Legal Definitions - contingent claim

A contingent claim refers to a right to receive something—such as money, property, or a service—that depends entirely on a future event or condition occurring. This claim is not guaranteed; it only becomes an actual, enforceable right if and when the specified future event takes place. If the event does not occur, the claim remains unfulfilled or may cease to exist.

Here are some examples illustrating a contingent claim:

• Executive Severance Bonus: An executive's severance agreement includes a clause stating they will receive an additional bonus payment of $100,000, contingent upon the company's stock price reaching $50 per share within six months of their departure. If the stock price does not reach that threshold within the specified timeframe, the executive has no right to that additional bonus.

  This illustrates a contingent claim because the executive's right to the bonus is entirely dependent on a specific future event (the stock price reaching $50) occurring within a defined period. Until that condition is met, the claim is uncertain and not enforceable.

• Conditional Inheritance: A will specifies that a grandchild will inherit a trust fund worth $500,000, contingent upon them completing a four-year college degree by the age of 25. If the grandchild fails to meet this educational requirement by the specified age, they will not receive the inheritance.

  Here, the grandchild has a contingent claim to the trust fund. Their right to inherit is not absolute but is conditional on fulfilling a future educational requirement. The claim only becomes concrete and enforceable once the condition is satisfied.

• Litigation Settlement Add-on: In a legal settlement for a product liability case, the plaintiff agrees to an initial payment but also negotiates an additional payment of $25,000, contingent upon the defendant's new product achieving a sales volume of 1 million units within the next two years. If the sales target is not met, the plaintiff does not receive the extra $25,000.

  This demonstrates a contingent claim because the plaintiff's right to the additional settlement money is not immediate but relies on the defendant's future sales performance. The claim is uncertain until the sales condition is either met or not met within the two-year timeframe.