Instrument: Definition, Example and Related Terms
What is an Instrument ?
An instrument, when we talk about commercial contracts, is a formal legal document that states the agreement between two or more parties. It's like a written promise that everyone has to stick to. These instruments can be things like contracts, bonds, or deeds that people and businesses use when they make a deal or agreement. They are used to record and legally enforce the terms of a commercial transaction. They can be simple or complex, and can cover many different types of agreements. For example, a business might use an instrument to buy goods from a supplier, or to borrow money from a bank. The important thing is that once the instrument is signed, everyone involved has to follow the rules it sets out. If they don't, they could end up in court.
Is a Contract an Instrument?
Yes. All contracts are instruments, but not all instruments are contract.
What are other examples of Instruments that are not contracts?
- Wills and Testaments
- Birth & Death Certificates
- Court Orders
- Certificates of Incorporation
- Share Certificates and Bonds
Scenario Description A company is purchasing a large quantity of goods from a supplier. The instrument in this case would be a Purchase Agreement. This document would detail the goods being purchased, the price, the delivery date, and any other terms and conditions. Both parties would sign this instrument to signify their agreement to the terms. A business is borrowing money from a bank. The instrument in this case would be a Loan Agreement. This would include the amount of money being borrowed, the interest rate, the repayment schedule, and any other terms. Both the borrower and the lender would sign this instrument to show their agreement. A corporation is issuing bonds to raise capital. The instrument in this case would be a Bond Indenture. This document would detail the terms of the bond issue, including the interest rate, the maturity date, and the obligations of the issuer. The bondholders would be the beneficiaries of this instrument.