It\u2019s usually one of the first things in an agreement \u2013 the Effective Date.\u00a0\u00a0 The Effective Date is sometimes defined as a specific date, e.g., \u201cThis Agreement, effective as of October 21, 2013 (the \u2018Effective Date\u2019)\u2026\u201d\u00a0 In other cases, a contract becomes effective once signed by both parties.\u00a0 In that situation, most attorneys contractually define the Effective Date of an agreement as \u201cthe date last written below\u201d, put a \u201cDated\u201d line in the signature block, and don\u2019t think twice about it.\u00a0 It\u2019s worth a second look.\u00a0 The Effective Date can be critical to a company for a number of reasons, incuding revenue recognition and performance of contractual obligations tied to it.<\/p>\n
In an era where exchanging signature copies or signature pages via PDF (or more rarely these days, fax) followed by an exchange of signed originals is more common, using \u201cthe date last written below\u201d to define the Effective Date can have unintended consequences.\u00a0 In many cases, once the parties have exchanged signed copies by PDF, performance begins and they leave it to the contract administrators to follow up with originals if requested by one or both parties.\u00a0 But when the originals are signed by the parties, they can create a new Effective Date for the agreement<\/span>.\u00a0 This is because of the integration clause in the agreement boilerplate \u2013 an argument can be made that the newly signed original version of the agreement supersedes the previously signed PDF version of the agreement, creating a new Effective Date.<\/p>\n For example, suppose you have an agreement where the initial term runs for 1 year from the Effective Date, subject to automatic renewal for subsequent 1-year terms unless a party provides notice of non-renewal at least 30 calendar days prior to the end of the term.\u00a0 Suppose the date of last execution by PDF was January 1, 2014, and the date of last execution of the originals was January 9, 2014.\u00a0 Party A is hoping for a renewal as the minimums under the Agreement double in year 2, but Party B sends notice of nonrenewal on December 4, 2014.\u00a0 Party A claims that the notice is invalid as improperly given, since it was received less than 30 days prior to December 31, 2014 (the end of the initial term).\u00a0 However, Party B claims that Party A is relying on the wrong Effective Date, and matinains that\u00a0the correct Effective Date is January 9 (the date last written on the originals), and thus notice of non-renewal was properly given.<\/p>\n A few years ago, I made two changes to my contract templates to eliminate the possibility of this problem.\u00a0 First<\/em>, I redefined the Effective Date as \u201cthe date on which this Agreement first becomes fully executed by all Parties hereto<\/strong>.\u201d\u00a0 Second<\/em>, I added\u00a0two<\/span> date lines to the signature block \u2013 \u201cDate PDF or Facsimile Signed<\/strong>\u201d and \u201cDate Original Signed<\/strong>.\u201d\u00a0 This approach ensures that even if originals are exchanged after PDFs, the date on which the agreement\u00a0first<\/strong><\/span> became fully executed will be the Effective Date, and the signature block in the agreement will show clearly when a PDF or fax version was signed versus when an original was signed.\u00a0 This makes it easier for not only attorneys to determine the correct Effective Date of an agreement, but for contract administrators, business owners, and others to ensure that they are recognizing revenue, and tracking and measuring performance, under the Agreement from the correct Effective Date. By implementing a more robust definition of the Effective Date in an agreement, parties can ensure that what is often considered a\u00a0standard term doesn\u2019t become a point of contention later on.<\/p>\n","protected":false},"excerpt":{"rendered":" It\u2019s usually one of the first things in an agreement \u2013 the Effective Date.\u00a0\u00a0 The Effective Date is sometimes defined as a specific date, e.g., \u201cThis Agreement, effective as of October 21, 2013 (the \u2018Effective Date\u2019)\u2026\u201d\u00a0 In other cases, a … Continue reading