Caribe Hilton Hotel v. Toland

• Decision Date: 26 June 1973
• Citation: 307 A.2d 85,63 N.J. 301
• Parties: , 71 A.L.R.3d 171 CARIBE HILTON HOTEL, Plaintiff-Appellant, v. Marvin TOLAND, Defendant-Respondent.
• Court: New Jersey Supreme Court

Page 301

63 N.J. 301

307 A.2d 85, 71 A.L.R.3d 171

CARIBE HILTON HOTEL, Plaintiff-Appellant, v. Marvin TOLAND, Defendant-Respondent.

Supreme Court of New Jersey.

Argued Feb. 6, 1973.

Decided June 26, 1973.

M. Richard Scheer, Jersey City, for plaintiff-appellant (Eichenbaum, Kantrowitz & Leff, Jersey City, attorneys; Louis J. Greenberg, Jersey City, on the brief).

No brief filed or appearance on behalf of defendant-respondent.

The opinion of the Court was delivered by

MOUNTAIN, J.

Plaintiff, Caribe Hilton Hotel of San Juan, Puerto Rico, brought suit in the Law Division against the defendant, Toland, a resident of New Jersey, to recover an indebtedness which the defendant admittedly contracted in the plaintiff's gambling rooms in San Juan. The parties stipulated that the underlying gambling transactions were legal under the laws of Puerto Rico but would have been illegal under the laws of New Jersey had they been entered upon here. The defendant originally purported to pay the indebtedness by delivering checks in San Juan drawn upon his New Jersey bank. Before the checks could clear, however, he stopped payment. Before the trial court, the defendant asserted as a defense that the gambling debts were unenforceable in New Jersey since to permit recovery would contravene the public policy of this State. The trial court relied upon Flagg v. Baldwin, 38 N.J.Eq. 219 (E. & A. 1884), Minzesheimer v. Doolittle, 60 N.J.Eq. 394, 45 A. 611 (E. & A. 1900), and Schwartz v. Battifarano, 2 N.J. 478, 483, 67 A.2d 148 (1949) and held, agreeing with defendant's argument, that as a matter of public policy New Jersey would not entertain a suit to enforce a gambling debt which would have been illegal if contracted in New Jersey. We granted the plaintiff's petition for certification before argument in the Appellate Division, 62 N.J. 185, 299 A.2d 720 (1972).

Puerto Rican law controls the question as to the legality of the contract. Whether we simply say that the legality of a contract is to be determined by the law of the place where the contract is made, Staedler v. Staedler, 6 N.J. 380, 389, 78 A.2d 896 (1951); Colozzi v. Bevko, Inc., 17 N.J. 194, 202, 110 A.2d 545 (1955); Hudson v. Hudson, 36 N.J. 549, 555, 178 A.2d 202 (1962); Louis Schlesinger Co. v. Kresge Foundation, 312 F.Supp. 1011, 1028 (D.C.N.J.1970), or whether we adopt the more modern formulation that rights and duties of contracting parties shall be determined by the law of the jurisdiction having the most significant relationship to the parties and to the transaction, Restatement, Conflict of Laws 2d § 188; Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 492--493, 170 A.2d 22 (1961); HIMC Investment Co. v. Siciliano, 103 N.J.Super. 27, 34, 246 A.2d 502 (Law Div. 1968), the result in this case will be the same. The parties were physically present in Puerto Rico at the time of the transaction, the gambling debt arose there and indeed the defendant made a pretense of satisfying his obligation by delivering checks on the spot, albeit he later elected to stop payment. Counterpoised is the single fact that defendant is a resident and citizen of New Jersey. Clearly the contracts of greater significance are with Puerto Rico, which is also, of course, the jurisdiction where the contract was made.

Since it is stipulated that the claim is legal under Puerto Rican law, the issue is squarely presented as to whether our courts should, in the interest of supporting a supposed public policy, and longer refuse to entertain original suits for the recovery of gambling debts valid and recoverable by the law of the jurisdiction in which they have been contracted. Or otherwise expressed, should New Jersey longer remain a privileged sanctuary for those who would play but will not pay? The cited cases above upon which the trial court properly relied, clearly hold that there should be no recovery. We have concluded that that the question is ripe for review.

It would be fair to say that during the 19th and well into the 20th century the public policy of this State condemned gambling. By a comprehensive statute enacted February 8, 1797 (Paterson, Laws, 224) gaming in all forms was declared to be an indictable offense; contracts and security arrangements having their origin in any form of gambling were declared void; money paid by a loser to a winner might be recovered in an action in debt and if the loser failed to sue, a third person might do so and if successful retain one-half the recovery, the balance to pass to the State. The plaintiff in such an action might have the aid of a court of equity to compel discovery under oath. A very similar law was passed February 13 of the same year directed particularly to lotteries. (Paterson, Laws, 227). They were declared to be common and public nuisances and as such indictable.

This legislative condemnation received strong support from the courts. judicial relief of any sort was consistently denied in cases where the fruits of gambling or wagering were involved, even though the gaming transactions had occurred in jurisdictions where they were perfectly legal. Thus in Watson v. Murray, 23 N.J.Eq. 257 (Chan.1872) the complainant sued to dissolve a firm of which he was a partner and sought discovery and an accounting of profits from the other members of the partnership. it was shown that the firm had owned and operated lottery franchises in several states where such an operation was entirely legal. The fact that the firm's profits emanated from this tainted source was enough to move the Court of Chancery to deny all relief. Vice Chancellor Dodd said (a)ssuming that all the contracts and transactions involved . . . occurred in states where they were tolerated by law, my opinion is that this court will not undertake to enforce or administer them. (23 N.J.Eq. at 260)

The court's strong convictions are also apparent from other language in the opinion.

I think they (gambling operations) are to be taken judicially, if not abstractly in ethics, as Mala in se; bad in their nature, and bad in their results; notoriously prejudicial to the interests and morals of the public. Their enticing illusiveness is a fraud. (23 N.J.Eq. at 261)

In the leading case of Flagg v. Baldwin, 38 N.J.Eq. 219, (E. & A. 1884) the court refused to permit the foreclosure of a mortgage given to secure indebtedness which had arisen in connection with a kind of speculation in securities which the court found would have been in violation of our gambling laws had it taken place in New Jersey. It had in fact occurred in New York where it was admittedly legal. The court acknowledged that the highest tribunals in certain other states were accustomed to enforcing gambling contracts valid where made, though illegal under the law of the forum. These decisions were dismissed, however, with the laconic if nonetheless revealing comment that in those cases 'there was no discussion of principles by the court.' 38 N.J.Eq. at 225. Justice Magie, who was later to become Chief Justice and then Chancellor, speaking for a majority of our then highest court, did indeed enter upon such a discussion and concluded that

(o)ur law against gaming is of such a character, and is designed for the prevention of a vice, producing injury so widespread in its effect, the policy evinced thereby is of such public interest that comity does not require us to here enforce a contract which, by that law, is stigmatized as unlawful, and so prohibited. (38 N.J.Eq. at 227)

These statements may fairly be said to represent the then prevailing judicial point of view as to gambling.

Meanwhile the Constitution of 1844 had been adopted. It expressly forbade lotteries or the sale of lottery tickets within the State. Art. IV, § VII, par. 2. In 1897 this provision was extended to deny the right of the Legislature to authorize 'pool-selling, book-making or gambling of any kind.' Perhaps suggesting the trend of the future, this amendment of 1897 was adopted by a bare majority of the popular vote. 2 New Jersey--A History (Kull ed. 1930) 581. In 1939 a further constitutional amendment was adopted. Unlike the restrictive amendment of 1897, this amendment of 1939 was liberalizing. It permitted on-track pari-mutuel betting on horse races conducted at legalized race tracks. Pursuant to such authorization the Legislature adopted L.1940, c. 17, now N.J.S.A. 5:5--22 et seq., establishing a Racing Commission and setting forth the manner in which the pari-mutuel system of wagering was to be operated at race tracks. It should be noted, however, that the 1939 amendment authorized only this one form of wagering; it explicitly prohibited all other forms.

The Constitution of 1947, while generally continuing the ban on legislation authorizing gambling, did contain specific exceptions to this prohibition. It continued unchanged the authorization for pari-mutuel betting on horse races that had been first permitted in 1939. It authorized 'bona fide veterans, charitable, educational, religious or fraternal organizations,...