Contingency Clause

Definition of 'Contingency Clause'


A contract provision that requires a specific event or action to take place in order for the contract to be considered valid. If the party that is to fulfill the requirements of the contingency clause is unable to do so, the other party is released from its obligations. A contingency clause can be considered a type of escape clause for those involved in the contract. It allows one party to cancel a deal if certain requirements are not met, though the party benefiting from the clause has to right to waive it.

Investopedia explains 'Contingency Clause'


 A contingency clause can be inserted into a contract to benefit either party. Courts often require a good faith effort in contracts that contain these clauses. For example, a contingency clause in a real estate transaction may require the buyer to obtain financing before the seller transfers the deed. 

Paying close attention to the wording of a contingency clause is an important step in contract review, as a loosely worded clause may provide either party too much latitude in determining whether the terms of a contact are being properly executed. A contingency clause should clearly outline what the condition is, how the condition is to be fulfilled and which party is responsible for fulfilling it. Additionally, the clause should provide a timeframe, and what happens if the condition is not met.



comments powered by Disqus
Hot Definitions
  1. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another market so that it balances out. So when examining a specific market, if all other markets are in equilibrium, Walras' Law asserts that the examined market is also in equilibrium.
  2. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will respond similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another.
  3. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following:
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option is purchased and the lower premium option is sold - both at the same time. The higher the debit spread, the greater the initial cash outflow the investor will incur on the transaction.
  5. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious debt when government leaders use borrowed funds in ways that don't benefit or even oppress citizens. Some legal scholars argue that successor governments should not be held accountable for odious debt incurred by earlier regimes, but there is no consensus on how odious debt should actually be treated.
  6. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares.
Trading Center