Explain what is a wagering contract? Is a suit maintainable to enforce an agreement by way of wager? Distinguish between wagering contracts from a teji-mandi transaction.

Question: Explain what is a wagering contract? Is a suit maintainable to enforce an agreement by way of wager? Distinguish between wagering contracts from a teji-mandi transaction.

Where a suit is brought by a broker or an agent against his principal to receive his brokerage or commission in respect of wagering transactions entered into by him in such or for indemnity for losses incurred by him as such transaction on behalf of his principal, would such collateral agreements be enforceable? [RJS 1977]

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Answer

The word wager is not defined in The Indian Contract Act,1872. A wager is an agreement to give money or money’s worth upon the occurrence of an uncertain event. The parties to the contract must have the common intention to gamble. Under common law, a wagering agreement is one by which parties mutually agree that, depending on the occurrence of an uncertain event in the future, one may win from the other a sum of money with neither of the parties having any other interest in the contract; however, both parties cannot either win or lose under the contract. If one of the parties is able to control the occurrence of the future event it is not a wager.

Section 30 of The Indian Contract Act,1872 renders agreements by way of wager, void. It clearly states that an agreement 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 the result of any game or other uncertain event on which any wager is made. Therefore, a suit is not maintainable to enforce an agreement by way of wager.

Though wagers are void, they are not prohibited by law, or opposed to public policy, or immoral hence agreement collateral to the wagering agreement may be enforceable. However, a lottery is void even if the government sanctions it. To determine whether a contract is a wagering agreement the court must look at all the surrounding circumstances. The onus of proving that an agreement is a wager is on the party that makes the contention; and evidence must be produced to prove the allegation, it cannot be just assumed to exist.

Distinction between wagering contracts from a teji-mandi transaction:

The Hon’ble High Court of Bombay has observed the distinction between a wagering contract from a teji-mandi transaction in the case of Manubhai Premanund v. Keshavji Ramdas [(1922) 24 BOMLR 60]. In this court has in detail talked about what is a teji-mandi transaction.

There are three common forms of speculations in Bombay. They are known respectively as teji-mandi, teji, and mandi. The word teji means brightness, the word mandi means dullness. Thus teji is used to signify a rise in the market price of goods or stock, and mandi to signify a fall. In the teji-mandi transactions, which have been very carefully examined by Beaman J. in Jessiram Juggonath v. Tulsidas Damodar [(1912) I.L.R. 37 Bom]. one party buys what is known an a double option. For this he pays a certain premium, say Rs. 20/- per to Rs. 1000/-. On the settling day, the buyer has the right to declare himself either a seller or a buyer. If the market falls he will declare himself a seller. If it rises he will declare himself a buyer. The party buying the double option (the teji-mandi) is backing the fluctuations of the market against its stability.” Conversely, the party who sells the double option backs the stability of the market against its fluctuations.

It further held that: “From the very nature of the transaction, from the fact of a man being utterly indifferent whether he is going to buy or sell, there must arise a very strong presumption that he is not doing a genuine business and that the whole contract is really in the nature of a pure wager. I have already pointed out that presumption may in special cases be rebutted; but as a rule, I think, it will be extremely difficult to do so.”

To make an agreement a wager there must be a common intention to bet. However, speculation in forward contracts is not necessarily wagering. Now the difference between ordinary vaida speculation and teji contract is that the teji contract is the less speculative of the two. For he who applies teji ensures himself by the payment of a teji or premium from a heavy fall in the price. Thus, the court held that both teji and vaida transactions are on exactly the same footing and that unless it can be positively proved that the parties agreed neither to ask for nor to give delivery the transactions are not wagering contracts. Now, it is well settled that the mere fact that a contract is highly speculative, is insufficient in itself to render it void as a wagering contract.

To make a contract a wager there must be from the outset a common intention of both the parties to make and accept no delivery and to deal only in differences. There are various authorities which go to show that from the mere fact that delivery of the goods was not taken, no inference can be drawn that the contract was a wagering contract.

In the present case at hand, where a suit is brought by an agent or a broker to recover his brokerage or commission in respect of transactions entered into by him as such, the suit can be successfully maintained even though the transactions in relation to which such claims are made are by way of wager. Such agreements being collateral to the wagering transactions cannot fall within the mischief of Section 30 of The Indian Contract Act,1872 unless it is further established that the contracts which the commission agent or the broker entered into with third parties on behalf of his constituents were also wagering contracts as between the plaintiffs and these third parties.

The cause of action in such a suit is founded not directly upon the transactions themselves, but upon the obligation which rests upon the principal to indemnify the agent against the consequences of all lawful acts done by him in the exercise of his authority as an agent. This is based on the principle underlying Section 222 of The Indian Contract Act,1872. Therefore, where an agent on behalf of his principal enters into a contract with a third party for the sale of certain goods, the principal cannot as against that agent plead the illegality of that contract as a defense in an action brought by the agent to recover from the principal his brokerage, commission or any money that he had to pay to the vendees on account of those transactions. Hagami Lal Ram Prasad, A Firm v. Bhuralal Ram Narain And Ors, [AIR 1961 Raj 52]

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

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8. Law of Contract Mains Questions Series Part-VIII
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