Agreements entered into between parties under the condition that money is payable by the first party to the second party on the happening of a future uncertain event, and the second party to the first party when the event does not happen, are called Wagering Agreements or Wager. There should be mutual chance of profit and loss in a wagering agreement. Generally wagering agreements are void.
Wager means a bet. It is a game of chance where the probability of winning or losing is uncertain. The chance of either winning or losing is wholly dependent on an uncertain event.
Parties involved in a wagering contract mutually agree upon the nature of the agreement that either one will win. Each party stands equally to win or lose the bet. The chance of gain or the risk of loss is not one sided. If either of the parties may win but not lose, or may lose but cannot win, it is a wagering contract.
The essence of a wagering contract is that neither of the parties should have any interest in the contract other than the sum, which he will win or lose. Parties to a wagering contract focus mainly on the profit or loss they earn.
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. Such an agreement is a wagering agreement and hence is void.
There is an agreement between A and B which provides that if Indian Cricket Team beats Pakistan Cricket Team, A will pay Rs. 1,000 and if Pakistan Cricket Team beats Indian Cricket Team, B will pay Rs. 10. The agreement is a wager.
Essentials of a Wager
1. Dependence on Uncertain Event
One of the important essentials of a wagering agreement is that it must depend upon an uncertain event. Event may be past, present or future, but the parties must be unaware of its future or the time of its results or the time of its happening.
A football match between team A and team B is to start at Mumbai on 30th June 2016. C and D enter into an agreement that C will pay Rs. 500 to D if team A wins, and if team B wins, D will pay Rs. 500 to C. This is a wagering agreement and is void.
2. Mutual Chance of Gain or Loss
Another element of wagering agreement is that each party to the agreement should stand to win or lose as per the result of the uncertain event.
A cricket match is to start at Hyderabad between India and South Africa. If India wins the match, A agrees to pay B Rs. 500, whereas if South Africa wins the match, B agrees to pay Rs. 500 to A. This is a wagering agreement. In this case. each party has the chances to win or lose. Here the gain of one party will be the loss of the other and vice versa.
3. No Other Interest in the Event
Neither party should have any interest in happening or non-happening of the event other than the sum he will win or lose. If either party has some other interest other than the sum he will win or lose, it will not be a wager.
A, a 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 contract. If the house is destroyed by fire, GIC will pay the actual amount of loss suffered by him. Here A has interest in his house. Further on the happening of the event i.e. fire, A will not gain anything. Hence, it is not a wager.
4. No Control Over the Event
The parties to the contract should not have any control over the happening of the event one way or the other. If one party has the events in his hands, the transaction will not be a wager.
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 wager.
5. Promise to Pay Money or Money’s Worth
The wagering agreement must contain a promise to pay money or money’s worth.
What are not Wagers? – Exceptions
The following transactions are not wagers:
1. Contract of Insurance are not wagers
Insurance contracts are contracts of indemnity. They are entered into, to safeguard the interest of one party to the contract. In this contract, the insured has insurable interest in the property or life Hence, it is not a wager.
Distinction between Wagering Agreement and Contract of Insurance
An insurance contract differs from a wager in the following respects:
1. In a wagering agreement, there is no insurable interest, whereas contract of insurance has insurable interest
2. Wagering agreement is a void agreement, whereas contract of insurance is a valid one.
3. In a wagering agreement, neither party has any interest in the happening or non-happening of an event. But in an insurance agreement, both the parties are interested in the subject-matter.
4. Wagering agreements are conditional contracts, whereas insurance agreements are contracts of indemnity except life insurance contracts which are contingent contracts.
5. The object of a wagering contract is to speculate for money or money’s worth, whereas an insurance contract is to protect an
6. A wagering agreement is just a gamble, whereas a contract of insurance is based on scientific and actuarial calculation of risks.
2. Skill Competitions are not wagers
Skill plays a substantial part for the successful solution of certain competitions. For e.g., crosswords competitions, picture, puzzles etc. Here, the prizes are awarded as per the merits of the solution. Such competitions are not wagers. However, if prizes depend upon a chance, that is a lottery and therefore a wager.
A crossword puzzle was given in a newspaper and it was stated in the newspaper that whose solution of the crossword puzzle would correspond with the solution kept with the editor, he would be given the first prize. This is a game of chance and therefore a lottery. And thus, is a wager.
Further, as per law, the prize competitions involving games of skill are not wagers. But if the amount of prize exceeds certain amount, they will be regarded as gambling and void.
3. Horse Race Competition is not wager
State Governments may authorize the horse race competition, if it is permitted by the local laws. In such cases, any subscription or contribution of the value of Rs.500 or upwards made towards any prize or sum of money which is to be awarded to the winner of any horse race, shall not be unlawful. In other words, agreements to subscribe or contribute towards such prize or sum of money is also valid and enforceable.
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.
4. Share Market Transactions are not wagers
Transactions for the purchase and sale of shares and stocks, with an intention to take and give delivery of shares, is not a wager. However, if the intention is only to settle the price difference, the transaction is a wager and hence void.
5. Sports Competitions are not wagers
Sports competitions such as Athletics, Wrestling, Indoor games, Boxing, Football, Cricket, Hockey etc. are not games of chance. It is decided by skill. Hence, they are not wagers.
Effects of Wagering Agreements
In India, wagering agreements have been expressly declared to be void. So it cannot be enforced in any Court of law. Sec. 30 of the Act states that
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 results of any game or other uncertain event on which any wager is made.
As a matter of fact, though a wagering agreement is void and unenforceable, but it is not forbidden by law. That is, the wagering agreements are void but not illegal. However, in the States of Gujarat and Maharashtra, the wagering agreements have been declared to be illegal.
As far as collateral transactions are concerned, as the wagering agreements are void but not illegal, they are not void. Therefore, they are enforceable. For e.g., where a person lends money to another person to enable him to pay of a gambling debt, the lender can recover the money so paid.