Contracts and Negotiable Instruments: a Rundown

When it comes to legal matters, we usually are out of our element. Contracts sound so rumbly. We should remedy our ignorance. Having a working knowledge of the law will protect us from nefarious schemes.

We should always seek the professional advice of lawyers. But the ability to differentiate libel from slander is helpful. Working knowledge on law is not just a neat party trick. But it protects you from bad deals.

It is easy to make the mistake of thinking that these two terms are the same. Both of them are types of defamation. If this legal jargon leaves you confused, carefully read this article. It will expand your vocabulary.

The Void and The Voidable

A void contract means that there was no contract at all. On the other hand, a voidable contract is valid. But it cannot be enforced because of these reasons:

  • Non-disclosure of a material fact.
  • One of the parties was under duress or undue influence.
  • A party is legally incapacitated.

These are some causes that make the contract voidable. If the incapacitated (or injured) party is already in their sound mind, they can agree to have the arrangement carried out. Let us discuss some concrete examples.

For example, no one can own the land that is within three meters from the shore. If someone tries to sell a waterfront piece of property, they cannot include the riverbank. You can have access to the shoreline. But you do not own it.

In this case, if the agent will tell you that the contract price includes the shoreline, the agreement is void because it is illegal. The seller might even need a criminal defense attorney for breaking the law.

Let us say that you bought an insurance policy while you were having some fun in the local pub. Although you were inebriated when you signed the contract, you can still push through with the transaction.

signing contract

 Negotiable and Financial Instruments

The layman might not see the difference between the two. One of them arises in the ordinary course of business. On the other hand, companies issue financial instruments to fund their operations.

A check is an example of a negotiable instrument. Just like other negotiable instruments, it has a finite life. You should encash it within six months (180 days).

On the other hand, a financial instrument has an indefinite life. As long as the company is in operation, it must pay interest or dividends to the bondholder or stockholder. It means that you can pass the certificate to a younger generation. Another reason a stock or a bond is no longer valid is that the issuing entity bought it back.

As a rule, entrepreneurs do not accept checks unless they know the payer. In the past, people would transact business with the negotiable instrument that they received. This process is called an assignment. The original payee gives his right to another person.

People nowadays avoid doing this because negotiable instruments are high-risk assets. Although the assignee can demand immediate payment, there is a risk that they will not receive payment. Some banks still allow the assignment of checks. But they have specific criteria for this type of transaction.

General Partnership and Closed Corporations

Some people make the mistake of thinking that general partnerships and close corporations are the same. It is like how one pronounces potato. It is the paperwork that differentiates both, with the latter as more tedious. But they are not in any way the same.

It is not surprising that they make such an assertion because partners and shareholders are personally liable to a company’s debtors. The business – may it be a corporation or a partnership – does not have a separate identity from its owners.

This concept is one of the differences between a partnership and a corporation. Transactions made by one partner are legally binding to all partners. But the purchases of a stockholder do not mean that the investment is for the entity.

A corporation is an example of an artificial person.  It can be sued and can also sue. But it does not have the right to vote like citizens. It can also purchase stocks and bonds of other entities.

Contracts would be less intimidating if we have a working knowledge of legal jargon. It makes us less vulnerable. We confidently transact deals without having to run for the advice of our solicitors. This knowledge is not a substitute for a lawyer’s legal advice. On the contrary, this knowledge will help us during the consultation with our solicitor.

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