Wagering Agreement Explained
Wagering agreements are a particularly interesting form of contract. Broadly defined, they are an agreement whereby one party offers or promises to bestow a benefit on the other upon the occurrence of a certain event. The three most notable features of such contracts are that: (a) the subject matter concern a matter of chance; (b) the promised benefit is always greater than the detriment assumed by its obligor; and (c) no consideration is legally required of the person entitled to the promised benefit. A wagering agreement does not come about as the result of an offer and an acceptance, but rather, as the result of an offer plus the event-in-question . When the wager occurs, the elements of offer and acceptance are retroactively superimposed to form a contract at that moment in time. There need be no meeting of the minds before the wished-for event happens. Like other contracts, they are governed by the provision of the Uniform Commercial Code (UCC).
A wagering agreement is essentially a bet, with the risk continuously residing in and shifting between the parties, based on the fluctuating probability of the eventuality occurring. Its purpose is to create or fix rights to the profits or losses arising from the happening of a certain event. Generally speaking, such an event could constitute the following: the outcome of a game or match; the happening of some specified event; a question of skill; the correctness of a prediction.
Wagering Agreements and the Law
There is a common law tradition of treating wagering agreements as per se void or unenforceable. The rationale is that wagers are "immoral" and "contrary to public policy." Jurisdictions that have adopted this view consider that to allow parties to enforce a wager against other parties could encourage such immoral conduct.
There are some courts, however, that have not upheld this strict rule. In jurisdictions that do not have a general prohibition on wagers, courts may still deem a wagering agreement unenforceable if it is deemed contrary to public policy in that particular case. At the same time, some courts have noted that gambling has been an established part of society for centuries and allowing parties to enforce a wager between them does not, in and of itself, run contrary to public policy.
While this article cannot provide exhaustive analysis of all jurisdictions’ treatment of wagering agreements, the following chart provides examples of what some jurisdictions have done.
Yes, all wagering agreements are contracts (Multi-District Litigation). Wagering agreements may be void as violating public policy in a particular transaction. (Almeida). Agreements in restraint of trade may have a wagering element as long as the restraint is not against public policy (Superior Concrete Products).
Essential Characteristics of Wagering Agreements
The Indian Contract Act, 1872 ("Contract Act"), does not define the term "wagering agreement", but the term has been explained in Section 30 of the Contract Act. The section provides that agreements to do anything, if the same happens, are in essence, wagering agreements. Further, the Supreme Court of India has explained wagering agreements as "one where two parties have mutual understanding that upon the happening of a future uncertain event, a sum of money will be paid by one party to another". Thus, the elements of a wagering agreement can be summarised as follows:
- There must be an agreement between the parties.
- The agreement may concern a future uncertain event.
- It must be laid down that on the happening of the future uncertain event, either party will pay or transfer a sum of money or other property to the other party ("win-lose condition").
However, there is an important exception to the above description of a wagering agreement. The exception states that an agreement "to create a legal relation, does not cease to be a wagering by reason of any customary term having the effect of negating [this]".
Contrasts With Other Contract Types
A key point of difference between wagering arrangements and other legal contracts is said to be the fact that the "wagering contract is entered into not with a view to the eventual receipt by the stake holder of financial or other benefit . . . but in the hope of making a gain in the result of an uncertain event to the loss of the other party to the contract." (I.M. Evans & Evans v Marac Life Assurance Ltd [1984] 2 NZLR 475 (CA) at 485). This means that there is no intention to create a legal relationship, which distinguishes such contracts from insurance contracts.
A wagering agreement is therefore said to have two fundamental characteristics:
1 . One must stake something, either money or money’s worth.
2. The stake must be dependent on the occurrence of an uncertain event for the purpose of realising a profit should the event occur because the other party suffers a loss.
Another distinction made between a wagering agreement and an insurance contract is that in the former there can be no pecuniary interest in the performance or non-performance of the object of the agreement. Put more simply, someone with a mere sentimental, moral or social concern cannot make a bet with the hope of gaining a financial advantage if the uncertain event occurs.
Famous Indian Cases on Wagering Agreements
The legal landscape surrounding wagering agreements is dotted with various landmark cases that have helped to shape our current understanding of such arrangements. Consider the case of Re: Hazlehurst and Kingston (1880), where the High Court of Australia had to determine whether an agreement to wager on the term of the next parliament was enforceable as a contract. The court held that such an agreement fell within the realm of mere gambling and was, therefore, unenforceable as a contract.
In another important case, Cricket NSW v Benjamin (2018), the NSW Court of Appeal dealt with the issue of whether a contract of employment could be enforced in circumstances where the contract was entered into for the purpose of making an unlawful profit through a breach of the terms of a separate agreement. In this case, a former cricketer entered into an employment contract with Cricket NSW (the employer) that was allegedly designed to circumvent the rules of Cricket Australia that governed the salary cap for domestic players in Australia. The court held that the contract was unenforceable but did not go so far as to say that all wagering agreements are unenforceable.
The case of Curtis v Karaoke World (2011) is also significant. The NSW Court of Appeal considered whether the defendant nightclub chain had breached a contract with the plaintiff artist to supply a certain sum of money to him "in cash" for the purpose of gambling. The court found that the purpose of the agreement was illegal, and it accordingly held that the contract was unenforceable.
In another noteworthy case, Westpac Banking Corp v The Australian Rugby Football League Ltd (2007), the New South Wales Supreme Court had to decide whether an illegal betting contract supplied by the STC was immaterial in the context of its agreement with Westpac, a bank which had allocated cars to entice customers to gamble on horse racing. The Court held that the contract was not illegal at common law because neither party would have a remedy against the other, thus precluding the doctrine of illegality from coming into play.
From these decisions, it is easy to see that the issue of wagering agreements is a complex one that continues to evolve over time. Courts will generally strive to give effect to the parties’ intention in determining the legal status of such contracts. Nevertheless, it remains to be seen whether the law will take a harder line on wagering agreements in the future as increased public pressure arises.
Impacts of Wagering Agreements
The practical implications of a gambling agreement will depend on the circumstances. Take, for example, a legal intra-corporate dispute where shareholders bet on the outcome of trial or the number of shares they might receive. Such an arrangement would be prohibited as a wagering contract. Consider also an arrangement by which a Board of Directors agrees to pay its members based on the increase in stock value at some point in the future. Such an agreement may be dismissed as a wagering contract. In both instances, of course, the problem is not the money wagered, but rather the wager itself. That makes the League of Nations decision problematic. Even more problematic is an agreement to pay for services rendered, but only if the customer was aware that payment was at risk and customer lost a bet on the outcome . Courts do not have a problem with condition precedent – this is how insurance contracts function, for example – but do have a problem with an opportunity to wager altogether. Even more problematic is a wager involving public interests. Sports betting, for example, is illegal under the Criminal Code. Wagering allowed by the Criminal Code – for example, bets placed by a gambler on the outcome of stamps sold at the Post Office, at the discretion of the Crown – are not gambling agreements but rather conditional gifts (Lottery Act, 1992, c. 39 sections 6 and 7). The distinction is made on the notion that public interests must be safeguarded from dishonour.