Legal Definitions - fail

In legal contexts, the term "fail" can function as both a noun and a verb, carrying distinct meanings depending on the situation.

As a Noun (in Securities Transactions)

In the world of securities trading, a "fail" refers to a situation where a transaction between brokers does not complete as scheduled. Specifically, either the securities are not delivered, or payment is not made by the agreed-upon settlement date.

• Fail to Deliver: This occurs when the selling broker does not provide the securities to the buying broker by the settlement date.
• Fail to Receive: This occurs when the buying broker does not receive the securities from the selling broker by the settlement date.

Examples:

• Example 1 (Fail to Deliver): A large investment fund sells 50,000 shares of a tech company to another brokerage firm. On the settlement date, due to an unexpected technical issue with the transfer agent, the selling fund is unable to transfer the shares to the buying firm's account. This situation is classified as a fail to deliver from the selling fund's perspective.

  Explanation: The selling party (the investment fund) did not fulfill its obligation to deliver the securities by the prescribed time, creating a "fail" in the transaction.

• Example 2 (Fail to Receive): A small independent broker purchases a block of corporate bonds on behalf of a client. The selling broker, however, experiences an administrative delay and does not send the bond certificates or electronic transfer confirmation by the scheduled settlement date. From the independent broker's viewpoint, this is a fail to receive.

  Explanation: The buying party (the independent broker) did not get the securities it was due by the settlement date, which is a "fail to receive" event.

• Example 3 (General Fail): Two institutional traders execute a complex swap agreement involving a basket of international equities. On the agreed settlement day, neither the specific shares nor the corresponding payment is exchanged between their respective clearing houses. This entire uncompleted transaction is referred to as a "fail" in the market.

  Explanation: The transaction did not complete as planned, with both delivery and payment outstanding, illustrating a general "fail" in the settlement process.

As a Verb

As a verb, "fail" has several broader meanings in legal contexts, often relating to non-performance, financial collapse, or the lapsing of a legal provision.

Examples:

• Example 1 (To be deficient or unsuccessful): A contractor was hired to build a new wing for a hospital, but the construction *failed* to meet the safety codes specified in the contract, leading to significant delays and rework.

  Explanation: The contractor was unsuccessful in meeting the contractual requirements and fell short of the expected standards, demonstrating the meaning of "fail" as being deficient.

• Example 2 (To become insolvent or bankrupt): After years of declining revenue and increasing competition, a well-known retail chain *failed* and was forced to declare bankruptcy, liquidating its assets.

  Explanation: The retail chain became financially unable to meet its obligations and ceased to operate, illustrating "fail" in the context of insolvency or bankruptcy.

• Example 3 (To lapse): A will stipulated that a specific antique watch would be bequeathed to the testator's niece. However, the watch was stolen and never recovered before the testator's death. As a result, the bequest of the watch *failed* because the specific item no longer existed in the estate.

  Explanation: The specific gift (bequest) could not be fulfilled because its subject matter was no longer available, causing the provision to lapse or "fail."