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What is a Sum Certain?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 02 December 2016
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    Conjecture Corporation
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A sum certain is a term that is used to describe the payment that is needed to settle a contract in full. An initial figure is named in the contract that establishes the agreement between the lender and the debtor, including any terms or schedules for repayment that are mentioned in the provisions of the contract. The term can also be applied to any type of negotiable instrument in which a specific stated monetary value is claimed and recognized for that instrument.

It is important to note that a sum certain is different from what is known as a date certain, in that it addresses the amount owed rather than when that amount must be tendered. The date certain is the date identified in a contract as the final date whereby the amount owed can be settled in full without incurring any type of late fees of penalties. Most contracts will identify both of these vital pieces of information at the onset. Unlike the date certain, which remains constant, the sum certain may decrease over time, assuming that the terms of the contract allow the debtor to make periodic payments on the outstanding balance.

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The term also has meaning in investment situations. One example is with a digital option where a financial product is traded using a fixed payment. Once the set price is established, that serves as the sum certain for the transaction, rather than basing the payment on either the value of the underlying asset or on the strike price that is related to the product. Once the buyer delivers the sum certain to the seller, the transaction is considered settled or complete.

One of the purposes of a sum certain is to establish a settlement price that is clearly understood and accepted by both parties. This means including the purchase price and any interest payments that may also apply if the balance due is to be retired using a series of payments rather than as a lump sum. Depending on the nature of this type of contract, the debtor may be able to request the current sum certain, which is simply the total amount due if the debtor were to pay off the entire balance on the current date, rather than continuing to make payments until the debt is retired on date certain. This is especially important to remember if the structure of the loan contract makes it possible to pay off the contract early and avoid some of the interest that would be applied if the debtor simply continued making timely payments right up to the date certain.

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