Last week I received the following inquiry from reader Vance Koven:
I am moved to put this issue to you, as it is in some ways related to your comments in MSCD and elsewhere on back-dating contracts, which I agree is a no-no, especially for public companies, or making contracts “retroactively effective” in similar ways.
I have come across a number of instances in which companies have contracts that were not “evergreen,” which then expired, but where the expiration was perhaps unintentional, or the parties decided that they wanted to continue doing business after all. If the lapse has not been very long, and most of the business terms would stay the same, it may be convenient to avoid drafting a whole new agreement. I have seen cases like this where the parties sign a document that is either styled a “revival” or “reinstatement” agreement, or just an amendment to the old one, that purports to bring the expired contract back into effect. There may have been post-termination obligations under the old one, or special provisions for transactions that happened between the date the old one lapsed and the new one (or the amendment) takes effect, that the new document handles.
In one such recent instance, the counter-party questioned whether it was possible to do this, and proffered instead a recital that the old agreement had continued with a new expiration date. This struck me as wrong for the reasons you raised in the retroactivity or back-dating situations. I personally saw nothing wrong with creating an amendment that revived the dead contract <cue zombie music here>, but am willing to consider other alternatives short of either lying or rewriting the original agreement from scratch.
What do you think?
I agree with Vance. If a contract terminates because it has reached the end of its term and the parties subsequently decide to apply the defibrillator and revive that arrangement, I’d favor—as always—having the documentation reflect what actually happened. Suggesting instead that on or before the end of the original term the parties had extended the term would give an inaccurate account of the circumstances.
A gap in the life of a contract could have serious repercussions for one or more parties. For example, it might adversely affect a party’s claim against a nonparty to rights in something or other. (Anyone care to suggest any scenarios?) Creating a phony timeline wouldn’t fix that. Instead, it might raise the prospect of a claim for fraud.