CandleFocus Glossary Editor
Aleatory contracts are unique agreements between two or more parties that create a basic risk-sharing relationship. In such contracts, the parties do not agree to perform a specific action until a specific event occurs, where the event is usually out of the control of both the parties involved and is known as the trigger event. This makes aleatory contracts more like a form of insurance rather than an ordinary contract, as the parties may have little or no control over the occurrence of the trigger event.
Examples of trigger events for aleatory contracts include natural disasters such as floods or earthquakes, death, or other unpredictable external occurrences. For instance, an insurance policy is a classic example of an aleatory contract; the insurer promises to pay out a specific amount should the insured suffer some type of loss due to a specified event, such as a fire that results in property loss.
Unlike some other contracts, aleatory contracts rely heavily on the performability or occurrence of the trigger event, rather than on the willingness or ability of the parties to perform their function. This means that even if one or both of the parties are willing but unable to perform, it won’t make a difference to the performance of the contract.
Due to the fact that the performance of an aleatory contract relies on a trigger event which is outside of the control of the parties involved, there is an inherent risk in such contracts. For example, if an event doesn’t occur or if the trigger event yields less favorable results than anticipated, there is a high risk that one or both of the parties may suffer a loss.
Overall, aleatory contracts are a unique form of agreement that requires the parties to enter into a risk-sharing relationship. With such contracts, the parties do not agree to an action until a specific event occurs, usually one that is out of their control. Such contracts are most commonly seen in the insurance industry, where an insurer agrees to pay out an agreed-upon sum should an insured suffer losses due to a specific cause, such as a fire resulting in property loss. Despite the risks inherent in such contracts, they provide both parties with a certain degree of protection.
Examples of trigger events for aleatory contracts include natural disasters such as floods or earthquakes, death, or other unpredictable external occurrences. For instance, an insurance policy is a classic example of an aleatory contract; the insurer promises to pay out a specific amount should the insured suffer some type of loss due to a specified event, such as a fire that results in property loss.
Unlike some other contracts, aleatory contracts rely heavily on the performability or occurrence of the trigger event, rather than on the willingness or ability of the parties to perform their function. This means that even if one or both of the parties are willing but unable to perform, it won’t make a difference to the performance of the contract.
Due to the fact that the performance of an aleatory contract relies on a trigger event which is outside of the control of the parties involved, there is an inherent risk in such contracts. For example, if an event doesn’t occur or if the trigger event yields less favorable results than anticipated, there is a high risk that one or both of the parties may suffer a loss.
Overall, aleatory contracts are a unique form of agreement that requires the parties to enter into a risk-sharing relationship. With such contracts, the parties do not agree to an action until a specific event occurs, usually one that is out of their control. Such contracts are most commonly seen in the insurance industry, where an insurer agrees to pay out an agreed-upon sum should an insured suffer losses due to a specific cause, such as a fire resulting in property loss. Despite the risks inherent in such contracts, they provide both parties with a certain degree of protection.