Law o f Contract 39

(ii) Parties not ‘in p a r i d e licto ' - P ari delicto means ‘in equal fault’. W here
the parties are not in p a ri delicto the less guilty m ay b e able to recover
m oney paid, or property transferred, under the contract. Thus, w here the
contract is o f the kind made illegal by the statute in the interest o f a
particular class o f persons o f w hom the plaintiff is one; or, where the
plaintiff was induced by fraud or strong pressure; or, the defendant is
under a fiduciary duty to the plaintiff, the plaintiff may recover back the
m oney or property.
(iii) Where recovery p ossib le without relying on the illegal contract- Where a
building was let out for gam bling purpose, the tenancy being for unlawful
purpose, the rent could not be recovered but possession can be recovered.

R estorin g B en efits R eceiv ed u n d er a V o id C o n tr a c t

A ccordin g to Sec. 65, when the parties have entered into an apparently valid contract
and som e benefits have been passed under it, and subsequently the contract is either
discovered to be void or becom es void, the party w ho has received the benefits must
restore them to the other. The section d oe s not apply to a contract which the party
knew at the time o f making it to be void. The section also m ay not apply to a case
where the benefits are bein g passed at a time when the contract has, though unknown
to the parties, already ceased to be enforceable.
The first part o f Sec. 65 is concerned with an agreement which never amounted
to a contract, it being v oid ab initio. But the parties d iscovered this at a later stage.
For example, Sec. 65 will apply in cases where a contract is void by reason o f
“unlawful object”, but the parties were not aware o f it. The secon d part o f Sec. 65
is concerned with the agreement which b ecom es void. This w ill co v er cases where the
contract was valid initially, but due to the happening o f som e event the performance
o f it becom es im possible or unlawful (frustration o f contract).

5. WAGERING AGREEMENTS

An agreement by way o f wager is void (Sec. 30). But, it is not immoral. The w ord
‘w ager’ means a ‘bet’. In a wagering agreement, two parties have opposite view s
regarding an uncertain event, and they stipulate that upon the determination o f the event
in a certain way the parties shall win or lose from each other a certain sum o f money,
and the parties have no other interest in the event except winning or losing a bet. For
instance, A and B may enter into a contract that i f it rains today, B will pay him Rs.
1,000 or if it does not tain today, A will pay him Rs. 1,000, it will be a wagering
agreement. I f either o f the parties may win but cannot lose, it is not a wagering contract.
The essential characteristics o f a w agering agreement are as follow s:
(i) Uncertain event - Such event generally is a future event, but may be a past
event when the parties are not aware o f its result or the time o f its happening.
(ii) Mutual chances o f ga in or loss - There should be a chance o f one party
40 Law Guide for Competitive Examinations

winning and the other losing, on the determination o f the event. For
example, A agrees to sell his c o w to B for Rs. 500 i f the c o w giv es 6
k g milk every day, but for Rs. 10 only i f it fails to do so. The c o w fails;
but B will not succeed as the transaction, though ostensibly a sale, is in
reality a wager [Brogden v Marriott 5 LJ (CP) 302],

In Babasaheb v Rajaram (AIR 1931 B om 264), two wrestlers agreed to play

a wrestling match on the condition that the party failing to appear on the day fixed
was to forfeit Rs. 500 to the opposite party, and the winner was to receive Rs.1,125
out o f the gate money. The defendant failed to appear in the ring and the plaintiff sued
him for Rs.500. The defendant’s plea o f a ‘contract by w ager’ was rejected by the
court on the ground that neither side stood to lose according to the result o f wrestling
match. In D iggle v H ige (1877) 2 ExD. 422, each one o f the two parties in a walking
match deposited £ 200 with the stakeholder with the condition that the loser w ould
forfeit the amount o f £ 200 paid by him. The agreement was held to be a wagering
one, as the stakes com e out o f the pocket o f the loser.
In Carlill v Carbolic Smoke Ball Co. (1892) 2 QB 434, the defendant com pany
agreed to pay £ 100 if a person contracted influenza after using the sm oke ball
manufactured by it, for a certain period according to a prescribed manner. The plaintiff
used the smoke ball but contracted influenza. She was held entitled to recover the
amount It was not held to be a wagering agreement because the plaintiff w as not to
lose anything i f she did not contract influenza and the defendant com pany was not
to gain anything from the plaintiff if the ball had the desired effect.
(iii) Neither party to have control over the event. A w ager is a gam e o f
chance. ^
(iv) N o other interest in the event - Lastly, neither party have any interest in
the contract than the sum or stake he will so win or lose and there is no
other real consideration for the making o f such contract. This distinguishes
a wagering contract from a contract o f insurance which requires an
“insurable interest” i.e. an interest in the existence and preservation o f the
thing insured. A wife, for example, has an insurable interest in her
husband’s life and she can take an insurance policy on her husband’s life.
Specu lative transactions- O ne o f the form s o f w a g erin g agreem en t is an
agreement to pay differences (between contract price and market price o f goods) only,
rather than actually making or taking the delivery o f goods. Such transactions are not
the commercial one but a wager on the rise or fall o f the market which com es within
the connotation o f “gaming”. A ‘chit’ fund is not a wager.

Effects o f Wagering Agreements a nd Collateral Transactions

A wagering agreement is non-enforceable, thus the amount w on on a w ager cannot

be recovered. A and B entered into wagering transactions in shares. B becam e indebted
to A. B then executed a promissory note in favour o f A to pay the amount. A could
not recover the amount.

Though a wagering agreement is void and unenforceable, it is not forbidden by

law, and therefore transactions collateral to the main transaction are enforceable.
Thus, the plaintiff who lent money to the defendant to enable him to pay o f f a
gambling debt could recover the same from the defendant. The Supreme Court held
 >
*
m
Law o f Contract 41

in G h eru la l Parekh v M ahadeo D a s (AIR 1959 SC 781), that a partnership to enter

into w a g erin g transactions is not illegal, and therefore a partner who has paid the
losses on such transactions may recover proportionate indemnity from his co-partners.
In States like Maharashtra and Gujarat, wagering agreements have been declared
illegal also. Thus in these States the collateral transactions to wagering agreements
are a ls o void.

E xceptions

Sec. 30 d oes not render void a subscription/contribution, or an agreement to subscribe/

contribute towards any plate, prize or sum o f money (of the value o f Rs. 500 or
upwards) to the winner or winners o f any horse-races. Thus a bet on a horse race
carrying a prize o f Rs. 500 or m ore to the winners is valid. Further, crossw ord
com petitions in which skill plays a substantial part are not wagers. But where prizes
d epen d upon a chance, that is a ‘lottery’, it is a wager.

6. CONTINGENT CONTRACTS

A ccording to Sec. 31, a “contingent contract” is a contract to d o or not to d o something,

if som e event, collateral to such contract, d o e s o r d oe s not happen. Thus the contract
is dependent or conditional upon the happening or non-happening o f a future event
or contingency. For example, A contracts to pay B Rs. 10,000 i f B ’s house is burnt,
this is a contingent contract. The payment o f the amount is contingent on the happening
o f the collateral event i.e. burning o f the house. A ll contracts o f insurance o r indemnity
and guarantee are contingent contracts.
A distinction is to b e drawn betw een a contract under which a present obligation
is created but performance is postpon ed to a future date, and a contract under which
there is no present obligation at all and the o bligation is to arise by reason o f som e
condition being com plied with or som e contingency arising in future. Thus when the
agreement states that the delivery is to be m ade when the g o o d s are received from the
m ills or when they arrive, such contracts are not contingent contracts.
In a contingent contract there should be som e event collateral or incidental to
the contract. A ccordin g to P ollock and Mulla, a ‘collateral event’ means an event
which is “neither a performance directly prom ised as part o f contract, nor the w hole
o f the consideration for a prom ise”. It is one which d oes not form part o f consideration
o f the contract, and is independent o f it. I f the event consists in performance o f the
contract itself by one party, it is not a contingent contract. F or instance, A announces
a reward o f Rs.100 to be paid to any on e w ho finds his lost dog. B finds the dog. It
is not a contingent but an absolute contract.
Similarly, where C contracts to pay Rs. 100 to D for white-washing his house on
the terms that no payment shall be m ade till the com pletion o f the work, it is not a
contingent contract because the event (D’s com pleting the work) is an integral part o f
the contract and not collateral to the contract However, where A contracts to pay Rs.
50,000 to B, a contractor for constructing a building, provided the construction is