This article is written by Ishan Arun Mudbidri from Marathwada Mitra Mandal’s Shankarrao Chavan Law College, Pune. This article explains the concepts of contingent contracts and wagering agreements and compares the two.
Table of Contents
Introduction
The debate as to whether a contract and an agreement are one and the same is an eternal one. After going through both these concepts, we come across their types. Two such types are contingent contracts and wagering agreements. Now, the term contingent means depending on the happening of a certain event, and wagering also means the same. But one is a contract and the other is an agreement, so there are certain distinctive features in both these terms which the article unravels.
What is a contingent contract
As far as basic understanding goes, a contract is an agreement signed by two parties that is enforceable by law. But to make it more interesting, the terms and conditions in a contract are modified according to one’s benefit. One of such contracts is known as a contingent contract. The term contingent means an act that depends on the happening or non-happening of another act in the future. A contingent contract is a contract whose validity depends on an uncertain event in the future. Let us take an example, A agrees to pay 30,000 to B, only if B tops his final-year exams. Now, this is a contingent contract as B may or may not succeed in his exams.
The Indian Contract Act 1872 which governs everything relating to a contract, mentions the term contingent contract in Section 31 to Section 35. Section 36 talks about a contingent agreement. Let us analyze all these sections through a table:
SECTIONS | SIGNIFICANCE |
| Section 31 | A contingent contract is defined as a contract to do or not to do something on the happening or non-happening of a future uncertain event. |
| Section 32 | A contingent contract to do or not to do something, can be enforced by the law only after the event has happened in the future.Example:- A promises to gift B a luxury car if B marries C. C dies before marrying B, so now the contract shall become void. |
| Section 33 | A contingent contract on the non-happening of an event can be enforced by law if that event becomes impossible.Example:- X promises to pay Y a sum of money if a certain plane does not arrive on Monday. The plane arrives on Monday, so the contract is void. |
| Section 34 | If a contract is contingent on an event and depends on how a person will act in the future, such contract shall be deemed impossible if that person makes the event impossible to happen.Example:- A promises to give a gift to B if he wins the 100m running race. C wins the race. Hence C’s act of winning the race makes it impossible for B to win it. Although a rematch can happen, but this event is considered impossible |
| Section 35 | If a contingent contract to do or not to do anything at an uncertain event happens within a fixed time, it shall become void if the event has not happened and the time has lapsed or if before the expiry of the time fixed the event becomes impossible.Example:- C agrees to buy D a luxury car if their plane carrying valuable cargo returns on Monday. However, the plane crashes in the ocean and all the cargo gets destroyed. Hence this contract shall be void. |
| Section 36 | If an agreement to do or not do anything is contingent on an impossible event, then such an agreement shall be void irrespective of whether the parties knew about the impossible event or not. |
Essential elements of a contingent contract
The important ingredients to term a contingent contract are as follows:
Happening or non-happening of an event
As we glance at the above table, Section 32 and 33 talk about the enforceability of a contingent contract on the happening or non-happening of an event. So the contract will only be valid depending on an uncertain future event. The event can happen at any time, but it must happen.
The event should be collateral to the contract
The term collateral means secondary or additional so the happening or non-happening of an event should not depend on the contract. It should be secondary to the contract and exist independently.
The condition must be contingent and not promissory
The enforcement of a contingent contract depends on an uncertain future event, which can be said as a condition. But this contingency cannot be termed as a promise as the future event is uncertain. So there’s a clear difference between a promissory condition and a contingent condition. In the former case, the person has to abide by an obligation that can be postponed to a later date but has to be followed, whereas in the latter there’s no obligation as the contract depends on a future uncertain contingency. For example, A promises to buy B the Indian cricket team’s jersey, if they win the match today. Now, this is a contingency as there’s no guarantee whether India will win the match. In the same example, A promises to buy B the jersey if he pays him the money, then this will be a promissory condition that depends on the performance of a duty.
An uncertain event
Both parties to the contract should not be aware of that event. It should be an uncertain future event. If the event is certain, then it will be termed as a normal contract and not contingent as both parties are aware of it and will perform their obligations accordingly.
Contract should not be dependent on the promisor
The contract should not be at the will of the promisor. It should totally depend upon the happening or non-happening of a future and uncertain event. The promisor cannot dictate the terms of the future event.
Performance of the contract cannot be postponed
Just by postponing the time stipulated for the contract, it cannot be termed as a contingent contract. Both parties should have no idea about the future date and time of the event. For example, a person agrees to sell his property but decides to start the process on the 31st of the next month. This won’t be a contingent contract. For the contract to be contingent in the above example, the person should sell his property at an uncertain future event of which both parties do not have any idea about.
Importance of a contingent contract
A contingent contract, in many instances can come in handy. If you want to avoid the hefty terms and conditions of a contract, then you can try signing a contingent contract. This contract avoids the risk of losses that either of the parties must incur in case the contract breaks. This is because, in a contingent contract, the contract becomes valid on the happening or non-happening of a future event. The event has to be uncertain. So there’s no clarity as to where this contract shall end up, until and unless the future event happens.
Further, both parties do not have to agree on the terms of the contract, the uncertain future event shall decide that. So both the parties have to live with any difference of opinion arising due to the contract. Another important aspect of this type of contract is that the parties cannot re-negotiate the terms of the contract if the future event does not happen according to how they want it. Any negotiations, discussions about the contract will have to be dealt with by the parties before the event happens.
Depending on the future event, one party benefits and the other does not. This reduces the need for long court proceedings as both parties have already committed their willingness to enter into such a contract. This helps to maintain a good relationship and builds trust between both parties.
Lastly, either party cannot gain control over the terms of the contract and the future event, as the event is collateral or secondary to the contract and does not depend on it.
Famous case laws
In the case of Nemi Chand and Ors. v. Harak Chand and Ors. (1965), it was observed by the Court that Section 32 of the Indian Contract Act 1872 states that a contingent contract to do or not do anything depends on the happening of an uncertain future event and till then the contract cannot be enforced. This fact is true. However the party who claims that the contract shall be void as the event has become impossible should try the matter and file a plea, not only on the question of law but also on the question of fact. If the party does not want to try the matter, then it is not the responsibility of the Courts to consider the case suo moto.
In the case of Commissioner of Excess Profit Tax v. Ruby General Insurance Co. Ltd. (1957), the respondent (Ruby General Insurance) was an insurance company providing life, fire, and marine insurance. All the premiums received by the company relating to fire insurance were shown as assets, but 40% of this were shown as unexpired risks and liabilities. The appellant contended that the remaining portion must be liable to be deducted out of the total capital received in the year. The respondents argued that the portion kept aside as unexpired risks, is a contingent liability and not a contract of insurance. The Court observed that the portion kept aside as unexpired risks, cannot be included in the total capital of the business, so it should not be deducted. It was further held that a contract of insurance is included in the scope of a contingent contract.
Analyzing a wagering agreement
People get confused between the terms wager and bet. One might find it weird but, a bet is a wager and a wager is a bet. To put this in simple words, betting means to put something as collateral on the line depending on the outcome of an event, which in turn means to wager. Now when people bet, they enter into an agreement. Say, for example, A agrees to pay B Rs. 1000 if India wins the cricket match today. Now if India loses the match then B will have to pay A those Rs 1000. Hence this is known as a wagering agreement, where there’s a win-lose situation for both parties depending on the outcome of a certain event. This agreement is risky as one party gains a profit and the other incurs a loss as a result of which, disputes and arguments may arise. Section 30 of the Indian Contract Act 1872, mentions the term wagering agreement. If you closely notice, Sections 20 to 30 of the ICA mention those agreements or contracts which are void, i.e., forbidden by the law. Hence Section 30 states that an agreement where money is paid to either of the parties on the happening or non-happening of an event is void. Courts shall not entertain any matter in which money won by way of wager is claimed to be recovered.
Gambling or betting was never tolerated by the Indian legal statutes. Article 301 to Article 307 of the Indian Constitution which mention the provisions relating to trade and commerce, does not include gambling. Gambling is considered res extra commercium, meaning that certain things are unresponsive to being traded and are outside commerce. Currently in India, the Indian Contract Act, 1872 is the only legal statute relating to wagering agreements. The provisions in this Act were supplemented by the Avoiding Wagers (Amendments Act) of 1865.
Features and essential elements of a wagering agreement
A wagering agreement is different from that of a normal agreement. So let us look at some characteristics of a wagering agreement:
Mutual profit and loss
A wagering agreement is a mutual agreement. This means that both parties mutually agree to either suffer a profit or a loss depending on a future event. So, if one party loses the wager, then he/she has to pay a sum of money to the other party. The reward for the wager can be anything that has a monetary value. If one party knows the outcome of the uncertain event, then this won’t be termed as a wagering agreement. None of the parties must have control over the event. For example, A and B mutually agreed to enter into a wager. The terms were that if C tops the exam, then A will pay B Rs 2000, and if not then B shall pay the same to A. This is a mutually agreed wager.
There must be two parties
For a valid wagering agreement, there must two parties. This is quite obvious as a single person can wager with himself, say, for example, A does a wager with himself that if he does more than 30 push-ups in a minute, then he will eat a cheesecake and if he doesn’t then he’ll have to go for an extra one-mile run. So this can happen but such a situation will not be termed as an agreement. It is the basic rule of law that for a valid agreement there must two parties. The same is the case with a wagering agreement.
The agreement extends only to a wager and nothing beyond that
As I mentioned earlier, none of the parties can control the outcome of the wager. Further the only condition of the agreement should be a wager depending on the outcome of a future event. If the parties have any interest beyond this condition, then the wagering agreement shall not be valid. For example, X enters into a wager with Y. If X’s food tech start-up gains at least 50,000 customers in 6 months, then Y shall pay X a certain monetary sum, and if it doesn’t hit the target, then X shall pay Y the same amount. However X later realized that depending on the outcome of their wager, Y also wants a 20% stake in his start-up. Hence such a situation shall not be termed as a wagering agreement.
Exceptions to a wagering agreement
By now, we might have got a little understanding of what a wagering agreement actually is. But, there are certain situations that do not fulfill the conditions of a wagering agreement. They are as follows:-
Contract of insurance
A contract to get insurance might be the most important exception to a wagering agreement. This is because it does bear resemblance to a wager. In an insurance contract, the party providing financial compensation known as the insurer has an insurable interest in the contract. This means that the company protects the party who has taken insurance from financial loss due to an unexpected bad event. Hence, this type of contract is known as a contract of indemnity which protects the parties from incurring a loss. The main objective of the parties is to protect from loss, and not gain profit from the happening or non-happening of an event. If the insurer does not have an insurable interest, then this contract can be termed as a wager.
Horse racing competitions
A horse racing competition also involves betting. People bet on their desired horse to win the race and earn money from it. So is this a wagering agreement? No. Section 30 of the Indian Contract Act 1872 has clearly mentioned that a wager involving a horse race shall not be considered a wagering agreement, so it is not void. However in India, state governments offer permits for such competitions. A horse racing competition is based more on skill rather than luck. Thorough preparations are required before the race like training the horse, his food, maintenance, etc.
Games requiring skill
We often come across the term gaming contracts. For example, A and B both play a game of FIFA (football) on the PlayStation. The twist here is that if A wins the game, then B shall give him a treat and vice versa. However this cannot be termed as a wagering agreement, as video games require skill, and the outcome of the game does not depend on luck. In the case of MJ Sivani v. State of Karnatka (1995), the scope and legal validity of video games was examined. It was observed by the Court that gaming means to play, and as the game is not unlawful, there shouldn’t arise a question of whether it involves skill or luck.
Share market trading
The stock market has turned out to be a gold mine for many people over the years. One might wonder whether trading on the stock market, is a wager as people buy and sell shares from one party to the other. However, this is not considered a wager and is completely legal.
Famous case laws
In the case of Babasaheb Rahimsaheb v. Rajaram Raghunath Alpe (1930), both parties were wrestlers and entered into an agreement. The terms of the agreements were that they had to wrestle each other on a certain date in Pune. Next, if any of the parties failed to appear for the match, the other party had to pay Rs. 500. Lastly, the person who wins the match was to rewarded with Rs. 1,125 as per the earning of the event. The defendant (Rajaram Alpe) failed to appear for the match. Hence the plaintiff (Babasaheb Rahimsaheb) claimed Rs. 500 as per the terms of their agreement in court. The trial court rejected the plaintiff’s plea. The plaintiff argued that as the winner of the event was uncertain and the agreement is a wager, so the defendant has to pay him the desired money. The Bombay High Court observed that the term wagering agreement is not defined in the Indian Contract Act 1872, and as per the definition given by Sir William Anson it is a promise to pay money on the determination of an uncertain event. In the present circumstances, the agreement was that the winner gets the entire price money and the loser walks away empty-handed. The loser failed to win the prize and did not forfeit anything on his own. Hence the Court held that this example doesn’t come under the term wagering agreement because the price money to be given to the winner was from the people who were to buy tickets for the event.
In the case of Gherulal Parakh v. Mahadeodas Maiya and Ors. (1959), the appellant (Gherulal Parakh) and the respondent (Mahadeodas Maiya) entered into a partnership. They signed an agreement which stated that the respondent on behalf of the firm, will enter into contracts with other people but the profits and losses will be shared by the parties equally. One of such contracts went wrong and the respondent had to compensate the entire amount which the appellant did not. Hence the respondent filed a suit to recover the amount from the appellant and contended that the agreement to enter into a wagering contract is not unlawful under Section 23 of the ICA. The appellant contended that wagering contracts are void under Section 30 and illicit within the meaning of Section 23. It was held by the Court that the wagering contracts are void under Section 30, but not forbidden by law. An agreement that is collateral to the wagering contract is also not unlawful under Section 23. Hence the contentions must be negatived.
How do they differ
As we have seen what contingent contracts and wagering agreements actually are, they do sound very similar. But as one is a contract and the other is an agreement, it is important to know the difference between the two, because both of them are well regulated under the Indian Contract Act 1872 and any confusion while dealing with both these documents can lead to serious consequences. So let us look at some of the distinctive features that separate a contingent contract from a wagering agreement, through a table:
| POINTS OF DIFFERENCE | CONTINGENT CONTRACT | WAGERING AGREEMENT |
| Type of document | A contingent contract is enforceable by the Law. This means that any contract based on the happening or non-happening of an event that is opposed by law, shall not be considered a valid contract. | A wager is an agreement that can be enforceable or non-enforceable by law. |
| Mentioned under | A contingent contract is mentioned in Section 31 of the Indian Contract Act 1872, and is legally valid. | A wagering agreement is mentioned in Section 30 of the Indian Contract Act 1872. According to this Section, wagering agreements are considered void. |
| Definition | Section 31 of the Indian Contract Act states that a contingent contract is a contract to do or not to do something depending on the outcome of a future uncertain event, which is collateral to this contract. | The Indian Contract Act does not define the term wagering agreement. However, a wager means to either profit or incur a loss by betting on something depending on the outcome of a future uncertain event. |
| Interest | In a contingent contract, there is an interest in the contract, as an act will be done depending on the uncertain future event. | In a wagering agreement, the only interest is in whether I have gained profit or incurred loss, depending upon the outcome of an event. |
| Uncertain Future event | An uncertain future event is secondary or collateral to the contract. It does not determine the outcome of the contract | An uncertain future event is the only factor that determines who has won the wager. |
| Reciprocal Promise | In a contingent contract, there may or not be reciprocal promises. | In a wagering agreement, reciprocal promises are involved. |
Conclusion
After analyzing both these concepts, the question of whether a contingent contract is better than a wagering agreement should not arise because a wagering agreement is void under the Indian Contract Act 1872. A contingent contract is valid but risky at the same time, as the performance of the contract depends on an uncertain future event. Hence it is only safe to say that while entering into a contract or agreement, it is better to abide by and follow all the elements and rules that make a contract legally valid.
References
- https://www.vedantu.com/commerce/contingent-contract
- https://www.upcounsel.com/features-of-contingent-contract
- http://bdlaws.minlaw.gov.bd/act-26/chapter-details-81.html
- https://www.pon.harvard.edu/daily/dealmaking-daily/contingent-contract/#:~:text=A%20contingent%20contract%20eliminates%20the,when%20a%20surprise%20crops%20up.
- https://indiankanoon.org/doc/1959454/
- https://www.thelawgurukul.com/post/wagering-agreement#:~:text=A%20wager%20is%20an%20agreement,happening%20of%20an%20uncertain%20event.&text=The%20essential%20part%20of%20the,goes%20to%20win%20or%20lose.
- https://sociallawstoday.com/contingent-contract-and-wagering-agreement/#:~:text=Contingent%20contract%20is%20to%20do,is%20just%20for%20money%20purposes.
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