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Aleatory Contract - Explained

What is an Aleatory Contract?

Written by Jason Gordon

Updated at September 24th, 2021

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Table of Contents

What is an Aleatory Contract?A Little More on What is an Aleatory ContractAcademic Research

What is an Aleatory Contract?

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.

Back To: COMMERCIAL LAW: CONTRACTS, PAYMENTS, SECURITY INTERESTS, & BANKRUPTCY

How does an Aleatory Contract Work?

In an aleatory contract, the end of the contractual obligation is totally based on the occurrence of a future  uncertain event  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. 

Related Topics

  • Contract Theory Definition
  • Meeting of the Minds
  • Doctrine of Utmost Good Faith 

Academic Research

  • 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.
aleatory contract

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