Contingency refers to an event that may or may not occur in the future. In other words, it depends on fulfillment of a condition, which is uncertain or incidental. For example, contingency in a contract of sale & purchase of goods may state that payments must be made within 40 days from delivery of goods, failing which, the seller shall levy interest and penalty on the purchaser. This term is often used in commercial contracts, employment agreements, fee arrangements etc. Some common uses include:
- Contingency fee - which is a conditional payment a lawyer receives for rendering his legal services upon successful representation of his client. Such a fee depends on the result/outcome of the dispute.
- Bonus contingency - A bonus offered to an employee that may depend upon employee’s performance and loyalty towards the employer.
- Mortgage contingency - A clause that protects buyers in real estate transactions. It gives home buyers flexibility to secure a mortgage loan in a certain time period. If the loan cannot be secured within time, the buyers, without any legal repercussions, have the right to receive back their earnest payment and exit the contract with no penalty.
[Last updated in June of 2021 by the Wex Definitions Team]