One big problem with financial contracts is related to consent. Put simply, in order to have a valid contract in common law, you have to show that both sides knew what they were agreeing to. If someone shows that I signed a piece of paper in Swahili, that means nothing since I can’t read Swahili. This becomes a problem in financial contracts. Everything is fine if I owe you money, but if it turns out that you owe me money, you are going to look for a way out and it turns out that one standard way out is “I didn’t understand what I was signing.”
It becomes an even bigger problem if you go to a judge or arbitration panel and you have to explain to the judge or arbitration panel what was signed. The last thing you want is a confused judge who is sympathetic to someone saying that they didn’t understand what they were signing because the judge doesn’t understand the contract. At that point, you may have to bring in expert witnesses, which can be expensive, and if it turns out that the other side brings in expert witnesses who claim something different, then you really have a big problem.
This post was originally published on Bitquant.