It is generally thought that backdating an agreement is done with an intent to deceive. However, backdating documents is practical in certain instances where the parties made an agreement on a certain date but were unable to memorialize that understanding in writing on that date. To accommodate such instances, most jurisdictions allow for contracts to have an effective date that is earlier than the date the documents were signed. This is commonly known as “backdating.”
Generally, backdating an agreement is legitimate if it accurately memorializes an unwritten agreement between the parties. However, when the parties are unsure of when the unwritten agreement was actually reached, the practice should be avoided as it could result in unintended risks. Those risking include the following:
- Liability issues that may arise because of discrepancies between the effective date and the signing date;
- Potential breach of contract upon the signing;
- Unintended tax issues; and/or
- Assumption of unanticipated obligations.
Note caution should be practiced because Courts often have a difficult time distinguishing between legitimate backdating and improper backdating. Determining whether backdating is legitimate is complicated by ambiguous records, limited recollections and the reliance on the recollections or statements of others. At times fabricated backdating can be innocuous when no third party’s rights are adversely affected and no law is violated and other times backdating that memorializes can be problematic if it misleads a court to believe the document was executed on the date the event occurred. In such instances a court could invalidity the entire agreement.
To minimize the risks of backdating, please contact Parker McCay’s Corporate Law department to draft and review your business’s backdated agreements.