Wagering contract case law

Essentials of a Wager

• It must be dependent upon the determination of an uncertain event: this implies that for an agreement to be a wagering agreement, it is necessary that the subject matter of the agreement must be dependent on an uncertain event.
• There must be mutual chances of gain or loss: the second essential feature is that upon the determination of the contemplated event, each party should stand to win or lose. If there are no such mutual chance of gain or loss, there is no wager
• Neither party to have control over the event: if one of the parties has the event in his own hands, the transaction lacks an essential ingredient of a wager
• No other interest in the event: the parties must not have any interest in the happening of the event other than the sum or stake he will win or lose.

Illustrations

• A boxing match is scheduled between ‘A’ and ‘B’. If A wins the match, ‘C’ agrees to pay ‘D’ Rs. 1000, whereas if B wins the match, D agrees to pay Rs. 1000 to C. This is a wagering agreement since both the parties have a chance to win or lose.
• A and B enter into an agreement that if A resigns from her job, B will pay Rs. 10000 to A and A will pay Rs.10000 to B if she does not resign from her job. Here A has control over her resignation and therefore will not constitute a wager.

Effects of Wagering Transactions

• A wagering agreement being void cannot be enforced in any court of law and section 30 of Indian Contract Act, 1872 expressly declares that “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”.

Exceptions to Wagers

• Horse race
  • As per the Section 30 of Indian Contract Act, 1872 horse racing and the contribution for the reward of such competitions of amounts more than Rs 500 is not considered unlawful.
  • If skill plays a substantial part in the result and prizes are awarded according to the merits of the solution, the competition is not a lottery. Thus, any competitions which involve the application of skill and in which an effort is made to select the best and most skillful competitor, are not wagers.
  • An insurance contract is deemed to a contract of indemnity used to protect the interest of parties. On the other hand, the purpose of a wagering contract is to earn money or money’s worth from an uncertain event.
  • Although stock market dealings involve speculation, they are not considered wagering agreements because they are based on informed decisions and market analysis rather than pure chance.

  Case Laws

  • Gherulal Parakh v. Mahadeodas Maiya (1959)
    • In this case it has been laid down by the Supreme Court that “though a wager is void and unenforceable, it is not forbidden by law”.
    • Any transaction collateral to the main transaction is enforceable.
    • In a wagering agreement, it is important to determine that whether such agreement is also unlawful under Section 23 of the Indian Contract Act, 1872 in order to test its legality.
    • In this case one of the major issues arise before the Supreme Court that “whether the running of horse-races by the club is a game of chance or a game of mere skill”?
    • The Supreme Court held that “Horse racing has been universally recognized as a sport. Horsemanship involves considerable skill, technique and knowledge and jockeys have to be specially trained over a period of years”.
    • Horse racing has been held judicially to be a game of skill unlike pure games of chance like Roulette or a Lottery.
    • In this case, the Supreme Court held that “rummy is a predominantly skill-based game since the fall of the cards has to be memorized and skill is required in holding and discarding cards. Hence, we cannot say that rummy is a game completely based on chance.
    • If there is evidence of gambling in some other way or that the owner of the house or the club is making a profit or gain from the game of Rummy or any other game played for stakes, the offence may be brought home.

    Conclusion

    Wagering agreements, as outlined in Section 30 of the Indian Contract Act, 1872, are deemed void and unenforceable by law. Understanding the implications of wagering agreements is essential for individuals and businesses to ensure compliance with legal provisions and avoid engaging in agreements that are contrary to law and public policy.