Legal Definitions - fixed liability

A fixed liability refers to a legal obligation where both the amount owed and the due date for payment are certain and predetermined. Unlike a contingent liability, which depends on a future event, a fixed liability is a definite and known obligation that an individual or entity must fulfill.

Here are some examples to illustrate this concept:

• Mortgage Payments: When a homeowner takes out a fixed-rate mortgage, their monthly payment amount for principal and interest is set for a specific period (often the life of the loan). Each month, the homeowner has a fixed liability to pay that exact amount by a specific date. For instance, if a homeowner owes $1,500 on the first of every month, this is a fixed liability because the amount and the due date are known and unchanging.

• Court Judgments: If a court rules in favor of a plaintiff and orders a defendant to pay a specific sum of money, this creates a fixed liability for the defendant. For example, if a company is ordered to pay $50,000 in damages to a former employee by a certain date, this is a fixed liability. The amount is precisely defined by the court, and the obligation to pay is absolute, not dependent on any further conditions.

• Bond Principal Repayment: When a corporation issues bonds, it typically promises to repay the principal amount (the face value of the bond) to the bondholders on a specific maturity date. For instance, if a company issued bonds that mature in five years, obligating it to repay $10 million on that exact date, this $10 million is a fixed liability. The amount and the date of repayment are clearly established from the moment the bonds are issued.