Contingency meaning in law and legal documents - Legal Terms

What does contingency mean in legal documents?

Contingency in legal contexts often refers to an arrangement, specifically within the realm of legal services and fee structures, where payment to an attorney is conditional upon the successful resolution of a case. This setup is most commonly associated with personal injury cases, although it can be applied to other types of legal matters. Under a contingency fee agreement, the lawyer agrees to accept a fixed percentage of the recovery, which is the amount finally paid to the client. If the client wins the case, the lawyer's fee comes out of the money awarded; if the client loses, neither the client nor the lawyer will get any money, and the client will not be required to pay the attorney for the work done on the case.

The contingency fee system serves an important role in providing access to justice for individuals who may not have the resources to pay an attorney by the hour. It aligns the lawyer's interests with that of the client, as both parties benefit from a successful outcome. This can motivate attorneys to work diligently on a case. However, it's important for clients to understand that these arrangements typically do not cover expenses such as filing fees, court costs, and other ancillary expenses, which may be the responsibility of the client regardless of the case's outcome.

Before entering into a contingency fee agreement, it's crucial that the client fully comprehends the terms. The percentage that an attorney can charge as a contingency fee is not universally fixed and can be subject to negotiation. State laws may also impose limits on the percentage that can be charged as a contingency fee in certain types of cases. Clients should ensure that the contingency fee agreement is in writing and includes all the terms of the arrangement, including the percentage of the recovery the attorney will receive and how litigation costs will be handled.

One aspect often overlooked in contingency agreements is the scenario where the opposing party makes a settlement offer. Clients should be aware that attorneys are ethically bound to communicate any offers of settlement to them, and it is the client's decision to accept or reject the offer. The attorney's contingency fee is typically calculated on the gross settlement amount, so it's important for clients to understand how accepting a settlement can affect their net recovery after fees and expenses are deducted.

Lastly, the use of contingency fees isn't suitable for all types of legal matters. For example, they are not typically used in criminal defense or family law cases. In these areas, attorneys more commonly work on a flat fee or hourly basis. When considering a contingency fee arrangement, it's essential for clients to weigh the pros and cons, evaluate their financial situation, and discuss the case's potential with the attorney to determine whether such an agreement is in their best interest.

What are some examples of contingency in legal contracts?

Personal Injury Lawyer Retainer Agreement: "Payment to the attorney will be on a contingency basis, meaning fees are only collected if the case results in a favorable settlement or judgment."
Real Estate Purchase Agreement: "This offer is contingent upon the buyer securing a mortgage loan at an interest rate not to exceed 5% per annum."
Employment Contract: "Continued employment beyond the initial term is contingent upon satisfactory performance evaluations."
Construction Contract: "The contractor's payment is contingent upon the completion of each identified milestone in the project timeline."
Business Sale Agreement: "The sale will proceed on a contingency that all business permits and licenses are valid and transferable."
Insurance Policy: "Coverage for certain events may be excluded unless a contingency endorsement is added to the policy."
Service Level Agreement (SLA): "Vendor performance bonuses are contingent upon achieving at least 99.9% system uptime."
Commercial Lease: "The renewal of the lease is contingent on the tenant not being in default at the time of the renewal notification."
Legal Settlement Agreement: "The settlement amount is contingent on confidentiality being maintained as outlined in this agreement."
Franchise Agreement: "The franchisee's right to renew the franchise is contingent upon compliance with the initial terms and conditions of the franchise agreement."