed or imperiled – even unintentionally – would rise to level of improper conduct and potential fraud.

But where as in a typical service agreement with the contract solely between the signing parties the backdating serves to memorialize the actual intent and ongoing conduct of the parties (who were each working up until the discovery of the expiration as if the prior contract had been still valid). In such cases “backdating” with the full knowledge and ascent of the parties for no “beneficial” gain other than to provide continuity and permit quick continuation/resumption of services (assuming of course no other issues/regulations/statutes apply) can not be said to raise to any level of misconduct.

Indeed, rather than evidence of active “dissembling” it’s frequently merely a case of innocuous “saving face” on both sides – with the proviso that the “effective as of” date reflects the earlier “back” date, while the signature dates make clear when the Amendment/new contract was executed to provide needed disclosure.

As the Backdating article I referenced earlier notes: “backdating, even in its most benign form, can potentially mislead a court or some other third party into believing a document was executed on an earlier date. To mitigate this possibility, backdating should always be disclosed. Part III examines the impact of disclosure and analyzes two disclosure methods; namely, identifying the date the document was executed and utilizing “as of” dating.”

By: Ken Adams

Ken Adams — Fri, 29 May 2009 02:18:55 +0000

Rich: I agree that “fraudulent” is a bit strong, because often enough no one is in a position to claim that they’ve been harmed by backdating. But backdating takes liberties with the truth. Taking your example, the fact is that if an MSA has terminated, it’s dead and gone and can’t be extended. Instead, you need a new contract. It might be expedient to dissemble by backdating, but why not simply say in the new MSA exactly what happened? If you’re unwilling to live with the gap, perhaps because the gap would give a nonparty rights that they otherwise wouldn’t have, then backdating the new MSA would in fact be fraudulent. Ken

By: Rich Santalesa

Rich Santalesa — Fri, 29 May 2009 00:45:50 +0000

Art said “Backdating a signature is essentially fraudulent unless you can somehow show that the agreement simply records a pre-existing oral contract (which is unlikely to be the case).”

I disagree. “[B]ackdating is essentially fraudulent” is not the cut-and-dry rule that seems implied. There are good, valid and legal reasons for backdating contracts. For example, and I’m sure any corporate lawyer has encountered this more times than we’d like to recount: many times companies working under a pre-existing MSA will “discover” suddenly that the MSA has expired months before and did not contain an automatic renewal. In either doing an Amendment to the prior MSA or putting a new MSA in place the effective dating is generally set as the expiration date of the prior MSA which passed months before – for good reason to provide predictability and security to both sides. No fraud is involved.

Indeed in cleaning up my office today I came across the Aug 2008 issue of Business Lawyer, which contains an article “Backdating” available here on SSRN (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1112845) that starts:

“Backdating is a much misunderstood and largely unexplored subject. *** To the layman, backdating connotes wrongdoing. The propriety of backdating, however, depends upon its purpose and effect. Every lawyer should be capable of distinguishing legitimate backdating from improper backdating. Unfortunately, the dividing line is often far from clear.”

By: Cynthia Sternberg

Cynthia Sternberg — Wed, 27 May 2009 15:53:58 +0000

There is a practice none have mentioned. Having the first signing party send a PDF or fax of the signature page (for long distance this beats couriers which can sometimes take 5 days – even on overnight). The final signing party then signs the pdf or fax copy. Then once the originals arrive it is simply a matter of re-signing with the previously recorded date (keeping both sets of signatures in the archive file just-in-case).

I’ve found that India, China and Japan will not use electronic signatures in any form.

By: Jason M. Lemkin

Jason M. Lemkin — Tue, 26 May 2009 19:37:55 +0000

This is an interesting thread. What we’ve seen at EchoSign is that these issues – which are very important ones — mostly wither away once you have a trusted third party that dates contracts. For our customers, it’s particular relevant for sales/revenue contracts where the date is 100% tied to revenue recognition. Once the date is simply applied by the eletronic signature vendor, these debates, questions — and in some cases, games — simply end.

Interestingly, we’ve seen that third party dating also changes another standard practice which is “who signs first”. Traditionally, the party with power in the contract or NDA would sign last. However, if the document is immutable there is no risk it will be modified by the first party, and especially if it’s tied to revenue recognition, the “big co” tends to sign first, so that they can recognize revenue the second the customer signs, and not have any temporal gaps until countersignature that would delay rev rec.

By: Art

Art — Fri, 22 May 2009 15:23:37 +0000

I was thinking more in terms of legality, and having the tax authorities knocking on your door – but you’re absolutely right, there is rarely a good reason for it.

By: Ken Adams

Ken Adams — Fri, 22 May 2009 12:57:08 +0000

Art: I think that putting a future date next to your signature is a really bad idea. You’re sending mixed signals, because the fact is that you’re signing, dating, and returning the signature page now, not on that future date.

So if you want certain rights and obligations to kick in on some future date, ensure that the contract says as much and date your signature the date you sign.

If you don’t want the contract to become a valid contract until that later date, don’t return your signature until that date.

Ken

By: Art

Art — Fri, 22 May 2009 12:42:10 +0000

I think backdating and forward dating can be treated quite differently. Backdating a signature is essentially fraudulent unless you can somehow show that the agreement simply records a pre-existing oral contract (which is unlikely to be the case). I think Ken’s example of signing and dating, then waiting, then returning the contract, is a form of backdating (albeit one that might be done innocently) as the terms were not agreed to until the contract was returned, and it is the date of agreement that matters, not when pen was put to paper.

Forward dating is less of an issue. If a party puts a future date on a signature and passes it to the other side, that shows that he wants his agreement to be considered to be made as of the future date – there is no contract until then, and the acceptance can be withdrawn in the meantime. A similar thing can be done with written board resolutions. If a party signs and, without communicating anything to the other side, waits a day or two, then dates as of the later date, that again presents no problems.

I think the only issue with forward dating would be if a party sent its signature back on one date (i.e. you have actually formed the contract) and subsequently tried to write in a later date. I have never seen it happen, or proposed.

As for an undated signature, if the date is important I will date it myself – but never to a date before I saw it circulated on email.