As Ken Adams has pointed out, if you want a contract to cover activity prior to its signature, you can just say so: This agreement applies to transactions between the parties on or after xxxx. The one area in which I relax this rule somewhat is in drafting corporate resolutions that are, as Kwall and Duhl characterize the situation, merely memorializing events that occurred at times in the past (for example, the continuation of named persons as directors and officers, the establishment of a banking relationship, etc.) and you’re just catching up on corporate housekeeping that may have slipped.When third parties might be prejudiced, what I do even here is to have a contemporary resolution ratify the actions taken by the directors at a prior time.For a shorter piece with a few practical tips see Backdating – it’s illegal isn’t it?Setting aside such issues, avoiding unwanted side effects of backdating contracts can be tricky, especially when the purported effective date of an agreement is several months before the date it was actually signed, as can be seen in involves the ownership of a promissory note that was made to a bank in connection with a loan.(Jason Mark Anderman illustrates the logistics problem well in this comment to a backdating post on Ken Adams’s blog.) There’s nothing inherently illegal or unethical about backdating contracts, although backdating can certainly be both unethical and illegal, depending on the situation.For those with an hour to kill thinking about the issues, Jeffrey Kwall and Stuart Duhl wrote an excellent article on backdating that was published in Business Lawyer in 2008.The facts are a bit complicated, involving circumstances surrounding the failure of a bank and transactions in the bank’s loans preceding the failure as well as transactions of the FDIC as the bank’s receiver.Here’s a simplified timeline: FH Partners made a demand on the debtor for payment of the loan and eventually sued the debtor and guarantors.
The appellate court then considered whether, assuming that the FDIC/Weatherford transaction was retroactively effective (which it wasn’t), the retroactivity of that transaction had any legal effect on the transaction between the FDIC and FH Partners.FH Partners was unable to cite to any authority “for the proposition that a retroactive effective date in one contract can be construed to have an automatic retroactive effect on a separate contract,” which would probably have been fatal to its case.But the language of the FDIC/FH Partners agreements further undermined FH Partners’ arguments because the documents (1) stated that they couldn’t be amended or waived except in a writing signed by the parties, (2) didn’t anticipate that the FDIC could modify what it was conveying to FH Partners after closing, (3) conveyed the FDIC’s interest “as of the Loan Sale Closing Date,” (4) transferred the FDIC’s interest in the loan “as is,” (5) provided that the FDIC would “have no obligation to secure or obtain any missing intervening assignment or any assignment to [the FDIC] that is not contained in the Loan File,” (6) provided a process by which FH Partners could require the FDIC to repurchase a loan if it was determined that the FDIC didn’t own it as of the closing, and (7) transferred the FDIC’s rights “at the time of closing.” The appellate court stated, “We necessarily conclude that the FDIC/FH Loan Sale Documents unambiguously anticipated that the FDIC might very well be conveying to FH Partners less than perfect, and even non-existent, title to Loan A and Loan B.In light of that fact, there is no evidence that the FDIC was authorized to unilaterally cure title defects months after closing.” Effectively backdating written agreements so that they’ll be enforceable retroactively can be surprisingly complicated.This is especially true in the context of a complex deal that includes multiple documents and when the retroactive date is several months in the past.