Aleatory contract
Encyclopedia
An aleatory
contract is a contract
in which the performance of one or both parties is contingent upon the occurrence of a particular event. The most common type of aleatory contract are insurance
policies. Such insurance contracts may be a boon to one party but create a major loss for the other, as more in benefits may be paid out than actual premiums received, or vice versa.
The term was a classification developed in later medieval Roman law
to cover all contracts whose fulfilment depended on chance, including gambling
, insurance
, speculative investment and life annuities
. Many modern forms of derivatives
and options
may in some cases also be considered aleatory contracts. For example, the French civil code contains a chapter on aleatory contracts, with specific provisions for gaming (gambling) and life annuities
.
Aleatory
Aleatoricism is the incorporation of chance into the process of creation, especially the creation of art or media. The word derives from the Latin word alea, the rolling of dice...
contract is a contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
in which the performance of one or both parties is contingent upon the occurrence of a particular event. The most common type of aleatory contract are insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
policies. Such insurance contracts may be a boon to one party but create a major loss for the other, as more in benefits may be paid out than actual premiums received, or vice versa.
The term was a classification developed in later medieval Roman law
Roman law
Roman law is the legal system of ancient Rome, and the legal developments which occurred before the 7th century AD — when the Roman–Byzantine state adopted Greek as the language of government. The development of Roman law comprises more than a thousand years of jurisprudence — from the Twelve...
to cover all contracts whose fulfilment depended on chance, including gambling
Gambling
Gambling is the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods...
, insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
, speculative investment and life annuities
Life annuity
A life annuity is a financial contract in the form of an insurance product according to which a seller — typically a financial institution such as a life insurance company — makes a series of future payments to a buyer in exchange for the immediate payment of a lump sum or a series...
. Many modern forms of derivatives
Derivative (finance)
A derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...
and options
Option (finance)
In finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the...
may in some cases also be considered aleatory contracts. For example, the French civil code contains a chapter on aleatory contracts, with specific provisions for gaming (gambling) and life annuities
Life annuity
A life annuity is a financial contract in the form of an insurance product according to which a seller — typically a financial institution such as a life insurance company — makes a series of future payments to a buyer in exchange for the immediate payment of a lump sum or a series...
.