This article is written by Surojit Shaw. This article has been edited by Ojuswi (Associate, Lawsikho). 

This article has been published by Sneha Mahawar.

Introduction

According to Section 2(h) of the Indian Contract Act 1872, we know that an agreement enforceable by law is a contract. As used herein, “contract” means any agreement created by the voluntary agreement of parties competent to contract for a lawful consideration and with a lawful aim, which is not void. Parties enter into a contract to bind themselves to certain obligations in exchange for a certain consideration.

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A contingent contract depends on the happening or non-happening of some uncertain future event and a Wagering agreement is an agreement to pay a sum of money based on an uncertain event. In this article, we will discuss the difference between a contingent contract and a wagering agreement. One is a contract and another is an agreement, so we can understand that some agreements form contracts and some are not. The agreements which do not form a contract are not enforceable.

Contingent contract

According to Section 31 of the Indian Contract Act 1872, a “contingent contract” is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. In simple words, contingent contracts are those where the performance of the contract depends on the happening or non-happening of some uncertain future event. Contracts of insurance, indemnity, and guarantee fall under the category of contingent contract. 

Example: A contract between Rita and Gita stipulates that if Gita’s house is burned, Rita will pay 59,000 rupees. This is a contingent contract.

Essential elements of contingent contract

  1. The performance of a contingent contract depends on the occurrence or non-occurrence of an event or condition.
  2. This event is collateral to the contract. This event is not a part of the contract. A promise of performance or consideration for a promise should not be attached to the event.
  3. The event must be uncertain. If the event is certain, then it is not a contingent contract.
  4. The contingent should not be a mere will of the promisor.

Enforcement of contingent contract

Section 32-36 of the Indian Contract Act 1872 states some rules for the enforcement of contingent contracts. These are as follows:

Section 32 

In Section 32, until and unless an uncertain future event occurs, contingent contracts may not be enforceable by law. If the event becomes impossible, the contract becomes void. For example, Ram contracts to pay Shyam a sum of money when Shyam marries Gita. Gita dies without being married to Shyam. The contract becomes void.

In this scenario, the uncertain future event (marriage) does not occur. Gita dies before marriage, and Shyam could not marry Gita. Therefore, it is no longer a valid agreement, and Ram is not bound to pay Shyam.

Section 33

In Section 33, the enforcement of contingent contracts for future events can be enforced only once the happening of those events becomes impossible, and not before. For example, Aryan agrees to pay Rahul a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.

Section 34

In Section 34, when the contract depends on the performance of a future act that will take place at some future point, that act becomes impossible when the performer does something that makes it impossible for him to perform the act within a set time period or under any other circumstance. For example, Ram agrees to pay Shyam Rs. 15,00,000 if Shyam marries Gita. Gita marries Rahul. The marriage of Shyam to Gita is now impossible, although it is possible that Rahul may die and that Gita may later marry Shyam.

Section 35 

In Section 35, contingent contracts, either to do or not to do anything if an uncertain event does not occur within a fixed period of time, may be enforced by law when the specified period has expired and the uncertain event has not occurred or when it becomes certain that it will not occur before the time fixed has expired. For example, Kabir promises to pay Rahul a sum of money if a certain ship does not return within a year. The contract may be enforced if the ship does not return within the year, or is burnt within the year.

Section 36

In Section 36, if an impossible event occurs, contingent contracts to do or not to do anything are void, regardless of whether the parties knew about the impossibility at the time they signed the agreement. For example, Raju agrees to pay Tinku 1,000 rupees if Tinku will marry Raju’s daughter Sneha. Sneha was dead at the time of the agreement. The agreement is void.

Case law

In Nemi Chand And Ors. vs Harak Chand And Ors (1964) case, the judges considered that a claim that a contract is a contingent contract must be alleged, and supported by the party who sets it up. It is useless to argue that the trial court has a bounden duty to consider a case like this suo moto. Although Section 32 of the Contract Act indeed states that contingent contracts to do or not do something if an uncertain future event occurs, they cannot be enforced by law until and unless that event has occurred. It cannot be used to support the claim that the trial court must dismiss the lawsuit if it relates to a contingent contract, but the contingency is not pleaded.

Wagering agreements

Section 30 of the Indian Contract Act 1872 defines the Wagering Agreement. As per this Section, “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.”

Example: In an IPL match, if team A wins then Ram will give Rs. 50,000 to Rahul, and if team B wins the match then Rahul will give Rs. 50,000 to Ram. This is a wagering agreement because the agreement is to pay a sum of money based on an uncertain event

A wager is a chance in which each party stands to win or lose based on the outcome of an uncertain event in reference to which it is taken and in the occurrence of which neither party has a legitimate interest. Money is the only thing that matters to them. Since neither party can file a lawsuit in a wager, the agreement is void. The money is all that matters in this situation, not the event. The agreement does not mention a wagering agreement, but it seems to be a game of chance based on what we see, so we mark it as one.

Essential elements of a wagering agreement

  1. There must be two parties.
  2. A wagering agreement must include a commitment to pay an amount of money or an equivalent amount.
  3. The event which is involved in the agreement must be uncertain.
  4. It is essential to have a common intention.
  5. The parties should not have any control over the occurrence of the event.
  6. Parties should have no interest in the event except for stake.
  7. There must be a chance for both parties to win or lose. When either party can win but not lose or can lose but not win, this type of agreement is not a wagering agreement.

Exceptions to the rule of a wagering agreement

Commercial transaction 

Whenever there is a genuine intention to conduct legitimate business, such as to take delivery of goods or shares, the transaction cannot be considered a wager. The transaction would be considered a wagering agreement if there are no genuine intentions and parties are only interested in betting on the rise or fall of the market.

Price competition 

There are certain competitions where skill is important in order to succeed. For example, crossword competitions, picture puzzles, athletic competitions, etc. Price competitions are games of skill and do not involve wagers because the price is awarded for the merits of the solution.

Contract of insurance

The contract of insurance is the agreement between the insured and the insurance company under which, in exchange for the premiums paid by the policyholders the insurance company undertakes to indemnify the insured against any loss arising from a contingency up to the agreed sum. The performance of an insurance policy, whether it’s for life, fire, or marine, is contingent upon an uncertain event.

Horse racing

A contribution or subscription or an agreement to contribute, for any plate, prize, or sum of money of 500 rupees or greater to the winner or winners of any horse race, is not void by virtue of Section.

The provisions in this section are not intended to legalize horse-racing transactions that fall under Section 294A of the Indian Penal Code (45 of 1860).

Case laws

In Babasaheb Rahimsaheb vs Rajaram Raghunath Alpe (1930) case, two wrestlers entered into an agreement that they will wrestle in Poona on a certain day. The party who fails to appear in the wrestling match will pay Rs. 500 to the other party and the winning wrestler would get Rs 1,125 from the gate money. One of them failed to appear in the wrestling match and the plaintiff sued him for Rs. 500. The defendant contended that the agreement is void because it was a wagering agreement. The court observed that it was not a wagering agreement as there was no mutual chance of gain or loss. In this scenario, both parties could win but neither could lose because the money had to be paid from gate fees given by the public and not from the pocket of either party. 

In Gherulal Parakh vs Mahadeodas Maiya And Others (1959) case, The appellant, Gherulal Parakh, and the first respondent, Mahadeodas Maiya, managers of two joint families, entered into a partnership to carry on wagering contracts with two firms. The partners have agreed that the profits and losses from the transactions will be distributed equally. The net result of all these transactions was a loss. As the appellant denied his responsibility to bear his share of the loss, the first respondent filed a suit for the recovery of half of the loss incurred in the transactions.

The Subordinate Judge found that the parties intended to enter into wagering contracts based on the rise and fall of the market. As the object of the agreement was prohibited by law and opposed to public policy, it was void. In an appeal, the High Court ruled that the partners aimed to deal in differences and that the transactions, as wagers, were void under Section 30 of the Indian Contract Act, the object was not unlawful within the meaning of s. 23 of the said Act. Void agreements are not the same as illegal agreements. An agreement is merely void if the law prohibits its enforcement. As such, it can be said that all illegal contracts are void, but not all void contracts are illegal or unlawful.

Difference between contingent contract and wagering agreement

The distinction between a contingent contract and a wagering agreement is as follows – 

  1. A contingent contract is defined under Section 31 of the Indian Contract Act 1872. A wagering agreement is defined under Section 30 of this Act.
  2. Section 31 of the Indian Contract Act defines “contingent contract” as a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. Section 30 of the Indian Contract Act deals with the wager but it doesn’t define the term. However, a wager means a promise to pay money upon the determination and ascertainment of an uncertain event.
  3. A contingent contract may not be contingent in nature. A wagering agreement is basically contingent in nature.
  4. Contingent contracts are valid and enforceable in nature. Wagering agreements are void and unenforceable in nature.
  5. Parties to a contingent contract may or may not bind themselves by reciprocal promises. Wagering agreements bind both parties to reciprocal promises.
  6. The purpose of a contingent contract is to do or not to do something in response to certain events. The purpose of a wagering agreement is to win or lose the betting amount.
  7. A contingent contract is a contract to indemnify the loss. The wagering agreement involves paying money or money’s worth on the outcome of an uncertain event.
  8. Contingent contracts are beneficial to society. It has been believed that wagering agreements are detrimental to the public good.
  9. It is only the future event that determines the outcome of a wagering agreement. In a contingent contract, the future event is only collateral.

Conclusion

After analyzing both the concepts we can conclude that wagering agreements are void and contingent contracts are valid. So, we can say that we should avoid wagering agreements. 

Reference

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