AGREEMENT BY WAY OF WAGER

“Agreements by way of wager are void”. Explain the given statement in light of the provisions of the Indian Contract Act 1872.

According to the Black’s Law Dictionary meaning of the term wager means something risked, such as a sum of money on an uncertain event in which the parties have no material interest other than mutual chances of “gain or loss”.

Thus when two parties enter into an agreement upon the condition that the first party will pay a fixed sum of money to the second party on the happening of an uncertain future event and the second party will pay the first party when the event does not happen, it is called a wagering agreement.

Both parties have an equal chance to win or lose the wager and the chance of gaining or the risk of losing is not one-sided.

Example- A Teacher and Student agree with each other that if the student clears his Judiciary Exam, The teacher will pay Rs. 10000 to the student and if he is unable to do so, the student will pay the teacher Rs. 5000. Such an agreement is a wagering agreement.

According to Section 30 of the Indian Contract 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 the result of any game or other uncertain event on which any wager is made.

Exception in favour of certain prizes for horse-racing.—This section shall not be deemed to render unlawful a subscription or contribution, or agreement to subscribe or contribute, made or entered into for or toward any plate, prize or sum of money, of the value or amount of five hundred rupees or upwards, to be awarded to the winner or winners of any horse-race.

Section 294A of the Indian Penal Code not affected.—Nothing in this section shall be deemed to legalize any transaction connected with horse-racing, to which the provisions of section 294A of the Indian Penal Code (45 of 1860) apply.

Thus the following essential elements can be concluded in light of the above provision-

1. The subject matter of the agreement must be dependent on an uncertain event–
   In the case of Jethmal Madanlal Jokotia vs. Nevatia & Co, The defendants are brothers who operated a business in Vijayawada under the firm name of the first defendant. The plaintiffs claimed that the defendants owed them money for the purchase of groundnut seeds and groundnut oil. The defendants argued that the contracts were void under section 30 because they were of a wagering character.
   The test for distinguishing forward contracts of a wagering nature from ordinary commercial transactions is by ascertaining whether neither of the parties intended the actual transfer of goods.
   The court held that the contracts were not hit by Section 30 and the plaintiff’s claim was based on their right to recover the difference between the purchase and sale price.
2. There is a mutual chance of gain or loss-
   In the case of Narayana Ayyangar v. Vallachami Ambalam (1927), it was held that a chit fund cannot be called a wager because although some members have a chance to gain, none of them have a chance to lose as the recovery of the amount contributed is assured even if the time period is unknown.
3. Neither of the parties must have control over the event-
   For example- X and Y enter into an agreement that if Y resigns from her job, X will pay Rs. 20000 to Y and Y will pay Rs. 20000 to X if she does not resign from her job. Here Y has control over her resignation and therefore will not constitute a wager.
4. Must have no other interest other than the stake of winning or losing-
   For example- A insures his car against any damage by taking a car insurance policy and also pays an insurance premium for the same. Here we can say that A has an interest in the car and in case of a future uncertain event i.e. an accident he will not gain anything. Therefore it is not a wager.

Some exceptions to the wagering agreement are as follows-

1. Insurance contracts-An insurance contract is a contract of indemnity that is used to safeguard the interest of one party against damage and also has an insurable interest.
   In the case of Northern India General Insurance Co. Ltd. Bombay Vs. Kanwarjit Singh Sobti, The owner of a truck transferred it benami i.e illegally to another party. Later the truck met with a major accident which injured a young army officer who claimed heavy damages from the owner, the benamidar and the insurance company. A plea was raised that a benamidar had no insurable interest which is why it was a wager. These pleas were rejected by the court and it was held that insurable interest was present and the benamidar was liable to pay the damages to the young army officer.
2. Competitions involving skills- Skill competitions are not said to be wagers since winning such events requires a substantial amount of skill and is not dependent on the probability of an uncertain event. Example crossword puzzles, sports competitions etc.
   But if the competition is based on chance and not skill for example a lottery it would amount to a wager and therefore be void.
   In the case of Moore v. Elphick(1945), it was held that wherever skill plays a major part in the result of the competition and the results are awarded according to the merits of the solution, it is not a lottery and therefore not a wager.
3. Horse racing competitions-
   In the case of K. R. Lakshmanan v. State of Tamil Nadu(1996), the Supreme Court held that horse racing was a game of skill and playing for stakes in a game of skill was not illegal.
4. Share market transactions- The purchase and sale of stocks with the mere intention to give and take delivery of shares do not amount to a wager except if the only intention is to settle the price difference. In that case, it will be called a wager.