The expiration date is the year, month, day and time limit to fulfill a contractual obligation.
The concept of expiration date is frequently used in contractual obligations that have to do with the payment of debts or outstanding amounts. Thus, the use of this concept is frequent in the debt markets, as well as in the payment of invoices or company promissory notes.
It is convenient to know that since it is a contractual obligation, it must be registered somewhere and be fixed, unless otherwise indicated, from the moment the obligation is acquired. That is, the parties cannot unilaterally change the expiration date. For example, let’s imagine that we have an expiration date of December 31, 2023 at 11:59 p.m. Unless the contract specifies that the creditor can change the date at will, said date will remain fixed in time.
However, there are certain contracts in which there is no expiration date. For example, preferred shares are perpetual shares. That is, forever. Unless, yes, they manage to sell on the secondary market.-
Why is the expiration date important?
Knowing the expiration date is important because if the contractual obligation has not been fulfilled after that date has passed, legal problems could begin. For example, one person ( creditor ) lends another $ 10,000 ( debtor ). They set the expiration date of 3 months. Since it is July 22, 2025, the expiration date is October 21 at 11:59 p.m. Therefore, if on October 22, the debtor had not returned the money to the creditor, the creditor can take legal action against the debtor.
Or, if you don’t, you can claim default interest. That is, extra interest for taking too long to pay.
The due date is also important for promissory notes or invoices. Thus, for example, an invoice with an expiration date will indicate that it has the established deadline as the deadline. Paying attention to these types of details can save both the creditor and the debtor trouble.
In other cases, there need not be legal problems. For example, in the case of the buyer of a financial option. The expiration date tells us when we can exercise our rights. In the event that this date passes and we have not exercised the right, the right is extinguished and with it the obligation of the option seller. So to speak, it is our deadline.