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Thus, the FDIC and Weatherford could have made their transaction retroactive, but they didn’t document the deal clearly enough to do so.
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.
(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.
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.
The appellate court affirmed the trial court and stated: The law does not support the blanket conclusion that a retroactive effective date in a contract is only enforceable when the evidence demonstrates that the parties had agreed to the material terms of their contract as of the retroactive date.As to the first issue, the transaction between the FDIC and Weatherford couldn’t have retroactive effect unless the parties showed a clear intent for the transaction to be retroactive.The court stated the general rule that “a written contract becomes binding when it is finally executed or delivered, unless a different intent appears.” Although the face of the main agreement in the FDIC/Weatherford transaction expressed an intended effective date of November 7, 2008, ancillary documents signed in connection with the transaction weren’t backdated, and the main agreement didn’t explain why it was backdated.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.
It’s not unusual for parties to a contract to want the written agreement to cover a period before it’s actually signed.