Contingent Liability

Also known as contingent obligation. An obligation that is not presently fixed and absolute, but which will become so on the happening of some future and uncertain event. A guarantee is an example of a contingent obligation. Under the terms of the guarantee, the guarantor assumes liability for all guaranteed obligations, but its liability to make payments is conditional. In a guarantee, the contingency is typically the failure of the party that is primarily responsible for the payment obligations to make payment or a demand by the lender under the guarantee. If one of these occurs, the guarantor's payment obligation is no longer contingent.