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Agreements by the Way of Wager

The word wager means bet, it is a promise between two people to pay money or assets previously on the basis of the outcome of an uncertain event.

Agreements by way of wager are void under the Section 20 of Indian Contract Act, 1872.

Agreements by way of wager are not enforceable by law, and hence are considered illegal, However The Indian Contract Act,1872 does not define wager or agreements by way of wager it simply states that agreements by the way of wager are void, and no party can take an action to file a suit for recovery of the waging amount in any form of court, Wagering agreements have characteristics of contingent contract, but cannot be enforced by law under Section 30.

According to Supreme Court Agreements by the way of wager are void and hence illegal, but not forbidden by the law.

Essential’s of Agreements by the way of wager:

There are four basic elements in agreements by the way of wager, they are:
  1. Different views of the parties on an uncertain event:
    Foremost rule is that both the parties should have different views on the outcome of the XYZ event.

    Mutual Chance of Gain/Loss:
    The agreement would not be considered a wager if there is not the possibility of both the parties winning or losing. It could not be considered as a wager if only one party has the 100% possibility of winning or losing
     
  2. Neither Party should have control over the outcome of event:
    If a party has ability to manipulate the outcome of a wager it cannot be considered as an agreement by the way of wager because this would clash with the abovementioned essential.
     
  3. The parties do not have any interest in the event apart from the sum/wager mentioned:
    Wagering agreement are considered as void ab initio, according to Section 65 of Indian Contract Act has no application on it. Wagering Agreement is lawful under the Section 23 of the Contract Act and therefore the transaction collateral to the main transaction is valid and enforceable.

Exceptions of wagering agreement:

Games and competition involving skills instead of mere luck are an exception to agreement by the way of wager, for example: Horse Racing.

Wagering Agreement And Similar Types Of Agreement:

Agreement by the way of wager is very similar to Contract of Insurance as both depend on the outcome of an uncertain event of the future.

Contract of Insurance- It is the agreement between the insurer and the insurance company, Insuring Agreement is central to Insurance Contract which specifies the risk covered and the limits as well as the term of policy. All insurance contract specifies the following as well
  1. Limitations: Specifying the limits of the policy, such as the maximum amount that the insurance company will pay.
  2. Conditions: The requirements of the insured, such as paying the premium or reporting a loss.
  3. Exclusion: Specifying what is not covered by the contract.

Difference between Wagering Agreement and Contract of Insurance

  1. Enforceability

    Wagering agreement is void under section 30 of Indian Contract act, however Contract of insurance is legally enforceable
     
  2. Insurable Interest

    In wagering, agreement interest is limited to the stakes/sum wagered by the two parties, whereas in contract of insurance there must be an insurable interest.
     
  3. Utmost Good Faith

    Good faith need not be observed in wagering agreement, however, it holds utmost important in contract of insurance.
     
  4. Social Approval

    Wagering agreement are disapproved by the society as it is considered as part of gambling, whereas contract of insurance is encouraged by the society.
     
  5. Risk

    Oriented in wagering whereas, Insurance is meant for protection against certain risk
     
  6. Happening of Event

    The event of wager is bound to happen where as the event mentioned in Insurance may or may not happen in the future.
     
  7. Calculations

    In wagering agreement there is no yardstick to assess the risk accurately, whereas, contract of insurance is based on scientific and actuarial calculation of risk and the premium is calculated.
     
  8. Risk in Claims

    The amount payable to the winner or payable by the loser is known in advance, thus a wager is either lost or won, however every type of insurance contract claim involves risks of varying degrees, for Example- A fire insurance policy for instance may involve crores of rupees or not even a single rupee.
     
  9. Return of Premium Paid

    In case of wagering agreement, the premium paid is also returned to the winner in addition to prize money, whereas in insurance agreement, the insurer is liable to pay the money, if an insured event occurs but, is not required to return the premium
     
  10. Indemnity

    Nothing more than indemnity is offered in insurance other than life or persona; this does not enter wager.
  11. Speculative Transactions

    According to section 43 article 5. It is a transaction in which a contract for the purchase or sales of any commodity including shares and stocks is periodically or ultimately settled otherwise than by the actual transfer or delivery of the scrips or commodity.

Difference between wagering agreement and speculative transactions are as follow:

  1. Wagering transactions are speculative in nature however not every speculative transaction is not wagering in nature. This was held by Privy Council in the case of Kong Lee Lone and company vs Lowjee Nanjee, a contract for the sale and purchase of the goods at a given price and for being delivered at a given time can be constituted by the parties, but if the circumstances show that the intention of the parties was never to have the actual transfer of goods between them but only intended to pay and receive money between themselves according to the rise and fall in the market price, is not a commercial contract but a contract of wager depending upon a future uncertain event.
     
  2. The difference was further established by the Privy Council in the case of Bhagwandas Parasram vs Burjorji Ruttonji Bomanji (deceased) now represented by Dulichand Shivlal.

    The council said, that one sided speculation cannot be said to be a wager as there is no common intention and hence stands valid and legally enforceable and the amount can be recovered by plaintiff. In a similar case of Doshi Talaschi vs Shah Ujarsi Velsi where a contract was executed for the sale of goods in the market that never appeared there, common intention of the parties for wager being present, the contract was held to be unenforceable and void for wager.
     
  3. In the case of Richards vs Starck the contract was held to be void for wager as the common intention of the parties was not to have the actual transfer of the subject matter and the money but to provide an option of demand delivery to the buyer after a series of transactions involving the payment of the difference between the market price and the price on the day of contract.
Contingent Contract- It is a contract where promiser perform his/her obligation only when certain event takes place.

Difference between wagering agreement and contingent contract:

  1. Wagering agreement is completely void whereas contingent contract is a valid contract.
  2. In wagering agreement, the uncertain event is solely responsible for the outcome whereas in contingent agreement, the future uncertain event is merely a collateral.
  3. In contingent contract the parties are have a real interest in the occurrence or non- occurrence of the event. Whereas in wagering agreement parties are not interested in the occurring only the final outcome which determines the loss or the win of a party.

Legal Position Of Wagering Agreement:

Current legal position of agreement by the way of wager is as follow- Wagering agreement is void under section 30 and is not enforceable and hence, Section 65 is not applicable.
The unenforceability of wagering agreement was held in landmark case of Gherulal Parakh v. Mahadeodas in which SUBBA RAO J defined the term wager as A promise to give money or money’s worth upon the determination or ascertainment of an uncertain event and declared agreement by wager as void under section 30. However, wagering is not considered illegal in the eyes of law and have never been stuck down by the law on the grounds of being against the policy.

A question was always under conflict that whether an agreement substituted subsequent to the wagering agreement for the payment of the debt incurred in the wager would be held to enforceable by the law. This was resolved in the case of Hill v. William Hills (Park Lane) Ltd], in which the court held that any agreement substituted subsequent to the wagering contract with the same consideration of the amount of the wager, is also unenforceable under the law.

Meaning that any new promise made subsequent to the wagering agreement to pay the money, won in the wager, by the losing party to the winning party is declared to be equally invalid and void. Hence in the case of Badridas Kothari v. Meghraj Kothari, the promissory note executed for the payment of the debt incurred due to the wagering transactions in shares, was also held to be unenforceable by the Calcutta High Court.

Conclusion:
When Indian contract act of 1872 came into power, it declared agreement by the way of wager as void under the law. The reason for this was Indian Contract Act of 1872 was heavily influenced by the English Gaming Act 1845. With the passing of Indian Contract Act in 1872, it imposed a ban on all sorts of wagering agreement governed under section 30 of the act.
There were many things which were not mentioned in the Indian Contract Act of 1872 which were further explained in many landmark judgments, however, there are many more things and statements which need revisit and require more attention.

For instance, there are many skills-based games apart from horse racing, which are not considered as exceptions of wagering agreement, there is a need to update the games and competition based on skills.

The Indian Contract Act came into power in the earlies 1880’s, and the times and world both have changed in the 21st century, and that is why in my understanding wagering agreement should be revised accordingly.

Cases:
  1. Bhagwandas Parasram vs Burjorji Ruttonji Bomanji, Privy Council, 26 November 1917
  2. Kong Lee Lone and company vs Lowjee Nanjee, Privy Council, 13 June 1901
  3. Doshi Talaschi vs Shah Ujarsi Velsi, 18 September 1899
  4. Richards vs Starck
  5. Gherulal Parakh v. Mahadeodas Maiya and Ors. AIR 1959 SC 781
  6. Hill v William Hill (Park Lane) Limited [1949] AC 530
  7. Badridas Kothari v. Meghraj Kothari, A.I.R. 1967

Bibliography:
  1. https://blog.ipleaders.in/contingent-contract/#:~:text='A%20contingent%20contract%20is%20a,when%20certain%20conditions%20are%20met
  2. https://advocatespedia.com/Validity_of_wagering_agreements_and_collateral_transactions
  3. https://mymbaguide.com/12-differences-insurance-wagering-contract/
  4. https://taxguru.in/income-tax/speculative-transactions-note.html#:~:text=Speculative%20transaction%20means%20a%20transaction,section%2043(5)%5D.
  5. http://lawtimesjournal.in/agreements-by-way-of-wager/
  6. https://www.amu.ac.in/emp/studym/100012424.pdf
  7. https://edurev.in/studytube/Difference-between-wagering-agreements--speculativ/8a25a519-8172-40bb-bf18-f81f746ead22_v

    Award Winning Article Is Written By: Mr.Piyush Gupta
    Awarded certificate of Excellence
    Authentication No: MA114559009197-25-0521

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