Difference Between Contingent Contract And Wagering Agreement

Introduction

A contract is a lawful agreement between competent parties to do or not to do something for a valid consideration and lawful object, formulated through an offer and its subsequent absolute acceptance. It is entered so as to bind parties to certain obligations in exchange for a consideration.

As we will see subsequently, contracts are also entered based on the happening or non-happening of a future uncertain event. Such contracts are ‘conditional’. Then, there is another category of agreement, called ‘wager’, which also involves speculation of happening of an uncertain event, except the fact that it’s void and unenforceable (though not unlawful), and does not bind parties to any legal obligation.  In such agreements, generally, one party loses at the cost of other winning. Though the terms, wager and contingent agreement are used interchangeably, there are many sets of differences between them. While a conditional contract simply transfers the risk of the uncertain event upon the promisor, a wager involves the creation of risk, wherein parties play upon its outcome. Since a ‘wager’ is associated with bet and gambling, it has been declared as ‘void’. Other such differences are examined in detail in this article.

Contingent Contract

Corpus Juris Secundum[1] defines “Contingent Contract” as under:

  “ Where defendant’s performance depends on the consent or approval of one not a party to the contract who is free to withhold his consent , specific performance of the contract will not be decreed where it does not appear that such consent or approval has been or can be obtained , or where it appears that such consent or approval is withheld or refused or has become impossible…”

In a contingent contract, the promisor’s performance is reliant on certain conditions being met. Only if the conditions ancillary to the contract are satisfied does the promisor have an obligation. This means that if there is no uncertain event on which the contract depends, it would be merely an absolute contract and need to be performed unconditionally. Also, an indication of the “mode” or “manner” of performance does not constitute a contingent contract. For example, if a contract stipulates to deliver 20 leather shoes upon receiving raw leather from its primary source, it wouldn’t be a contingent one. It is simply their mode of operating.

However, the “consent” of a lawful authority can be the condition collateral to a contract. In Anjalidas v. Bidyut Sircar[2], the court concluded that a conditional decree for specific performance might be issued after getting the permission of any authority under any legislation.

 Following types of agreements also are considered as contingent contracts:

  1. Contract of Insurance;
  2. Contract of Indemnity; and
  3. Contract of Guarantee.

Essential Elements of Contingent Contract

  • There must be two persons/parties.
  • There must be an uncertain future event, which must be collateral to the contract.
  • The parties may have some control over the event, but not absolute control.
  • There may or may not be reciprocal promises between the persons.
  • Third persons may be interested in the contract, for example, as beneficiaries.

Enforceability of Contingent contract

Contingent contracts become enforceable and valid when the event conditional to it occurs. If such event does not occur within the specified time or becomes impossible to occur, it ceases to be enforceable.

Provisions on Contingent Contract in the Indian Contract Act, 1872

Section 32 deals with contracts contingent on the happening of an event. For example, X makes a contract with Y to buy Y’s car if X survives Z. This contract can be enforced only when Z dies in X’s lifetime.

Likewise, section 33 deals with contracts contingent on the non-happening of an event.

Section 34 deals with contracts contingent on the future conduct of a living person. This section simply states that when there is a condition based on the future conduct of a person at an unspecified time, it would become impossible if the conduct of the person so causes it to become impossible. One such example is the case of Frost v. Knight[3]. In this case, the defendant vowed to marry the plaintiff on the death of his father. He married another woman when his father was still living. It was decided that he could no longer marry the plaintiff and that she was allowed to sue him for breach of contract.

Section 35 deals with contracts contingent on happening of a specified event within a fixed time. According to it, if the event fails to happen within the specified time, it would be void. The section also deals with contracts contingent on not happening of a specified event within a fixed time.

As per section 36, an agreement contingent on an impossible event is void. For example, A promises to pay B Rs. 10,00,000 if he could walk to the moon. The agreement is void.

Wagering Agreement

A Wager is an agreement between parties in which money is payable by the first party to the second party on the occurrence of a future uncertain event, and the second party to the first party if the event does not occur. It is a euphemism for a ‘bet’. Thus, Wagering is a type of gambling that involves placing a bet on the outcome of an event or fact. Usually, the goal of relaying a prediction is to win money or material goods. Three things are necessary to be considered in a successful transaction: consideration, risk, and prize.

Thus, the following agreements are wagers:

  1. Prize money on lottery tickets: An agreement to distribute prize money by draw of lots (or other process) is based on chance, and therefore, in the form of a wager. Even if State conducts lottery, it would be void and no cause of action would arise with any court of law.
  2. Speculative transactions: In speculative transactions, there is agreement between the parties to sell a good at a given price on a later date, wherein their intention is only to pay differences, depending on the rise or fall of market prices. Thus, such agreements are void.
  3. Teji Mandi Transactions: A teji mandi transaction, also known as option-dealing or double-dealing, occurs when a person is given the choice of purchasing or selling things at a predetermined price. It would be a wager, and hence void, if the parties’ only objective was to settle by paying differences rather than really accomplish delivery of goods.

Exceptions To Wagering Agreement

Following are “not” wagers:

1. Horse Race Competition: Prizes given in respect of horse race competitions are lawful. Horse Race Competitions are not bets since the outcome is not completely determined by chance, but partly by the horse. It is contingent on the horse’s abilities.[4]

The exception to S. 30 of the Act states that the state government may occasionally sanction specific horse racing competitions if local laws allow it and if individuals pay Rs. 500 or more to the prize money to be handed to the horse race winner, then it will not be considered a wager.

2. Contract of Insurance: A contract of Insurance is not a wager though it resembles a wager as both are performable upon an uncertain event. This is because there is a certain ‘insurable interest’, i.e., the interest in safety or preservation of the subject-matter. As a result, it is beneficial for the welfare of the public and serves a useful purpose. Moreover, it is based on the scientific calculation of risks. Thus, a contract of insurance is valid and lawful.

3. Game of Skill: When a player devotes time in learning, practising, and developing a skill, it is considered to be a skill game. Games of skill, according to the Supreme Court, are those in which “success depends principally on the superior knowledge, training, attention, experience, and adroitness of the player.”[5] Therefore, games of skill are exempt from wagering laws and are not illegal.

4. Share Market Transactions: Trading is a game of skill and knowledge, and not merely chance. Traders are known for their in-depth analysis and logical reasoning. A trader uses technical and quantitative analysis to forecast market trends based on previous deals and to outline their approach for each trade. Furthermore, investors are owners of shares, meaning that they hold a stake in the company’s business, and are entitled to their share of profits and debts. Thus, it is not a wager.

Essential Elements of wagering agreement

The essential elements of wagering agreement are –

  • There must be two persons/parties.
  • There must be an uncertain future event, which must be the main determining factor.
  • the parties must have no control over the event
  • there must be mutual chances of gain or loss.
  • Each party must stand to lose or win
  • There must be reciprocal promises in respect of the event.
  • Others must not hold any stake or interest in the contract.

Validity of Wagering Agreement

Wagering agreements are void and unenforceable according to Section 30 of the Indian Contract Act of 1872, and the parties to a wagering agreement cannot initiate an action to retrieve or claim anything stated in the agreement. Such agreements are void in order to protect public policy and morals, as well as to prohibit illicit activity such as gambling.

In Badridas Kothari v. Meghraj Kothari[6], two people engaged in betting transactions in shares and one got indebted to other. For the payment of such obligation, a promissory note was signed. The court ruled that the note was not enforceable. To put it another way, a new commitment to pay money gained on a wager is also null and invalid.[7]

However, agreements collateral to wagering agreements have been held to be valid. The Nagpur High Court decided in Gulam Mustaffakhan v. Padamsi[8] that when two partners enter into a contract, even one of a wagering character, and one of the parties fulfils his and his co-partner’s duty, that partner can lawfully seek indemnification from the other.

Difference between Contingent Contract and Wagering Agreement

Basis of Comparison Contingent Contract Wagering Agreement
Nature It is a valid contract. It is a void agreement as per S. 30 of the Indian Contract Act, 1872.
Definition “Contingent contract” has been defined under S. 31 of the Indian Contract Act, 1872 as a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. S. 30 of the Indian Contract Act deals with the wager, however, it does not define it. Sir William Anson has defined wager as “a promise to give money or money’s worth upon the determination and ascertainment of an uncertain event”
Application of Chance There is no game of chance involved. It depends completely on chance.
Presence of future uncertain event Future uncertain event is a collateral to this type of contract. Future uncertain event is the only determining factor of this type of agreement.
Interest of Parties The interest of parties is concentrated towards happening or non-happening of an event. The parties are only interested in the winning of bet amount. No real interest is involved.
Reciprocal promise It might include or exclude reciprocal promises. It consists of reciprocal promises.
Illustration X promises to pay Y Rs. 1,00,000 if Y’s car meets with an accident. A and B are watching a badminton match on Television. A Said that he’ll pay Rs. 10,000 to B if player X wins and B said he’ll pay 10,000 bucks to A if player Y loses. This is a wagering agreement between A and B.

Conclusion

To sum up, a contingent contract is one which is enforceable upon fulfilment of a condition collateral to it, such as approval by a public authority. Though both are guided by an uncertain event that is to occur in the future, a wagering agreement is a kind of ‘bet’, wherein the event on which it depends affects both the parties, making one the loser and other the winner. Moreover, where a contingent contract is entered into for beneficial and useful purposes such as insurance against future risks, a wager serves no purpose, and degrades productivity of persons. Hence, the former is endorsed by the State, while the latter though it is not unlawful, is not authorized per se.

References

  1. R.K. Bangia, Contract-I(Allahabad Law Agency, Haryana, 7thedn., 2017).

[1] Vol. 81 at pp. 410-411

[2] A.I.R. 1992 Cal. 7

[3] (1872) 7 Ex. 111

[4] Wagering Agreements under Indian Contract Act, 1872, available at: https://www.lawcolumn.in/wagering-agreements-indian-contract-act-1872/  (last visited on October 6, 2021).

[5] Why games of skill don’t come under gambling, available at: https://www.livemint.com/Politics/rkIoarmatAMOTjONWxrsqI/Why-games-of-skill-dont-come-under-gambling.html (last visited on October 6, 2021).

[6] AIR 1967 Cal 25.

[7] Wagering Agreement, available at: https://indianlegalsolution.com/wagering-agreement/#_ftn6 (last visited on October 5, 2021).

[8] AIR 1923 Nagpur 48.

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Tazeen Ahmed

Tazeen Ahmed is a first-year law student at Jamia Millia Islamia, New Delhi, inquisitive about Constitutional Law, Family Law, Corporate Law, Human Rights Law, and Criminal Law. She is a proficient writer, skilled in conducting legal research and organizing her articulations on social-legal and political issues. She holds a sound academic record, having scored 93.80 % in AISSE and 95% in both Political Science and English Language in AISSCE. She has held prestigious positions in the Student Council and been adjudged the ‘Student of the Year 2016, Gurgaon’ by UnivQuest. She has formerly served as a legal intern at ubadvocate, where her performance was marked “outstanding” by the team and is an Editor at The Wall of Justice blog. She is also an avid reader, a poet, and a political enthusiast. Above all, she is a dedicated and dynamic soul, ever-prepared to undertake challenging roles in the legal battlefield, and treats constructive criticisms as stepping stones towards progress.