WAGERING AGREEMENT UNDER INDIAN CONTRACT ACT 1872

 

WAGERING AGREEMENT UNDER INDIAN CONTRACT ACT 1872:

 

1. MEANING OF WAGERING CONTRACT:

 

The word ‘wager’ means ‘a bet’ thus, wagering agreements are nothing but ordinary betting agreements.

 

Basically, wager means to risk or bet something valuable, like money, on an uncertain event that would result only in loss or gain with equal chances on both sides of the party.

 

Section 30 of the Indian Contract Act states about wagering agreements, which reads as 'agreements by way of wager are void'. The section does not define ‘wager.’ As per Section 30 of the Act,

 

'Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide by the result of any game or other uncertain event on which any wager is made.'

 

The main essence of the wagering agreement is that one party promises the other to pay a sum of money for the happening of an event and another party to pay for the non-happening of an event

 

For example: a boy agrees to pay Rs. 1000 to a girl if she qualifies for UGC-NET, and if she does not, the girl must pay Rs. 2000 to that boy. Such agreements are called wagering agreements.

 

In the case Carlill vs Carbolic Smoke Ball co. (1893) defined a wagering contract in the most expressive and encompassing way. It States as follows:

 

"One by which two persons, professing to hold opposite views touching the issue of a future uncertain event, mutually agree that, dependent 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 stake; neither of the parties having any other interest in that contract than the sum or stake he will win or lose, there is no other consideration for 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”.

 

However, it is contended that all wagering agreements are contingent agreements but all contingent agreements are not wagering agreements. Hence, we understood that, a wagering contract is a future based contract which is based upon the happening of a specific event in the future. A wagering contract may or may not be imposed depending upon the circumstances in the future.

 

2. HISTORY OF LAW RELATED TO THE CONCEPT OF WAGER:

 

Since the early days when there were cases in British India, the common law of England governed the wagers. However, in 1848, the Wagers Avoiding Act came into effect. Previously, it was believed that any wagering action could be upheld so long as it did not violate the personal feelings of a third party and did not run counter to public policy. When we talk about the idea of gambling and betting, we are aware that these kinds of activities, which were not accepted in England and were shunned there, have been practiced in our nation since ancient times. These types of activities have not been specifically mentioned under the Indian Contract Act or the Hindu law in general and thus these types of activities are considered as illegal and are not been protected under the ambit of our Indian constitution under Article 19 or Article 301.

 

Also in the case of Chimanlal Purshottamdas Shah vs Nyamatrai Madhavlal(1985), a new dimension was given to the term Wager which follows, ”The essence of Gambling and Wagering is that one party is to win and the other to lose upon a future event which, at the time on track, is of an uncertain nature- that is to say, if the event turns our own way, A will lose; but if it turns out the other way, he will win”.

 

 

3. ESSENTIALS OF WAGERING AGREEMENT:

 

The essential ingredients required for an agreement to be wagering are:

 

1. Opposite views about the parties about an Uncertain Event:

 

To constitute wagering agreement the parties must have opposite views regarding an uncertain event.

In Carlill vs. Carbolic Smoke Ball Co., (1893) justice Hawkins has defined wagering agreement saying that the parties must have opposite views regarding an uncertain event that is to happen in future. But according to Anson the event may be past or present or future event, the only condition is that the parties must not have the knowledge of its result. Thus, if the elections are over but the parties to the agreement don’t have the knowledge of the result of election, then they can bet on the result of the election.

 

Anson has rightly said that uncertainty lies in the minds of the parties and subject of wager may said to be the accuracy of each man’s judgement rather than the determination of a particular event.

 

2. Equal Chances of Loss or Gain for Both the Parties

 

The second important essential of a wagering agreement is that each party to the agreement must have the chance of winning or losing on the determination of the event. If any party to the agreement can lose but cannot win or can win but cannot lose then agreement is not a wagering agreement.

 

The winning or losing must depend upon the result of the event. The winning or losing of the parties is undetermined until the result of the event is determined. Thus, if on the determination of the event, all the parties to the contract does not have the chance  of losing or winning, then, the agreement can not be a wagering contract.

 

For example, in case of Babasaheb vs. Rajaram (1931), two wrestler entered into an agreement, according to which, the wrestler who would fail to come on the day of wrestling-match would give Rs. 500 to the other party. On the day of wrestling day, one wrestler did not appear and so the other wrestler filed a suit against him to recover 500 rupees from him. The court held that the agreement was not a wagering agreement because on wining the wrestler was to receive the money out of the money obtained by the sale of tickets but on losing, he was not to give anything from his pocket and so each party had the chance of wining but none of them had the chance of losing.

 

In Diggle vs. Higgs (1892), in this case both parties deposited £ 200 with a third person and entered into an agreement that whoever among them would win the walking competition would receive all the amount deposited with the third person and hence, the loser could not have got back his 200 pounds. In the walking competition one arty won while the other party lost but the loser filed a suit to get his 200 pounds back. Court held that the agreement was a wagering agreement and so the loser was entitled to get his money back from the third person as it was not paid to the winner.

 

3. Uncontrollable Event

 

Along with the uncertainty of the event, it should be uncontrollable as well. Neither of the parties should be able to manipulate or control the outcome.

 

4. The parties have no other interest in the event except winning of the amount of bet:

 

Justice Hawkins has expressly stated that to constitute wagering contract neither of the contracting parties should have any other interest in that contract than the sum or stake he will win or lose on the determination of the event. This fact creates difference between the wagering contract which is void and conditional or contingent contract which is valid. Insurance contract is a conditional or contingent contract and not wagering contract.

 

The reason is that in case of insurance contract, the person affecting insurance has insurable interest in the subject-matter insured. Insurable interest may be taken to mean interest in the preservation of the thing or person insured. For example: when a person insures his house against fire, his object is to preserve the house and does not intend that his house be destroyed by the fire so that he may get the insure amount. Similarly, when a husband takes insurance policy on life of his wife, he has interested the existence and preservation of his wife’s life and not in the insured amount. Due to this reason, the insurance contract is valid contract and it does not fall in the categories of the wagering contract.

 

In case of Alamai vs. Positive Government Security Life Insurance Co., (1898) it was found that the policy on the life of the wife of clerk of a barrister was not affected by the wife for her won benefit but the barrister had taken on the policy on her life for his own benefit and he had no interest in the life of the clerk’s wife. It was taken as wagering contract and hence void.

 

4. EFFECT OF WAGERING AGREEMENT:

 

According to section 30 of the Act, wagering agreement is void and therefore, it cannot be enforced by the either party to the contract. Thus, the amount or thing own under wagering agreement cannot be obtained. If on the basis of wagering agreement one person (A) becomes indebted to the other person (B) and for the payment of the amount indebted, B executes a promissory note in favor the first person (A)  then, this promissory note will be void and therefore will not be enforceable. If for the payment of the money won upon wager a new agreement is made between the two parties. This agreement will be void and therefore, unenforceable.

 

If two person enter into a wagering agreement according to which they deposit their money with the third person and stipulation is that the person who will win upon the wager will get the whole money deposited with the third person and under these circumstances a person wins, then he will not be entitled to recover the money won upon wager and the other person, who has also deposited the money upon wager with the third person, can take back the amount deposited until that third person has given the whole money to the person who has won the bet. If the third person has given the money to the person who has won the bet. If third person has given the money to the person who has won the bet then the losing person is not entitled to take back his money deposited with third person upon wager.

 

5. EXCEPTIONS TO WAGERING AGREEMENT:

 

i. Horse Race Competition

 

Race Competitions are not bets because the outcome depends not only on the chance but also on horse. It depends on the horse's abilities.

 

ii. Chit fund:

 

Chit fund does not fall in the categories of the wagering agreement, as it does not involve risk. In chit fund some subscribers get their amount soon and some afterward but this does not make any difference. Thus, the chit fund is not by way of wager. Besides, section 294-A of the Indian Penal Code also does not apply to it.

 

In case of Narayana Ayyangar vs. K.V. Ambalam (1927), held chit-fund does not come within the scope of wager.

 

iii. Contract of Insurance:

 

A contract of Insurance is an indemnity contract. Insurance contract is an agreement between two parties i.e., insurer and policyholder, in which the insurer promises to indemnify the losses caused to the policy holder. The main aim of insurance contracts is to indemnify the policy holder from any losses caused to the subject matter of the contract. Wagering is void whereas Insurance Contract is valid.

Illustration: A Insurance Co. Pvt Ltd. enters into an agreement with Mrs. B to indemnify his house if any damage is caused to it by way of fire in return of regular monthly payment as insurance amount. This is not a wagering agreement

 

iv. Skill Competitions:

 

Skill Competition is not wagers because winning or losing depends on the skills of the person and it is not entirely dependent on happening or non-happening of an event. Hence Skill Competitions like puzzles, crossword, etc are not wagers.

Illustration: A and B enter into an agreement to see who wins the chess game. The person who loses the game will pay 1000/- bucks to the winning party. This is not a wager as it is not entirely dependent on winning and losing but also on the skills of both the parties.

 

v. Share Market Transactions:

 

Transactions involving sale and purchase of shares and Stocks with an intention to give and take delivery of shares is not a wager. But if the mere intention is only to settle the price difference, the transaction will be a wager and will be void.

vi. Sports Competitions:

 

Sports Competitions such as Boxing, Football, Cricket, chess etc are not solely dependent on chance but are also dependent on ability of the player. Thus, it does not comply conditions for wagering contract.

 

6. CONCLUSION:

 

The Indian Contract Act of 1872 doesn't define what constitutes a wager, which causes the judiciary a lot of problems when determining what wagers are and what doesn't qualify as wagers. Only mentioning that all wagering agreements shall be void and unenforceable, Section 30 leaves much room for interpretation. As a result, the definition of "wager" should be changed, and this section's purview should be expanded.