Three years from now you want to terminate a contract for your business.
The termination clause is clear -- written notice must be given to the other party at least 30 days before the third anniversary of the Effective Date.
You check the Effective Date and see the following:
- This Agreement is entered into effective as of September 1, 2023 (“Effective Date”).
- “Effective Date” means the day after the Agreement is signed by both parties.
- One party signs on September 20, 2023 and the other party signs on October 4, 2023.
Is the Effective Date September 1, 2023? September 20, 2023? October 4, 2023? October 5, 2023?
The effective date of an agreement is the date on which the agreement becomes binding on the parties. This means the effective date also sets the clock running for rights and obligations.
In the above example, the result could mean the difference between being stuck in a contract for another 3 years or not.
California adopted the Uniform Electronic Transactions Act (UETA) in 1999. The UETA essentially provides that electronic signatures and electronic records have the same validity and enforceability as handwritten signatures and paper records.
Businesses today commonly use applications such as DocuSign, SignNow, Adobe Sign, and Drobox Sign. But, these applications can also create issues by adding time stamps and other date records that the parties do not intend.
At the end of the day, one of the primary purposes of contract drafting is to state the intention of the parties. This usually means drafting contracts without ambiguity or conflicts.
Be sure that there is just one “Effective Date” and that it is the date on which the parties intend the rights and obligations of a contract to begin.
Shawn Peddycord is a business attorney specializing in acquisitions and contracts in North County San Diego. He represents small businesses in a variety of asset and equity purchase and sale transactions, and has extensive experience drafting and negotiating commercial contracts. This blog is for informational purposes only, is based on California law, and is not intended as legal advice or as a substitute for legal counsel.