Legal Definitions - contingency

Contingency refers to a future event or circumstance that is uncertain and may or may not happen. In legal and contractual contexts, a contingency often describes a condition that must be met for a particular agreement or obligation to become binding or to take effect. If the specified contingent event does not occur, or if the condition is not fulfilled, the related agreement or obligation may be altered, delayed, or even terminated without penalty.

Here are some examples to illustrate the concept of a contingency:

• Business Acquisition: Imagine a large company agreeing to buy a smaller competitor. Their acquisition contract might include a clause stating that the purchase is contingent upon the smaller company successfully resolving an ongoing patent infringement lawsuit within a specific timeframe. If the lawsuit is not resolved favorably by the deadline, the larger company has the right to withdraw from the acquisition without penalty.

  Explanation: The completion of the business acquisition is uncertain and depends entirely on a future event – the resolution of the patent lawsuit. The outcome of this lawsuit is a contingency that determines whether the larger company is obligated to proceed with the purchase.

• Construction Project: A homeowner hires a contractor to build an extension on their house. The contract specifies that the start date for construction is contingent upon the homeowner obtaining all necessary building permits from the city planning department. The contractor cannot begin work until these permits are secured.

  Explanation: The commencement of the construction project is uncertain and relies on a future event – the issuance of building permits. Until this condition is met, the contractor is not obligated to start work, demonstrating how the project's progress is dependent on an external, unpredictable factor.