I have seen wording like this in SaaS or software agreement orders or templates, and it has always bothered me. A case from 2014 addressed this issue head on, so I thought I would share the outcome of the case with you (and some suggestions to avoid this messy legal issue).
Summary of the Facts: The following language was included in a software agreement.
“To be valid, this agreement must be signed within 30 days of. . . “
Every SaaS or software company has probably seen (or used) language like this when trying to get a deal closed. Usually companies use this kind of language when trying to tell a customer that the offer will expire if the deal is not done by x date (a good sales practice). Well that may be the business objective, but courts look at this issue differently.
What courts often do (and this court actually did), is say that this language is a ‘condition precedent’ to the execution of the contract. What this means is that if the condition is not met, then there is no contact (even if both parties sign the contract after the 30 day period). This is where people get confused. They think that as the contract was signed by the parties, this means the 30 day language does not apply and is irrelevant. Well, as this court said, it that language does apply and therefore no contract was formed.
So here are a few takeaways for every SaaS and software company.
1) Be very careful with this type of wording. Try not to use it.
2) If you do use it, and the contract is signed WITHIN the time period = no issue.
3) If you use it, and the contract is signed AFTER the time period, then make sure the parties delete that sentence before they sign it. Maybe both parties should initial the deletion.
The problem can become tricky if a SaaS or software company signs an agreement to make a license purchase with a condition that has not been met. In essence, the customer may have an option contract. The customer could leave it in place and pay, or later say there is no contract and not pay (or demand a refund if they have paid). You don’t want to be in any of these situations.
So, long story short, be careful with language like this. Make sure the condition was met, or if not that the parties agree to delete the condition before signing (or maybe reword it so it cannot be interpreted as a condition). Case closed.
Disclaimer: This post is for informational and educational purposes only, and is not legal advice. You should hire an attorney if you need legal advice, which should be provided only after review of all relevant facts and applicable law.