CHAPTER 6
VOID AGREEMENTS
SYNOPSIS
1. Agreement in restraint of Marriage.
2. Agreement in restraint of Trade.
3. Exceptions to the agreement in restraint of trade.
4. Agreement in restraint of legal proceedings.
5. Ambiguous and uncertain Agreements.
6. Agreement by way of wager.
7. Validity of wagering agreements and collateral transactions.
There are some agreements which have been specifically declared as void by the Indian Contract Act. Even if such agreements satisfy the conditions of a valid contract, they are not enforceable. The agreements which have been declared void by the Act are as follows:
1. Agreement of which the consideration or the object is not lawful. (Sections 23 and 24).
2. Agreement without consideration. (Section 25).
3. Agreement In restraint of marriage. (Section 26).
4. Agreement in restraint of trade. (Section 27).
5. Agreement in restraint of legal proceedings. (Section 28).
6. Agreement which is ambiguous and uncertain. (Section 29).
7. Agreement by way of wager. (Section 30).
8. Agreement to do an impossible act. (Section56).
Agreement of which the consideration or object is unlawful has been discussed in the previous chapter. Agreement without consideration, as a general rule is void. Section 25 mentions three exceptions when an agreement, even though without consideration is enforceable. This has been discussed in detail in Chapter 2 which deals with the doctrine of consideration. Agreement to do an impossible act has been declared to be void in section 56. The same has been discussed in Chapter 9 which deals with the discharge of contracts. Other Agreements declared void (under sections 26-30) are being discussed below.
AGREEMENT BY WAY OF WAGER
(SEC. 30)
Section 30 declares wagering agreements as void.
The section is as follows:
"30. Agreement by way of wager void.
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.
Exception in favour of certain prizes for horse racing. - This section shall not be deemed to render unlawful a subscription or contribution, or agreement to subscribe or contribute, made or entered into for or toward any place, prize or sum of money, of the value or amount of five hundred rupees or upwards, to be awarded to the winner or winners of any horse race.
Section 294-A of the Indian Penal Code not affected. -Nothing in this section shall be deemed to legalize any transaction connected with horse racing, to which the provisions of section 294-A of the Indian Penal Code apply."
What is a wagering agreement?
The Contract Act does not define a wagering agreement. The nature of such an agreement has been explained by Hawkins J. in Carlill v. Carbolic Smoke Ball Co. in the following words: [(1892) 2 Q.B. 484, at pp. 490-91.]
"A wagering contract is one by which two persons, professing to hold opposite views touching the issue of a future uncertain event, mutually agree that, dependent upon the determination of that event, one shall win from the other, and that other shall pay or hand over to him, a sum of money or other stake. neither of the contracting parties having any other interest in that contract than the sum or stake he will so win or lose, there being no other real consideration for the making of such contract by either of the parties. It is essential to a wagering contract that each party may under it either win or lose whether will win or lose being dependent on the issue of the event, and, therefore, remaining uncertain until that issue is known If either of the parties may win but cannot lose, or may lose but cannot win, it is not a wagering contract.
Essentials of a wagering agreement
The essentials of a wagering agreement are:
1. The parties have opposite views regarding an uncertain event.
2. There are chances of gain or loss to the parties on the determination of the event one way or the other.
3. The parties have no other interest except winning or losing of bet.
1. Opposite views about an uncertain event
If A holding the view that it would rain on 1st January next and B saying that it will not, agree that if it rains on that day, B will pay Rs. 100 to A, and if it does not rain, A will pay Rs. 100 to B, it is a wagering agreement
According to definition of wager given by Hawkins, J. in Carlill v. Carbolic Smoke Ball Co., the parties should have opposite views touching the issue of a "future uncertain event." but that does not appear to be wholly correct. The opposite views could be in respect of a past or a present fact or event also. The only thing needed is that there should be uncertainty in the minds of the parties about the determination of the event one way or the other
Thus, the parties may bet as to what the population of a city is, or, a particular plane had crashed on a particular date or not
Similarly, the parties may bet "upon the result of an election which is over. If the parties do not know in whose favour it has gone. [Anson's Law of Contract, 24th ed. (1975), p. 323; Also see Cheshire and Fifoot, 9th ed. (1976), p. 296 for a similar view.]
2. Chances of gain or loss to the parties
There should be a chance of any one party winning and the other losing, on the determination of the event one way or the other.
For example: if A agrees to pay B Rs. 100 if it does not rain on 1st January next, and B agrees to pay A Rs. 100 if it rains on that day, each party has a chance to win or lose, depending upon the determination of the event one way or the other. If either of the parties may win but cannot lose, or may lose but cannot win, It is not a wagering contract [Carlill v. Carbolic Smoke Ball Co., (1892) 2 Q.B. 484, at p. 491, per Hawkins J.]
In Babasaheb v. Rajaram, [A.LR. 1931 Bom. 264.] It has been held that if out of the gate money which has been recovered, the payment is to be made only to winner of a certain game, it is not a wagering contract because each party has a chance of winning something but no chance of losing anything.
The facts of the case:
1. Two wrestlers, A and B, entered into an agreement to wrestle in Poona on a certain day Window
2. They agreed that if a party failed to appear on that day, he would forfest Rs. 500 to the other party.
3. They further agreed that the winner will receive the sum of Rs. 1,125 out of the gate money, B failed to appear and A sued him to recover the sum of Rs. 500.
4. B pleaded that it was a wagering agreement in so far as the payment of the gate money to the winner depended on the happening of an uncertain event
This plea was rejected and A was held entitled to recover the amount.
The agreement was held to be not a wagering one "since neither side esod to lose according to the result of the wrestling match. The agreement was that the winner was to take the whole of the proceeds of the gate money, and though the loser was to get nothing, he was not to pay anything and was not to be out of pocket in any way. Ibid, at 265, per Barlee, J.J 19
In the above case, nothing was to go out of the pocket of the loser of the match. The payment to the winner had to be made out of the gate money. The position would have been different if the prize was not to be paid out of the gate money as in the above case, but the payment to the winner was to go out of the pocket of the loser of the game.
In Diggle v. Hige,[(1877) 2 Ex. D. 422; 46 L.J. 721; 37 L.T. 27; Also see Shoolbred v. Roberts, (1899) 2 Q.B. 560.]
In this case: each one of the two parties in a walking match deposited £ 200 with a stakeholder with the condition that the loser would forfeit the amount of £ 200 paid by him
The agreement was held to be a wagering one.
In Carlill v. Carbolic Smoke Ball Co.,[(1892) 2 Q.B. 484.]
Facts of the case:
1. the defendants, manufacturers of Carbolic Smoke Ball, a preventive remedy against influenza,
2. agreed to pay £ 100 if a person contracted influenza after using the smoke ball, manufactured by the defendant, for a certain period according to the prescribed manner.
3. The plaintiff used the smoke ball and then contracted influenza
4. She was held entitled to recover the amount
It was held that it was not a wagering agreement because the plaintiff was to lose nothing if she did not contract influenza, and the defendants were not to gain anything from the plaintiff if the ball had the desired effect.
In the words of Hawkins J., Ibid., at 492.1
"In the present case an essential element of a wagering contract is absent. The event upon which the defendants promised to pay £ 100 depended upon the plaintiffs contracting the epidemic influenza after using the ball, but on the happening of that event, the plaintiff alone could derive the benefit. On the other hand, if that did not happen, the defendants could gain nothing, for there was no promise on the plaintiff's part to pay or do anything if the ball had the desired effect. When the contract first of all came into existence (ie, when the plaintiff had performed the consideration for the defendant's promise), In event could the plaintiff lose anything, nor could the defendants win anything
(3) No other interest in the event except the amount of bet
In a wagering contract neither of the contracting parties have any other interest in that contract than the sum or stake he will so win or lose, and there is no other real consideration for the making of such contract by either of the parties. [Ibid., at 491.]
This fact or distinguishes a wagering agreement from other valid conditional contracts like contracts of insurance. In an insurance contract, it is necessary that the person affecting insurance must have "insurable interest" in the subject-matter insured. Insurable interest means an interest in the existence and preservation of the thing insured.
For example, A wife has an insurable interest in her husband's life and she can take an insurance policy on her husband's life by paying some regular premium. A person can take an insurance policy covering the risk of fire to the property owned by him
But if a person does not have an insurable interest in the life of another person, or in the property insured, the agreement will be a mere wager and, therefore, void If you take an insurance policy to insure Taj Mahal or Kutab Minar, the agreement would be void, but if you get your own house insured, the agreement will be valid. In the absence of an insurable interest, the receiving of money depends on the happening of an event which does not cause any loss to the recipient and, therefore, such an agreement is void.
In Brahm Dutt Sharma v. Life Insurance Corporation of India, [ALR. 1966 All. 474.]
Facts of the case:
1. the plaintiff, Brahm Dutt Sharma, financed an insurance policy taken by one Mukhtar Singh on his life, for Rs. 35,000.
2 Mukhtar Singh himself was a village school teacher without sufficient means to afford such a policy.
3. Mukhtar Singh made the nomination in favour of the plaintiff and not in favour of his own wife and children.
4 On the death of Mukhtar Singh the question arose, whether the plaintiff could recover the sum assured.
It was held that the plaintiff had affected and financed this insurance policy on the life of the deceased without having an insurable interest in his life, and as such the contract of insurance was in the nature of a wagering contract within the meaning of section 30 of the Contract Act and, therefore, void, and the plaintiff could not recover anything
Prize Money on lottery tickets
Lottery means a scheme for distribution of prizes by draw of lots or by any other procedure which depends on chance only The agreement to pay prizes on lottery is an agreement by way of wager and, therefore, void under section 30 of the Contract Act.
In Shekharchand Jain v. Ramnarayan" [(1977) 2 M.P.W.N. 118.] the question was regarding recovery of prize on a State Lottery Ticket
It was held that though a State lottery is not illegal, the same is nonetheless in the nature of wager, and, therefore, void. Hence, a person declared winner of prize money on lottery cannot sue for the recovery of the prize money.
Similar was also the decision in Subhash Kumar Manwani v. State of M.P.[A.I.R. 2000 MR 109.]
It has been held in this case that an agreement to pay prize money on a lottery ticket is a wagering agreement and, therefore, such an agreement is void under section 30 of the Contract Act Further, neither the provisions of the State or the Central Act controlling activities relating to lottery would change the nature of such an agreement. Hence, the dismissal of the plaintiffs claim for recovery of the prize money by the lower courts was held by the M.P. High Court to be justified
Speculative Transactions
One of the forms of wagering contracts is an agreement to pay differences only, rather than actually making or taking the delivery of the goods. Although in a contract, the parties may agree about the sale of goods at a stated price at a future date, but their real intention may not be the supply of goods but only the payment of difference in the price by one party to the other, depending on the rise or fall of market. Such an agreement is wagering.
In Kong Yee Lone & Co, v. Lowjee Nanjee,[(1903) 29 LA. 239.]
Facts of the case:
1. the owner of a rice mill, with a capital of a little over one lac of rupees, agreed to sell 1.99,000 bags of rice costing above 5 crore of rupees, Le, worth over 500 times the capital.
2. The obvious inference in this case was that neither party intended the performance of the contract
The agreement was held to be by way of wager and thus void.
A contract which provides for payment of differences only without intention on the part of either of the parties to give or take delivery of the goods is admittedly a wager within the meaning of section 30 of the Contract Act. [Cherulal Parakh v. Mahadeodas, A.I.R. 1959 S.C. 781, per Subba Rao J.]
For example: if there is a contract for the sale and purchase of an article at a place, where it has never been produced or traded, and according to the course of dealing, the settlement in such cases is made by paying differences only, it is a wagering agreement. [Doshi Talakshi v. Shah Ujamshi Velsi, LL.R. (1889) 24 Bom. 227.]
When the parties intend the performance of a future contract and such a performance is not otherwise impossible, it would be a valid business transaction rather than a wagering contract
Thus, if in a contract for sale of shares, an actual delivery is intended, it cannot be considered to be a wagering contract [Buddulal v. Shrikisan, A.LR. 1961 M.P. 57; Sukhdevdoss v. Govindoss & Co., A.I.R. 1928 P.C. 30.]
"In all forward contracts, there is an element of speculation. Such a contract is not a wagering contract unless both the parties intend not to take delivery in any event, and, whatever happens, only to adjust the difference [Buddulal v. Shrikisan, A.I.R. 1961 M.P. 57, at 60.]
So long as the parties are not absolved in any event from delivering the commodity and the Windows delivery has to be made when demanded, it is not a wagering agreement [Arjunsa v. Mohanlal, to activate Windows A.LR. 1937 Nag. 345.]
A contract of agency for the sale of raffle tickets is not an agreement by way of wager, although raffle itself may constitute several agreements by way of wager by person promoting the raffle and the persons purchasing tickets with the object of winning the prize depending on the uncertain event of a draw in favour of the ticket holder. 75 [T.T. Augustine v. Changanacherry Municipality, A.LR. 1982 Ker. 307.]
Teji Mandi Transactions
It is a contract under which one of the parties is given a double option either to purchase or to sell, whichever would suit him, a certain commodity, at a certain rate, on a specified future date, i.e, the vaida day.
For example, A, by paying a certain premium or commission per bag to B, is given an option by B to purchase or sell 100 bags of wheat at Rs. 200 per bag on 1st January next. If the price of wheat on 1st January comes down e.g., to Rs. 180, A can exercise the option to sell the wheat at the agreed price of Rs. 200 per bag. On the other hand, if the price of wheat rises, e.g., to Rs. 225 per bag, A may exercise the option to purchase the same at the agreed price of Rs. 200.
In case of such transactions also the validity of the contract would depend on the fact whether the parties intended to actually affect the delivery of the goods or not. If the intention is to settle by paying the differences only, the agreement would be a wager, and thus void [See Sobhagmal v. Mukunchand, A.L.R. 1926 P.C. 119; Ram Prasad v. Ranjit Lal, A.I.R. 1972 All. 1972 All. 795; Narayandas v. Ghanshyamdas, AL.R. 1933 Bom. 348; Prithi Singh v. Matu Ram, A.I.R. 1932 Lahore356.]
Validity of wagering agreements and collateral transactions
Section 30 declares an agreement by way of wager as void. It further states 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."
In Badridas Kothari v. Meghraj Kothari," [A.I.R. 1967 Cal. 25.] A and B entered into wagering transactions in shares. B became indebted to A. B then executed a promissory note in favour of A to pay the amount as well as interest thereon.
It was held that A could not recover the amount.
Though a wagering agreement is void and unenforceable, it is not forbidden by law and therefore the object of a collateral agreement is not unlawful under sec. 23 of the Contract Act. [Gherulal Parakh v. Mahadeodass, A.I.R. 1959 S.C. 781, at 792.]
Thus, agreements collateral to wagering agreements are not void. In Gherulal Parakh v. Mahadeodass. [A.I.R. 1959 S.C. 781.
the appellant and the respondent entered into partnership for carrying on wageringndows transactions.
The respondents, who incurred some loss on behalf of the firm, brought an action against the appellant to recover his share of the loss.
The claim was allowed by the Supreme Court.
Similarly, in Gulam Mustaffakhan v. Padamsi, [A.L.R. 1923 Nagpur 48.]
it was held by the Nagpur High Court that when two partners make a contract, even of a wagering nature, and one of the parties satisfies his and his co-partner's liability, such a partner can legally claim indemnity from the other.
Although in a raffle, the agreements by the persons promoting the raffle and the persons purchasing tickets with the object of winning the prize depending on the uncertain event of a draw in favour of the ticket holder are by way of wage, but raffle itself is not illegal nor is it opposed to public policy.
Therefore, a collateral contract of agency for the purpose of sale of raffle tickets is not an agreement by way of wager, and as such, the same is perfectly valid and enforceable by law. Augustine v. Changanacherry Municipality, A.I.R. 1982 Ker. 307, at 309.1
In the State of Bombay contracts collateral to or in respect of wagering transactions have been declared to be void by the provisions of the Bombay Act III of 1856. This Act has not been repealed by the Indian Contract Act, 1872 [Davabnai v. Lakshmichand, L.L.R. (1885) 9 Bom. 358; Peraska v. Manekji, A.L.R. (1898) 22 Bom. 899.]
Section 30 contains an exception in favour of certain prizes for horse-racing.
According to this exception, a subscription, or contribution, or agreement to subscribe or contribute, made or entered into for or towards any place, prize or sum of money, of the value or amount of five hundred rupees or upwards, to be awarded to the winner or winners of any horse-race, shall not be deemed to be unlawful
There is no exception in respect of lotteries. Therefore, a contract to purchase a lottery ticket, [Dorabji Tata v. Lance, LL.R. (1918) 46 Bom. 676.] or to share the prize won in a lottery [Subhash Kumar Manwani v. State of M.P., A.I.R. 2000 M.P. 109, Gorenstein, (1911) 27 T.L.R. 457.] are void and unenforceable. A cross-word puzzle where the winning of the prize depends on the chance of a solution tallying an already set solution is a lottery, [Coles v. Odhams Press, (1936) 1 K.B. 416.] but where the result depends on the exercise of the skill of the person sending the entry, it is not a lottery [Witty v. World Services Ltd., (1936) Ch. 303.]