My Brief Critique of an Article on the Concept of Contract Term

I noticed this article on JD Supra. It’s by two lawyers at the law firm Morgan Lewis, and it’s about the concept of “term” in contracts. I have a different take on some aspects of it, so I offer to the gods of the marketplace of ideas my thoughts on three extracts.

First Extract

The first issue in establishing the start date is determining the actual date that the parties agree that the terms of the contract will become applicable. Typically, this date should be specifically set forth as the “Effective Date” of the contract, and all other potentially applicable dates/blanks should be removed, including the common blanks for dates under signature lines.

This extract confuses two issues, the date of the contract and the timing of performance. Whether you state the date or not, there will always be a date when the contract becomes a contract, namely the date when all the parties have signed it. By contrast, it’s necessary to state the start of performance only if it’s different from the date of the contract. So the idea of deleting all dates other than the date performance starts doesn’t make sense.

In particular, you date signatures when there’s a lag between when the first party signs and the last party signs; the date the last party signs is the date of the contract. If you don’t date the signatures or you don’t state in the introductory clause the date the parties signed the contract (if they all sign at roughly the same time), then you’ve failed to state a date for the contract.

And I don’t state an “effective date.” Instead, if the timing of performance is different from the date of the contract, I explain why that is. For example, if performance started before the contract was signed, I’ll explain that in the recitals, giving all relevant facts. And I’ll state in the body of the contract that the contract governs pre-contract performance. That’s clearer than giving giving an earlier date the label “effective date” but offering no other explanation. See MSCD 2.35–.43.

If I need a defined term for the date performance starts, I’ll use a term such as Start Date. A contract becomes a contract when it has been signed, not when performance starts.

Second Extract

The best practice is to determine the actual date the parties desire the contract to end and specifically set out that date in the contract so the term begins on the defined Effective Date and terminates on the defined End Date.

It’s perhaps worth noting that not all contracts have a term. If, say, you’re assigning something, the act of signing the contract accomplishes the main function of the contract. You might have continuing liabilities or obligations under the contract, but normally you wouldn’t refer to the contract as having a term.

Third Extract

However, frequently, the term is defined to last for a number of years, months, quarters, weeks, days, etc. This formulation can raise issues for determining the actual end date (e.g., whether a “year” spans calendar years vs. a contract year vs. a fiscal year).

In my experience, that’s unlikely to be an issue. If you say the term of a contract is X years, the only reasonable interpretation is that the first year runs from the date of the contract or any other start date that’s specified. What year means can create confusion if you’re apportioning quantities per units of time, but that’s a different issue. See MSCD 10.63.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.