DEFINITION of Sum Certain
A sum certain refers to a legal description of the predetermined settlement price for a contract or negotiable instrument. It is a fixed or specific amount of money, without any room for ambiguity. A negotiable instrument cannot be negotiated unless it stipulates a sum certain. For example, if a borrower enters into a mortgage contract with a lender for a loan in the amount of $400,000, and that amount is clearly stated in the mortgage note, then that is the sum certain. Because a sum certain is known in advance, actors can better hedge or insure against the value stated in the contract than if the sum were open to flexibility or one which varies based on some contingency (for example the price of a call option as it varies with the price of the underlying security).
It may also go by the name sum payable.
BREAKING DOWN Sum Certain
Sum certain is a legal phrase referring to a specific amount (usually an amount of money) that is directly stated in a contract or negotiable instrument (such as a mortgage or promissory note) at the time that the document is written, and which is not open to interpretation (or mis-interpretation). Sum certain is thus used in practice for all sorts of contracts including financial instruments, but also employment agreements, contracts for purchase, and contracts for lease, among others.
A contract between two parties that spells out a sum certain eliminates any room for misunderstanding or misinterpretation in terms of what amount is owed or due. A sum certain does not require future calculation or the awaiting of future happenings. For instance a contract that stipulates "Alice will pay Bob $8,000 for painting her house, including all costs," is a sum certain as compared to "Alice will pay Bob for his time (at the rate of $60 an hour) and costs of materials for the painting of Alice's house." Thus, as another example, a contract that specifies a sum certain of $10,000 for work carried out, is clearer than an open-ended contract that specifies payment at a rate of $50 per hour, subject to a maximum of 200 hours. An employee's salary, if spelled out in a contract, would be a sum certain whereas her performance based bonus would not be.