Question

Principle : Wagering agreements are void.
Collateral agreement to wagering contracts are valid.
\textit{Facts :} XYZ Bank lends Rs. 40,000 to Sabu in order to enable him to award as prize to Randeep who is the winner of horse race. Later Sabu refused to pay the prize stating that horse racing is wagering agreement. Can XYZ Bank recover money from Sabu?

• A. Yes it is only a collateral agreement to horse racing and therefore the bank can recover the money from Sabu.
• B. Horse racing is illegal and therefore XYZ Bank cannot recover anything from Sabu.
• C. No, as it is as wagering contract.
• D. Bank can recover money from Sabu so that payment of prize money can be made to Randeep.

Hint:

Collateral agreements to wagering contracts are valid and recoverable in law, even if the underlying contract is void.

Answer 1

The Correct Option is A

The loan agreement here is a collateral agreement to horse racing, not a direct wagering contract. The principle states that while wagering contracts are void, collateral agreements are valid. Since the bank loaned money for the specific purpose of a wager, it is still recoverable.


Option (B) Horse racing is illegal and therefore XYZ Bank cannot recover anything from Sabu: This is incorrect. The loan is a collateral agreement, which is valid despite the wagering nature of the event.

Option (C) No, as it is as wagering contract: This is incorrect because the loan is not itself a wagering contract.

Option (D) Bank can recover money from Sabu so that payment of prize money can be made to Randeep: While this may be true, the correct answer is that the loan is recoverable due to the nature of the collateral agreement.