Agreements by Way of Wager

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Agreements by Way of Wager

Wagering Agreements and its essentials

Sir William Anson defines ‘wager’ as a promise to give money or money’s worth upon the determination or ascertainment of an uncertain event. The word ‘wager’ means ‘a bet’ something stated to be lost or won on the result of an uncertain issue, and, hence, wagering agreements are ordinary betting agreements.

In Carlill v Carbolic Smoke Ball Co.,[1] wagering agreements are defined as

A wagering contract is one by which two persons, professing to hold opposite views touching the issue of a future uncertain event, mutually agree that, dependant on the determination of that event, one shall win from the other, and that other shall pay or hand over to him, a sum of money or other stakes; neither of the parties having any other interest in that contract than the sum or stake he will so win or lose, there is no other consideration for the making of such contract by either of the parties. If either of the parties may win but cannot lose, or may lose but cannot win, it is not a wagering contract.

The Indian Contract Act, 1872 does not define wager or a wagering agreement. It only states that agreements by way of the wager will be void and no action can lie to contracting parties to recover anything or claim performance of the wagering agreements. A wagering agreement has the characteristic of a contingent contract but is not enforceable by Section 30.

The essentials of a wagering agreement are :

  1. The opposite views of the parties on an uncertain event;

A wagering agreement depends upon the uncertain event. The parties to the agreement have uncertainty in the minds about the determination of the event in one way or other. A wager may be based on a future event or even relate to a past event and the parties are not aware of the outcome of its happening.

  1. Mutual chances of gain and loss, i.e. the gain of one party should be the loss to the other;

In a wagering agreement, two parties must have mutual chances of gain and loss i.e., one party will win and the other will lose depending on the outcome of the event. Each party should stand to win or lose upon the determination of the contemplated event in reference to which the chance or risk is taken.  

It is not a wager where one party may win but cannot lose, or it may lose but cannot win, or if he can neither win nor lose, ‘if one of the parties has the event in his own hands, the transaction lacks an essential ingredient of a wager.

  1. Neither party should have the control over the event;[2]
  2. The parties have no other interest in the event except the sum agreed as a stake to be lost or won.

A wagering agreement is void ab initio, and section 65 of the Indian Contract Act has no application to it. The payment made directly by a third party to a winner of a wagering agreement cannot be recovered from the loser. In Gherulal Parekh v. Mahadeo Das[3],the Supreme Court held that a wager is void and unenforceable.It is illegal and not forbidden by law. Hence a wagering agreement is lawful under section 23 of the Contract Act and therefore the transaction collateral to the main transaction is valid and enforceable.

Comparison with English Law

The various nations of common law jurisdictions have adopted gaming laws based on the UK Gaming Act 1845. Legislations in all Australia are based on S. 18 of the Gaming Act, which states that the contracts by way of wagering and gaming are null and void. The Gaming and Wagering laws of Malaysia, Singapore, Hong Kong and New Zealand are also based on the UK Gaming Act.

The Gaming Act, 1845, declares all wagering contracts and agreements null and void.[4] No suit can be initiated in Court of law to claim any sum of money or valuable thing alleged to be won upon any wager. However, Section 18 exempts certain dealings in investments by way of business from being invalid even though they are wagering contracts. For example, contracts for differences or bets on stock market indices.

Though section 30 of the Indian Contract Act 1872 is influenced by the English Gaming Act 1845there is a difference between the English and the Indian laws.The English Gaming Act, 1845, renders all collateral agreements to the wagering agreement void, whereas in India, primary agreement of wager is void but agreements collateral to it are not and enforceable as the wagering agreements are void, not illegal.[5]

Wagering agreement and Contract of insurance

Every contract of insurance requires for its validity the existence of insurable interest. An insurance effected without insurable interest is no more than a wagering agreement and therefore void. Insurable interest means the risk of loss to which the assured is likely to be exposed by the happening of the event assured against. In the wager, on the other hand, neither party is running any risk of loss except that which is created by the agreement itself.

Section 6 of the Marine Insurance Act 1963, provides that every contract of marine insurance by way of a wager is void; and that a contract of marine insurance is deemed to be a wagering contract where the assured has no insurable interest. The (English) marine insurance act 1906, also states that a contract of marine Insurance is deemed to be a gaming or wagering contract if the insured has no interest in the adventure.

Wagering Agreement and Speculative Transactions

An agreement to settle the difference between the Contract price and the market price of certain goods on a specified day has been repeatedly held to be a wager. Wagering agreement is speculative in nature but every speculation need not necessarily be a wager.Some commercial transactions assume the form of wagering agreement when the parties enter into a formal agreement to sell and purchase of goods at a given price and for their delivery at a given time it may be that an actual transfer is intended by the parties then, it is a valid contact, on the other hand, if they never intended an actual transfer of goods at all but they intended only to pay or receive the difference according to as the market price should vary from the contract price, then or will be a commercial transaction but it will be a wager on the rise or fall of the market which will fall within the connotation of gambling hence will be unenforceable. Therefore, the test to find out whether an agreement is a wager or a speculative transaction is the intention of the parties to the agreement at the time of entering into the agreement.

Exceptions

  1. Horse Race

Any subscription or contribution made towards the prize of the horse race is not void as per the section. The horse races are excluded from the purview of wagering agreements by this section.

  1. Crossword competition and lottery

The various competitions which involve the application of skill and an effort is made to select the most skillful competitor, are not wagers. But where prices depend upon the chance that is a lottery.The purchaser of the ticket buys it for a prize, which is by chance and the consideration is the price of the ticket. There is an element of chance with no skill involved in the State lotteries as private lotteries, therefore, State lotteries also are of gambling in nature which falls within the category of wagering contact.[6]

Illustrations

Illustrations 1 – A and B enter into an agreement where A promised to pay B a sum of Rs. 20,000 if India wins the world cup. This agreement is void and non-enforceable as it is dependent on an uncertain event and both the parties have opposite views regarding the event. If India wins, B will win the wager and A shall pay the agreed sum. Thus, one party will lose and the other will gain.

Illustrations 2 – In the illustration 1, India wins the match and there is an obligation on A to pay the amount to B but he fails to do so. B initiates a suit against A for the recovery agreed amount. The suit shall fail as the agreement between them is void.

Illustrations 3 – A and B agree with each other that if it rains on Tuesday, A will pay Rs. 100 to B and if it does not rain on Tuesday, B will pay A Rs. 100. The parties in this agreement have no other interest in the event except the sum agreed as a stake to be lost or won. Such an agreement is a wagering agreement and hence is void.

Illustrations 4 – A, an owner of a house, insures his house against fire with GIC. A has to pay an Insurance premium of Rs. 50 per month as per the terms of the contract. If the house is destroyed by fire, GIC will pay the actual amount of loss suffered by him. Here A has an interest in his house. Further on the happening of the event i.e. fire, A will not gain anything and will be indemnified by GIC for the loss suffered. Hence, it is not a wager but an insurance of insurance.

Illustrations 5 – A and B enter into an agreement that if A resigns his job, B will pay Rs. 500 to A and A will pay Rs. 500 to B if he does not resign his job. Here A has the event under his control. Hence, not a wagering agreement.

Illustrations 6 – A entered into an agreement with the Race Course Authority who was permitted to conduct the race course competition, to contribute Rs 600 towards the money which was to be paid to the winner of the horse race to be held on a particular day. This is not a wager.

Frequently Asked Questions (FAQs)

  1. What are the effects of wagering transactions?

A wagering agreement being void ab initio is not enforceable in the court of law and S. 65 has no application to it. Section 30 of the Indian Contract Act states that no suit can be initiated for the recovery of anything won out of a wagering agreement. In Badridas Kothari v Meghraj Kothari[7], two-person entered into wagering transactions in shares and one became indebted to other. A promissory note was executed for the payment of that debt. The note was held to be not enforceable. In other words, a new promise to pay money won upon a wager is equally void.

  1. Why are wagering agreements void?

The wagering agreements are void in various jurisdictions around the world. The rationale behind this is that such agreements are against public policy and morality. If held valid they would promote gambling and other ill-practices in the society giving the lesson of earning money without any hard work. Thus, such agreements are prohibited to maintain morality in the society.

  1. Are insurance contracts and wagering agreements different?

Yes, wagering agreements stand distinct from contracts of insurances. Though both are dependent on an uncertain event in the future, the latter aims to indemnify the contracting for the loss suffered. While in wagering agreements, the parties have interest only in the happening of the event, in insurance contracts party has the insurable interest and element of risk is embedded in the agreement.

  1. Can the amount won by way of wager be recovered?

The amount won by way of wager cannot be recovered as the agreement is not recognized in the eyes of law and hence no suit can be initiated.

  1. Are lotteries and other skill-based competition wagers?

The lotteries and other skill-based competitions such as crosswords and literary competitions involve the application of skill. The results can be changed by skill. The parties make an effort during the completion of such events. They are not the game of chance but the game of skill and thus an exception to wagering agreements.

[References]

[1]Carlill v Carbolic Smoke Ball Co [1891-1894] ALL ER Rep 127.

[2]DayabhaiTribhovandas v. Lakshmichand ILR (1885) 9 Bom 358.

[3]GherulalParakh v. MahadeodasMaiya AIR 1959 SC 781.

[4] Sec 18.

[5]GherulalParakh v MahadeodasMaiya, AIR 1959 SC 781

[6] B.R. Enterprises v. the State of U.P. (1999) 9 SCC 700. 

[7]Badridas Kothari v Meghraj Kothari AIR 1967 Cal 25.

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Sakshi Agarwal
I am Sakshi Agarwal from Dr. Ram Manohar Lohiya National Law University, Lucknow pursuing B.A. L.L.B. (Hons.). Having no legal background, the inspiration to study law came from the society and with the support of my parents I became the path breaker of my family. Being in my initial years of college, all the subjects at present like Law of Contracts attract me but I always keep reading Constitutional Law. The economics arena has always been my strength and in my career I would like to link economics with law. Apart from this, I do adjudicating and mooting. I love to listen to people and when it comes to debate, it’s the best opportunity to learn by listening. At law school, I have developed a keen interest in researching. At all the times, whether it’s working, studying or just sitting idle I aim to find happiness. Something I love a lot apart from reading books and watching movies, is travelling. I’m always excited about it and never miss a chance to explore new places and be adventurous.