"Business day: a day other than a Saturday or Sunday or a day on which banks in [specify state] are authorized or required by law to close."
This definition is used in a variety of ways in transactional agreements and documents. Often a closing will occur two "business days" after the conditions to closing are satisfied, resulting in the closing happening (or intending it to happen) on a day when money will be wired. Other times, business days are used rather than calendar days to count for some period of time during which a party must act, such as a certain number of business days to deliver a notice, or to deliver or respond to a statement of closing working capital. Whatever its use, the definition of "business day" should be precise and easily verifiable.
While the definition that begins this article is widely used and commonly accepted in transactional agreements and documents, it could be open to some interpretation, and it could be difficult to verify under the laws of certain jurisdictions.
The second part of the definition—the part subject to interpretation—necessitates an interpretation of two terms: "required" and "authorized." Research under New York and Texas laws has failed to produce any current law in the United States that generally requires banks to close on any particular day. This makes economic sense, for if a bank wants to pay the necessary expenses to stay open on a day when its customers would not be using it, e.g., Christmas Day, the state (at least in the United States) does not have an interest in requiring banks not to waste that money. However, any days on which banks would be required by law to close would also be days on which they would be authorized by law to close. The "required" prong of the definition is likely the result of a "belt and suspenders" approach to drafting. The crux of this definition turns on what it means for banks to be "authorized by law to close."
The precise meaning of "a day on which banks are authorized by law to close" could be subject to differing interpretations. For example, New York General Construction Law § 24-a provides that banks may close on Saturdays, Sundays, and public holidays. A list of those public holidays can be found on the New York Department of Banking’s Web site. However, as confirmed by an attorney at the Department of Banking, New York banks do not have to open on any particular day. One could reasonably argue that, since it is not otherwise expressly prohibited under New York law, New York banks are actually "authorized by law to close" on any day. Since the commonly used definition of "business day" does not read "other than…expressly authorized…by law to close," it excludes all such days and therefore no day would be a business day. Although that interpretation is unreasonable given the absurd result, it is still not clear what the best interpretation would be.
This definition of "business day" becomes even more problematic in jurisdictions in which the law is silent regarding which days banks are "authorized to close." For example, Texas law does not provide for any such list of authorized closing days. Texas used to have a law regarding mandatory bank holidays, but that statute (Article 342-910a of the Banking Code) was repealed effective September 1, 1993, and nothing like it exists today. An attorney at the Texas Department of Banking confirmed that banks in Texas are not required to remain open and could close on any day, provided that proper notice is given to customers. Accordingly, since the common definition of "business day" excludes days on which banks are authorized to close, the result would be that no day is a business day. If one interprets the definition as if it read "expressly authorized," then no week days would ever be excluded and a holiday like Thanksgiving would be considered a business day. Again, that result is too absurd to justify that interpretation, but the best interpretation is unclear.
The language of the 2001 ABA form asset purchase agreement is open to even more differing interpretations. The definition of "business day" set forth in that document reads, "…or any other day on which banks in ______ are permitted or required to be closed (emphasis added)." Under this definition, the argument even more clearly exists that, even though banks may be authorized by law to close on certain days, they are nevertheless permitted to close on any day.
The definition of "business day" should be adjusted in agreements and documents governed by the laws of jurisdictions in which the law is completely silent regarding when banks are authorized by law to close, and it frankly makes sense to revise the definition for those jurisdictions where the law expressly authorizes banks to close on certain days but nevertheless does not prohibit banks from closing on other days. The main objective in defining "business day" should be to arrive at a term that is not subject to any differing interpretations and that is easily verifiable. A better way to define "business day" would be as "any day other than a Saturday or Sunday or any day on which the Federal Reserve Bank of [location] is closed." Such a definition would incorporate the concept that a business day may, for purposes of a particular provision, need to be a day on which funds can be transferred through the Federal Reserve system. Using a Federal Reserve Bank as the reference would be especially useful when defining "business day" for the purpose of wiring funds, but, because the definition is precise and can be verified easily, the same reference would be just as appropriate for counting days by which an action must be taken or any other purpose. The goal should be a definition that is precise and easily verifiable; to that end, any number of similar references would be equally appropriate. One might just as well refer to the U.S. Postal Service holiday schedule. If the definition of "business day" is to be used for a particular purpose, a more specialized reference that is also precise and easily verifiable might be more appropriate. For example, if an agreement provides that a document must be filed with the SEC within a certain number of business days after the signing or closing, the definition of "business day" could exclude the days on which the SEC does not accept filings. The unique aspects of a transaction, or the way in which the term is used, should determine what the best definition is.
The current definition of "business day" is, and for years has been, used by countless attorneys in large firms across the country in transactional agreements and documents. However, given the potential ambiguities, this standard definition should be revisited, and agreements should be drafted to include something more precise and less subject to potentially differing interpretations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
