It’s commonplace for performance to begin before a contract has been signed, with the contract being signed once all necessary approvals have been secured. MSCD 1.32 recommends that in such contexts, you put in the introductory clause the date the contract is signed, rather than the date performance began. (That assumes you’re using a date in the introductory clause rather than dating the signatures; see MSCD 1.16.)
But if the parties reached agreement orally in advance of a contract, wouldn’t it be more accurate to use in the introductory clause the date of the oral agreement? That question was posed by a participant at my recent Toronto seminar.
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.
Ken:
Assume that performance began on the basis of the oral agreement that is later reduced to writing. Under what circumstances would you date the written contract to be the date when performance began?
For me, the written contract often has important provisions dealing with how disputes are handled and what each party is liable for. I’d normally want these provisions to govern the performance that occurred before the parties signed. I’d then carve out those provisions that I don’t want to apply (like an obligation to provide reports that no one provided).
Chris Lemens
I would also hesitate to date a contract the date of a prior oral (or indeed other verbal) agreement unless it was expressly agreed on the earlier date that the contract was agreed. Even that is never ideal, but is sometimes done when the date of signing is relevant and the final contract could not be drafted in time.
I do, however, often put an “Effective Date” in the agreement going back to when performance began – as Chris says, the parties will almost certainly want the provisions of the agreement to apply to the whole relationship.
I don’t know whether such a distinction seems relevant to US lawyers – in the UK it is considered fraudulent to indicate that a contract was signed before it was, but specifying a prior “Effective Date” is fine. I understand that is not the case in the States.
Art: I avoid using the defined term Effective Date: the contract is effective when signed, not before or after. See MSCD 1.32 and this July 2007 blog post. Ken
Ken, I think your understanding of “effective” must differ from mine. If a contract says that it is effective as of another date, it simply means that it can be enforced as if it had been entered into on that date and the obligations ran from that date. The key words are “as if” – the word “effective” is used to create an enforceable legal fiction, and does not suggest that the contract was formed on that date. Indeed, it is redundant unless used precisely to make clear that distinction.
The same effect can be achieved in other ways, as you set out in the blog post that you link to, but specifying an “Effective Date” is usually the quickest, neatest and least ambiguous way to do it when the entire contract is to be included in the legal fiction.
Art: I prefer to distinguish between effectiveness of the contract, which happens once it’s signed, and the time when performance starts, which could be before or after. Ken
I will often add a recital that the contract memorializes a prior oral agreement. Somewhere in the body of the contract I will then state that the agreement is effective as of the date performance began. If I were following MSCD standards, I supposed I would say instead that the contract governs the previous performance.
I agree with Art. I often use (and see others using) a statement that “This Agreement shall enter into effect on Jan 1st 2009 (the “Effective Date”)” to reflect the date upon which the parties wish performance to start. If that date is prior to signature (which occurs fairly often) I add “retroactively” to that statement just to make it clear that the parties are consciously applying the Agreement to past events. I also agree with Art that although this is common in the UK, it does seem to be more problematic in the US.
Sandra: The problem with your approach is that the contract is effective when it’s signed, and nothing you say can change that. I prefer to have the contract reflect what’s actually going on, which is that the parties are agreeing that pre-contract performance will be covered by the contract. Ken
Ken: Regardless of whether there was a prior oral agreement, isn’t it possible to agree that the contract you sign today will apply to something that happened yesterday? Construction contracts, for example, are often signed after the work has started. The parties intend that warranties will apply to work performed before signing, indemnities will apply to claims arising out of occurrences happenening before signing, and so on. The retroactive agreement is effective today, but it’s still retroactive.
Aaron: Yes, a contract can have retroactive effect. But that’s different from giving the contract a date earlier than the date it was signed. Ken