§ I. Nature of Illegality m Contract.

The modes in which the law expresses its disapproval of i. What is

certain objects of contract may roughly be described as* ^ *^

follows : —

(i) Prohibition by Statute,

(ii) Prohibition by express rules of Common Law.

(iii) Prohibition through the interpretation by the Courts

of what is called ' the policy of the law.*

So that illegal agreements may be (i) agreements in breach

of Statute, (2) agreements in breach of express rules of Com-

mon Law, (3) agreements contrary to public policy.

u 2

1^4 FOUHATIQN OP gOHTI|ACT. P«lU.

These two last are not always very easy to distinguish, for

frequent decisions upon certain matters of public policy have

caused tolerably definite and express rules regarding them

to grow up ; and these are in effect rules of Common Law

as express, or nearly so, as those with which we shall deal

under class 2.

(i) Contracts which axe ma^ in breach of Statute.

Illegality ^ statute may render %a (i^eement illegal in on,e of

torv pro- two ways — by express prohibition, pr by penalty. H may

hibition. gg^y^ j^ g^j many i^ords, that contrficta of a certain sort a^r^

illegal, or void, or both ; an4 where it thus expressly avoids

a contract or makes i^ illegal^ no doubt can arise as to th^

intentions of the Legidiature.

Illegality But where the statute 4pesi np more than impose a penalty

s^tion^of^ upon the carrying ou^ of tl\e objects of a contract, a questioi^

penalty, may arise whether or no (he penalty amounts to a prohi-

how ascer- bitiou. Two marks may assist us tp determine the intention

^^ ' i^i the Legislature. Tfhe firetij of these ia the object of tfe^

penalty. If it be ' a protectjion, to the public 9s well as th^

torown V. revenue,' if it be designed to further objects of public policy

10 B. & c. 43. in relation to some trade or business, then a penalty amounts,

Is penalty without doubt, to a prohibition. If it be solely to facilitate

revenue °^ ^^^ secure the coUecidoD of the revenue, then it is possible

purposes? that the contract, though penalised, is not prohibited. The

soundness of this diatii\ction ha.s however been callevk i,9

Per Parke. B.. qucstiou, and a more important mark is to be found in the

in Cope r. '•

f Sl'& w. 149. continuity of the penalty.

Is it con- Where a statute forbids the carryipg on of a tra^e except

tmuous? umjer certain conditions, on pain of incurring a specified

Smith V. penalty once for all, it has been held that contracts made

Mawhood, x >/

14M.&W.463. in breach of such provisions are not vitiated. But where

the penalty is recurrent upon every breach of the provisions

of the statute, then there can be no cloubt that the pbjepifS

Cjha'p. V. § u t^GALITY OF OBJECT. ^§5

6t the bohtr^ct hi^ iiitend^ t6 be Regarded as illegal, and

the contttict itsi^lf void;

Hie liaw upott this Jwirit may then be Conveniently sum- Result of

tnaiised thu6. Where a penalty is inflicted by statute upon

tiie tSLiryiag on of a ttade or busiiiess in a particular manner,

we may assume ^md facie that contracts made ih breach of

ettch statutory proVisic^ns ai*6 illegal and void. But if it appear

that the penalty is ittkposed, Hot for the benefit of the publib

ih geiiel:^!, b\it for the Security of the revenUe, it is pdssibU

that the contract was only intended to be penalised and not

jytohilnted. And if, in addition to this, it appear that the

penalty is imposed once for all iipon the offending trader, and

not upon each successive contt^ct continuously, it is highly

pircbabUf if not eertain, that contracts so made at*e not in-

tended to be vitiated.

It is not necessary or desirabb to discuss here in any Objects of

detail the various statutes by which certain contracts are prohibition.

ptt>hibited ot* pehalised. ^They relate (i) to the security of

the revenue ; (2) to the pl^otection of the public in dealing

With certain articles ot eoinmerce, (3) or in dealing with

(Certain classes of trader^ ; (4) to the regulation of the con-

duct of eertain kinds of business. An excellent summary

of statutes of this nature ite to be found ih the work of Ml*.

Pollock, and it iri not ptt)posed to deal further with them Pouock.

* *• pp. 342-345-

hei^.

There is hoWevei* one dass of eohtracts which, frbfai its

peculiar character, and froin the various forms in ^hich it

has been dealt with by the Legislature, it is worth while to

examine more particularly. These contracts are Wagerihg Wagering

contrsLCts

Obhtracts. Thfe subject has been somewhat confused by the

use of the word wAgel- ad a term of reptoach, so that some

6ohtlractB not p^^hiitted by law have been called Pagers, as

opposed to others M^hich, While precisely similar in their

hature, (Comply with certain special conditiohs and SO ehable

Courts of Law to ehfbh^ thtdm.

l66 FORMATION OF CONTBACT. Part II,

What is a A wager is a promise to pay money, or transfer property

^'^^^^ upon the determination or ascertainment of an uncertain

event; the consideration for such a promise is either a

present payment or transfer by the other party, or a pro-

mise to pay or transfer upon the «yent determining in a

particular way.

The event may be uncertain because it has not happened,

or it may be uncertain because it is not ascertained, at any

rate to the knowledge of the parties. Thus a wager may

be made upon the length of St. Paul's, or upon the result

of an election which has already happened, though the par-

ties do not know in whose favour it has gone. The uncer-

tainty then resides in the minds of the parties, and the sub-

ject of the wager may be said to be rather the accuracy of

each man's judgment than the determination of a particular

event.

It is obvious that a wager may be a purely gambling or

sporting transaction, or it may be directed to commercial

Marine in- objects. A man who bets against his horse winning the

a wager, Derby is precisely in the same position as a man who bets

against the safety of his own cargo. Yet we should not

hesitate to call the one a wager, while the other is called a

contract of marine insurance. A has a horse likely to win

the Derby, and therefore a prospect of a large return for

money laid out in rearing and training the horse, in stakes

and in bets ; he wishes to secure that he shall in no event

be a loser, and he agrees with X that, in consideration of X

promising him £4000 if his horse loses, he promises X £7000

if his horse wins.

The same is his position as owner of a cargo : here too

he has a prospect of large profits on money expended upon

a cargo of silk, here too he wishes in no event to be a

loser, and he agrees with X, an underwriter, that in con-

sideration of his paying X £ — , X promises to pay him

if his cargo is lost by certain specified perils.

Chap. V. § I. LEGALITY OF OBJECT. 167

The law forbids A to make such a contract unless he has though

there be

what is called ' an insurable interest ' in the cargo, and con- < insurable

tracts in breach of this rule have been called mere wagers, ^'^^c'^^

while those which conform to it have been called contracts

of indemnity. But such a distinction is misleading. It is

not that one is and the other is not a wager : a bet is not

the less a bet because it is a hedging bet; it is the fact

that one wagering contract is and the other is not permitted

by law which makes the distinction between the two. Apart

from this there is no real difference in the nature of the

contracts.

A life insurance is in like manner a wager. Let us com- Life insu-

pare it with an imdoubted wager of a similar kind. A is ^ager.

about to commence his innings in a cricket match, and he

agrees with X that if X will promise to give him £1 at the

end of his innings, he will pay X a shilling for every run he

gets. A may be said to insure his innings as a man insures

his life ; for the ordinary contract of life insurance consists

in this, that A agrees with X that if X will promise to pay

a fixed sum on the happening of an event which must

happen sooner or later, A will pay to X so much for every year

that elapses until the event happens. In each of these cases

A sooner or later becomes entitled to a sum larger than any

of the individual sums which he agrees to pay. On the

other hand, he may have paid so many of these sums before

the event takes place that he is ultimately a loser by the

transaction.

Let us now turn to the history of the law respecting History of

w-gering contract. ^^^-,3

At Common Law wagers were enforceable, and, until the to wagers ;

latter part of the last century, were only discouraged by the ^^lepve

Courts by the imposition of some trifling difficulties of^^^'p-ss^-

pleading. Gradually however the Courts, finding that fri-

volous and sometimes indecent matters were brought before

them for decision, established the rule that a wager was not

168 POEMATIOK OF CONTBACT. Part IK

enfottieitble if it 1^ to indecent eyidente, or Was ealcalbled

t0 injure ^t pain b third person ; and in some cases ^enend

notions of public policj were introduced to the effect that

any wagef which tetopted a man to ofiend against the law

was illegal. Strange, and sometimes ludi^ous, results fol^

lowed frotn these efforts of the Courts- to discourage the liti<-

gation of wagerb. A bet upon the duration of the life of

sykeMrsia) Nttpoleon was held to be tinenfoiteable^ as tending, on the

16 East. 15a' one side, to weieiken the patriotism of an Englishiiian, en the

other, to encourage the idea of thb assassination of a foreign

ruler, and so to provoke retaliation upon the person of our

own sovereign. But it is evident that the substantial motive

which pressed upon the judges Was ^ the inconvenience of

countenancing idle wagers in courts of justice,' the feeling

Pej,Bayiey. J., that * it would bo a good rule tb postpone the trial of every

sykes. cu^tion upon idle wagers till the Court had hothing else to

attend to/

of statute as Meantime the Legislature dealt with various foitns bf

' wagering contracitis. As regak'd^ purely sporting wagers the

history of legislation extends over a centu^ and a half. The

j6Car. II. C7 1 6 Car. II. c. 7 enacted that any sum exceeding £ioo lost

in frying at g&mes or pastimes, or in betting on the playeib^

should be irrecoverable) and that all iormh of security given

Anne. c. 14. for moucy so lost should be void. The 9 Anne, o. 14 eatried

the law upon this point a stage further, enactitag that secu-

rities of eveiy kind, given foi^ any sum lost in playing at

games, or betting on the players, or knowingly advanced for

such purposes, should be void ; and that the loser of £id or

more might recover it back, if paid, by action of debt brought

within Uiree months of payment.

The Working of this Act was found to pi*odUce consider-

able hardship. It often happened that securities thus aVoid^

were purchased from the holders of them by perisons ignorant

of their illegal origin. These persons^ when they sought to

enforce them against the giver of the Security, discovered tdo

Chip. V. § I. LEGALITY OF OBJECT. 169

late that thiey bad paid value for all inBtrameiit which was void

as against tho party losing at play. The 5 ft 6 Will. IV.

c. 41 therefore repealed the Act of Anne so fat as )*egatded

the avoidance of securities as specified in that Act) and pro-

vided that they shoiild henceforth be taken to have been .

originally given upon an illegal consideration. The effect of 5 & « wdl iv.

thifi was, that the holder of such an instrument, if it were

established, after ptoof of its ilie^l inception, that he was a

* bond yid9 holder for vAlu©/ oould enforce it even against see Pan m.

the man who had given the security in payment of an illegal

bet.

The hmt enactment relating to wagerb of this claes h the

8 & 9 Vict. C; 109, which provides,

* That all contracts or agreements, whether by parole or

in writing, by way of gaming or wagering, shall be null and

void ; and that no suit shall be brought or maintained in any

Court of Law or Equity for tecovering any sum of money

or valuable thing which shall have been deposited in the

hands of any person to abide the event on which any wager

shall have been made. Provided always that this enactment

shall not be deemed to apply to any subscription or contri-

bution or agreement to subscribe oi* contribute for ot* towards

any plates, prizes, or sum of money to be awarded to the

winner or winners of any lawful Game, Sport, Pastime, or

Exercise.' s&gvict.

c. 109. s. 18.

I'he 8 ft 9 Vict. c. 1^9 further repeals so mucii o^ th«

statutes of Chbrles &nd Anne ab Was not niodified by 5 & 6

Will. IV. c. 41, and WAgers Are thus divisible into two

dasdes : thosd which i^re illegal under the old statutes Effect of

adopted into 5 & 6 Will. IV. c. 41, aad those which arei^tuJ^s.

bimply void under the Act of VietoHa. The difierence is

best illustrated in the case of secuHties giten in payment of

wagers of those two kinds.

A promissdry note given in payment of a bet mAde upon Consider-

a cricket match is tainted with illegality at the 6UtAet ; ndt fiJ^^

only is ii Void bjb between the ori^nAl parties to it^ but every

170 FORMATION OP CONTRACT. Part 11.

subsequent purchaser may be called on to show that he gave

value for the note; and if it can be shown that he knew

of the illegal consideration for which it was first given, he

may be disentitled to recover upon it.

Promise A promissory note given in payment of a wager upon the

^^* * result of a contested election would, as between the parties

to it, be given on no consideration at all, inasmuch as it is

given in discharge of an obligation which does not exist. But

the wager is not illegal, it is simply void ; and if the note

be endorsed over to a third party, it matters nothing that he

was aware of the circumstances under which the note was

originally given ; nor does it lie upon him to show that he

^'itchjv.jonts, gave value for the note.

5 E. & B. 24S °

As regards wagering contracts entered into for commer-

cial purposes, there are three important subjects with which

the Legislature has dealt. These are Stock Exchange trans-

actions, marine insurance,, and insurance upon lives or other

events.

The first of these subjects was dealt with by Sir John

7 Geo. II. c. 8 Barnard's Act, 7 Geo. II. c. 8, which was more particularly

(Sirjohn Bar- ' * ' a. ¥

nanfs Act), directed to wagers on the price of stock, or, as they are some-

times called, * agreements to pay differences.' These originate

in some such transaction as this: A contracts with X for

the purchase of fifty Eussian bonds at £78 for every £100

bond. The contract is to be executed on the next settling

day. If by that date the bonds have risen in price, say to

X80, X, unless he has the bonds on hand, must buy at £80

to sell at £78 ; and if he has them on hand, he is obliged

to part with them below their market value. If, on the

other hand, the bonds have gone down in the market^ A

will be obliged to pay the contract price which is in excess

of the market value.

It is easy to see that such a transaction may be made tbe

medium of purely wagering speculations ; that A may never

intend to buy nor X to sell the bonds in question ; that they

Chap.V. §1. LEGALITY OP OBJECT. 17 1

maj intend no more than that the winner should receiye

from the loser the difference between the contract price and

the market value on the settling day. And yet such a pay-

ment of differences may be perfectly bond fide ; A may have

found so much better an investment for his money between

the date of the contract and the settling day that it is well

worth his while to pay a difference in X's favour to be ex-

cused performance of the contract. Sir John Barnard's Act

was repealed by 23 Vict. c. 28, and contracts of this nature,

if proved to be simple wagers, fall under the 8 and 9 Vict, gj'jjj""**^ *•

c. 109. §l8^ x.c\s38.

Marine insurance is dealt with by 19 Geo. 11. c. 37, the Marine

effect of which is to avoid all insurances on British ships or j^q^u^ *

merchandise laden on board such ships unless the person ^^'

effecting the insurance is interested in the thing insured.

What is an insurable interest, that is to say such an interest

as entitles a man to effect an insurance, is a question of mer«

cantile law with which we are not here concerned.

The subject of insurance generally was dealt with by 14 Insurance

Gleo. m. c. 48, from which Act, however, marine insurance x4g«).iii.

is excepted. The Act forbids insurances on the lives of any ^

persons, or on any events whatsoever in which the person

effecting the insurance has no interest; it further requires

that the names of the persons interested should be inserted

in the policy, and provides that no sum greater than the

interest of the insured should be recovered by him. A

creditor may thus insure the life of his debtor, and a lessee

for lives may insure the lives upon which the continuance

of his lease depends.

^ TraoBactions on the Stock Exchange are not in practice bo simple

as they are here described. The interposition of a broker, and the

peculiar relations of the principal, broker, and jobber, make the law

on this subject extremely intricate. The effect of 8 and 9 Vict. c. 10^.