As a companion piece to this blog post from last week about putting the date of the contract in the introductory clause, in this post I’ll explain why it’s not a good idea to use as the date of a contract a date that reflects timing of performance.
To capture past performance, drafters sometimes use in the introductory clause a date earlier than the date of signing, in addition to or instead of the date of signing. For example, in commercial contexts it’s commonplace for the parties to reach an informal oral or written understanding on the terms, then start the process of reflecting those terms in a contract. Due to deal complexity or need for approvals, that process can be protracted, leading the parties to agree that one or both sides will start performing before the contract has been signed. Once it has been signed, the parties might use in the introductory clause the date performance started, to tidy up history. To indicate that that date isn’t the date of signing, a drafter might describe that date as an as of date or as the effective date or might use dated for reference or dated for reference purposes only.
And drafters sometimes use in the introductory clause, in addition to or instead of the date of signing, a later date if the contract provides for an arrangement that won’t come into effect until after the date of signing. For example, Acme and Jones might sign Jones’s employment agreement on 1 March even though Jones won’t start working for Acme until two months later, on 1 May. A drafter might address this by using Jones’s start date as the date in the introductory clause. To signal that it’s not the date of signing, a drafter might use one of the signals noted in the preceding paragraph.
But it would be misleading to use in the introductory clause a date in the past to encompass precontract performance or a date in the future to reflect delayed performance, because that obscures the actual time frame of the transaction—a signed contract comes into existence when the parties have signed it.
In such situations, it would be clearer to use instead in the introductory clause the date of the contract (see this post) and address other timing considerations wherever makes most sense.
For example, Acme and Widgetco propose entering into 15 February a contract that provides for Acme to pay royalties to Widgetco based on annual sales, and the arrangement is that Acme will pay royalties for that year based on sales for the entire year, not just from 15 February. The drafter might be tempted to use 1 January of that year as the date in the introductory clause, using the signals described above to convey that that’s not the date of the contract. It would be clearer instead to use in the introductory clause the date of the contract and state in the provisions governing royalties that the first year’s royalties are based on sales for the entire year.
Or Alpha and Beta reach oral agreement and Alpha starts performing; only later do both parties get around to signing a contract. Describe the precontract circumstances in the recitals, address in the payment provisions any payment required for precontract performance, state somewhere in the body of the contract that precontract performance is governed by the contract, and use in the introductory clause the date of the contract. The date the parties reached oral agreement might be important, it’s not the date of the contract. Aim to reflect reality; if that poses a problem, something is amiss.
It’s clearer not to use effective date (as a defined term or undefined) for the start of performance, because a contract is effective when it has been signed by all the parties. Consider using instead a term such as start date or performance date.
The date given a contract can have legal implications beyond performance under that contract. For example, it can affect a company’s tax exposure or someone’s rights under another contract. Playing games with the date of a contract—including by means of the date you use in the introductory clause—can give rise to civil or criminal liability.
Furthermore, attempting to give retroactive effect to a contract, including by using in the introductory clause a date earlier than the date of signing, can create problems if the contract is part of a series of transactions. For an example of that, see this 2012 blog post.