Aleatory Contract – Definition

Cite this article as:"Aleatory Contract – Definition," in The Business Professor, updated April 7, 2019, last accessed October 20, 2020, https://thebusinessprofessor.com/lesson/aleatory-contract-definition/.

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Aleatory Contract Definition

An aleatory contract is an agreement in which one of the parties, or both the parties reciprocally, are uncertain as to their obligation to perform. Basically, it is a contract that depends upon a chance occurrence. Examples of such contracts include gambling contracts and betting contracts.

A Little More on What is an Aleatory Contract

In an aleatory contract, the end of the contractual obligation is totally based on the occurrence of a future event in relation to an uncertain performance directly impacting the economic benefits greed between the parties. This uncertainty is understood from the start, and all parties have complete knowledge or understanding of those economic effects, regardless of the fact that the condition is suspensive or resolutary.

Aleatory Contract: This contract depends on its economic impacts of risk. The future event determines the beneficiary and loser under the economic advantages/terms agreed.

Contract based on condition: Either you have suspensive or resolutory condition, the modality strongly impacts the liabilities, whether the condition exists or not.

An aleatory contract remain valid as long as there is uncertainty regarding the duty of performance.

In summary, aleatory contracts are free from any guarantee of mutual performance by the parties. For instance, in an insurance contract, the insurer  might never have to provide pay a claim under the policy. Another example is the lottery. You play with a substantial likelihood that the other side will never be obligated to pay out money.

The term aleatory has been derived from the Latin word alearorious that means “applicable just to dice game”. Associated initially with this oldest game, the term expanded itself to be a part of all contracts whose nature cannot specify with certainty the winners and losers. Such contracts are different from those having potential uncertain realization, such as a contract with a condition.

Example of Aleatory Contract

For example, let’s consider that tonight is the weekend and the Mexican players will play football; you sit together with your friends and under the influence of wines, one of your best friends, who thinks he is a descendent of Europeans, tells you, I bet you for $200.00 that the Mexican Team will lose” . However, eventually the Mexico Wins! If your friend were true of his words, he would have given you the bet amount of $200.00. In that sense, the aleatory contract is not subjective to any modality since the start of contract is only limited to the result that who is going to win and loss $200.00.

References for Aleatory Contract

Academic Research for Aleatory Contract

•    Public Policy and the Age and Incontestable Clauses in Life Insurance Contracts, Goodman, O. R. (1968). Journal of Risk and Insurance, 515-535.  The separate studies of the age clause misstatement and incontestable clause are made. The age clause is negative and leads to losses for the beneficiaries and insureds. Death certificates are used by the insurers to claims settlement less than of face value.Life insurance often remove essential information that becomes the cause of material misrepresentations. The recommendations include: 1. Insurers should have coverage for incontestable clause to age misstatement; 2. The life policies should not include age clause.

•    Aleatory Feature of Insurance Contract and the Justification of Exclusion Clauses [J], XIAO, H., & YANG, J. M. (2008). The Theory and Practice of Finance and Economics, 1, 026. The aleatory contracts have some characteristics; these are mutually obligatory, have uncertainty of performance and imbalance in the considerations. Having types like aleatory contracts, insurance companies’ contracts include the features of aleatory contracts, besides some additional features of their own. Applying aleatory features in insurance contracts might affect morals but exclusion clauses can be added as a compensation for the same.

The Delivery of a Life-Insurance Policy, Patterson, E. W. (1919). The Delivery of a Life-Insurance Policy. Harvard Law Review, 33(2), 198-222.

Supervening Impossibility of Performing Conditions Precedent, Corbin, A. L. (1922). Supervening Impossibility of Performing Conditions Precedent. Colum. L. Rev., 22, 421.

Constructive Conditions in Contracts, Patterson, E. W. (1942). Constructive Conditions in Contracts. Columbia Law Review, 42(6), 903-954.

Legislative and Judicial Control of the Terms of Insurance Contracts: A Comparative Study of American and European Practice, Kimball, S. L., & Pfennigstorf, W. (1963). Legislative and Judicial Control of the Terms of Insurance Contracts: A Comparative Study of American and European Practice. Ind. LJ, 39, 675.

Warranties in Insurance Law, Patterson, E. W. (1934). Warranties in Insurance Law. Colum. L. Rev., 34, 595.

The Special Nature of the Insurance Contract: A Few Suggestions for Further Study, Schultz, F. M. (1950). The Special Nature of the Insurance Contract: A Few Suggestions for Further Study. Law and Contemporary Problems, 15(3), 376-390.

Insurable Interest in Life, Patterson, E. W. (1918). Insurable Interest in Life. Columbia Law Review, 18(5), 381-421.

Insurance of Limited Interests Against Fire, McClain, E. (1897). Insurance of Limited Interests Against Fire. Harv. L. Rev., 11, 512.

 

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