Aleatory contract

Aleatory contract is an agreement where the effect of which depends on an uncertain event. The promisor (i.e. the person who promises to perform a contractual obligation) is only required to perform the contractual obligation if the said event occurs and therefore gives rise to the enforcement of the promise. These types of contracts are commonly used in insurance policies, for example, if property is damaged or destroyed by fire or a car damaged or written off as a result of an accident. These types of contracts are only enforceable if an event occurs, however, once the premium for the insurance policy has been paid, the issue is not whether the promisor has performed its obligation, it is merely whether or not the specified event has occurred.

In relation to a contract of guarantee, of which is aleatory in nature, it is important to note that if an agreement between a creditor and a debtor is varied (must not be unsubstantial or to the benefit of a guarantor), the guarantor under aleatory contract will be discharged from their obligations. This issue was explored by Mason ACJ, Wilson, Brennan and Dawson JJ in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, and their Honours held that the discharge was based on the fact that the creditor and the debtor alter the nature of the guarantor’s obligations without their consent.