Some Kinds of Backdating May Be Permissible, But that Doesn’t Make It a Good Idea

On the website of the state bar of Wisconsin I came across an article entitled “Backdating Documents: Not Necessarily the Stuff of Scandal.” It contains the following passage:

Drafting and executing a document after an event occurs, but in a manner that accurately reflects the date on which the event transpired, is a permissible form of backdating. This is backdating that memorializes, something the United States Court of Appeals for the Seventh Circuit has recognized as a legitimate practice. For example, if parties clearly reach an agreement on Dec. 31, 2009, but do not execute a contract formalizing their agreement until Jan.3, 2010, the contract may be dated as of Dec. 31, 2009. This is simply the accurate memorialization of a past event, something that is essential to legal practice.

But just because something might be permissible doesn’t mean that it’s a good idea. I recommend not backdating a contract. Here’s what I said in this May 2009 blog post:

Courts have certainly been willing to hold that a contract exists before a written contract has been finalized. See, for example, this June 2007 blog post. But I’d still use as the date for a written contract the date it was signed. It’s likely that the written contract addresses many more issues than were covered by the oral agreement, making the written contract different from the oral agreement.

Furthermore, giving the written contract its own date simply reflects the reality of how the contract process unfolded, and it’s always good to have contracts track reality. If the date of the oral agreement was reached is somehow significant, then mention it in the recitals of the written contract.

If having a contract accurately reflect how events transpired doesn’t work for you, you’ve got problems that will only be exacerbated if you try to engage in any sleight of hand over dating.

Posted in Uncategorized | 7 Comments

  • Chris Lemens

    Ken:

    To reflect the fact that people sign on a date different from when everyone intend the contract to begin, I usually have an effective date somewhere near the beginning of the contract, then put date blanks beneath both signatures. I realize that there are counter-arguments, but the reason I do this is so that no one can ever argue that the signers intended to deceive anyone about when they signed the document.

    Chris Lemens

  • http://www.whichdraft.com Jason Mark Anderman

    Here’s a common conundrum from the world of in-house counsel at a large corporation:

    1. The parties reach agreement on the deal.
    2. The deal needs to be approved by 4 different senior level executives on the customer’s side and then signed by the chief financial officer.
    3. The in-house attorney who drafted and negotiated the deal feels strongly that the contract should contain a date somewhere in the document for obvious reasons.
    4. The in-house attorney has usually found that the executives do not fill in a date next to the signature, no matter how strongly called out (via formatting, email reminders, telephone reminders, etc.).
    5. The in-house attorney has usually found that the executives will not fill in an effective date blank on page 1, no matter how strongly called out.
    6. The in-house attorney knows that it is routine for the parties to start performing under the deal while the contract takes weeks to circulate for final approvals and signatures.
    7. Making things even more murky, occasionally the in-house attorney has found that the senior executives and CFO want to renegotiate certain provisions weeks after the parties reached agreement via email on the final draft (e.g., “The attached version is acceptable to us and is ready for signing.”), and both parties are already performing under the deal.
    8. Should the in-house attorney just insert as the effective date, the date that the parties reached agreement via email? Or should the in-house attorney run the very likely risk that the signed version will not have a date?

    Sadly and perhaps surprisingly, this situation is quite common.

  • Håvard Hanto-Haugse

    My experience from Norway is in accordance with statement of the cited article:

    A couple of years ago, one company (WidgetCo) bought the shares of an other company that owned an attractive plot of land (LandlordCo). WidgetCo wanted the plot for a new production facility. The intent was, and the board approval for the purchase also indicated, that the production facility should be built by LandlordCo, and leased back to WidgetCo. However, because LandlordCo was a “one-man-band” and was effectively run as a part of the daily managent of WidgetCo, no formal agreement was made.

    About six months later, the tax authorities had an audit of LandlordCo. Under Norwegian VAT law, you can re-claim for expences incurred in running the business. So if you are building for the purpose of leasing out, you can re-claim VAT, but if you are building for no apparent reason, you can’t. The tax authorities claimed that there was no evidence LandlordCo was building for the purpose of running its business, and claimed the company for unpaid VAT.

    In response to this, I was asked to draft a formal lease agreement. It was vital that the agreement reflected the earlier gentlemens agreement, so that LandlordCo would be able to re-claim VAT for expences incurred prior to signing of the formal agreement. I solved this in the recitals by stating that the formal lease agreement was merely a memorialization of an oral agreement made at an earlier (specified) date. Having obtained prior approval of the draft, and having all the appropriate people under one roof, I decided to date the formal agreement, and the not the signatures.

    Backed with evidence of the oral agreement (minuted of board meetings, etc.), the tax authorities dropped their claim, effectively accepting the backdating of the formal agreement.

  • Ken Adams

    Chris: I recommend the sign-the-signatures approach primarily when there’s a lag time in getting a contract signed.

    Jason: Regarding blanks next to the signature date, see this November 2008 blog post.

    Håvard: The fact that backdating worked in your situation doesn’t mean that that was the only approach, or even the clearest.

    Ken

  • http://www.mafudabogados.com Jorge Mafud

    Hello Ken,

    I’ve read several of your articles regarding back dating and, as I’ve mentioned before, it is quite normal in Mexico to back date agreements or to date an agreement eventhough the signatures are stamped later on…

    There’s no legal theory or jurisprudence in Mexico that prohibits this practice… for example, the “Mexican” approach to Harvard’s case would have been to backdate the agreement to the date when the construction began…

    It’s intersting to me (considering my legal background) the size of the issue for you guys in the US…

    Best Regards!

    Jorge.

  • Ken Adams

    Jorge: It’s not primarily a matter of legality. Instead, it’s a matter of having the drafter reflect what actually happened rather than tidying up the timeline and as a result confusing readers or failing to spot issues. Ken

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