Carnival Leisure Industries, Ltd. v. Aubin

• Decision Date: 20 August 1993
• Docket Number: Civ. A. H-87-1754.
• Citation: 830 F. Supp. 371
• Parties: CARNIVAL LEISURE INDUSTRIES, LTD., Plaintiff, v. George J. AUBIN, Defendant.
• Court: U.S. District Court — Southern District of Texas

830 F. Supp. 371

CARNIVAL LEISURE INDUSTRIES, LTD., Plaintiff, v. George J. AUBIN, Defendant.

Civ. A. H-87-1754.

United States District Court, S.D. Texas, Houston Division.

August 20, 1993.

COPYRIGHT MATERIAL OMITTED

Hugh L. McKenney, Houston, TX, for plaintiff.

Michael A. Maness, Houston, TX, for defendant.

OPINION ON FINAL JUDGMENT

HUGHES, District Judge.

1. Background.

In 1987, George Aubin went to the Bahamas to gamble at the Cable Beach Hotel and Casino, owned by Carnival Leisure Industries, Ltd. He took more than $2,000 with him. He lost that at blackjack. This gambling is legal in the Bahamas. He then applied with the hotel for approval to issue drafts in exchange for chips. The application asked for his name, home address, business address, telephone numbers, driver's license number, social security number, bank, and bank account number. Aubin furnished all of this information. The casino approved acceptance of up to $25,000 of Aubin's drafts, if he chose to issue them.

As his stay progressed, Aubin issued the full $25,000 in drafts. The first two drafts were for $2,500, and the rest were for $5,000. Each draft was printed with "pay to the order of Carnival Leisure Industries" and:

I represent that I have received cash for the above amount and that said amount is on deposit in said financial entity in my name, is free and clear of claim and is subject to this check and is hereby assigned to payee, and I guarantee payment with exchange and costs in collecting.

Aubin wrote in the amounts and signed each draft. Carnival later added the name of his bank, the account number, the bank address, his home address, and the date.

For each draft Aubin signed, he received chips. He did not issue the drafts to pay money he had already lost. At Carnival's Cable Beach operation, chips are a general medium of exchange; they may be used to gamble or used to buy food, drink, clothing, rooms, entertainment, and other things legal in Texas and the Bahamas. Aubin, however, lost the $25,000 in less than two days of gambling. He returned to Houston. Over the next six weeks, Carnival sent Aubin a series of letters asking that he honor the drafts so it did not have to present them. Aubin did not respond to the letters, and Carnival presented the drafts to his bank for payment. Aubin had already directed his bank to stop payment.

In 1989, Carnival sued Aubin for $25,000. On summary judgment, this court awarded Carnival $25,000 plus attorney's fees and costs. The court of appeals found that Aubin gambled on credit and concluded that Texas public policy barred enforcement of his debt. Carnival Leisure Industries, Ltd. v. Aubin, 938 F.2d 624 (5th Cir.1991). On remand, Carnival recast its claim against Aubin to one for fraud and equitable estoppel.

2. Texas Public Policy.

Under a common law rule against illegal contracts generally, gambling debts are not enforceable in Texas. Aubin v. Hunsucker, 481 S.W.2d 952 (Tex.Civ.App. — Austin 1972, writ ref'd n.r.e.). Texas courts have broadly interpreted this public policy; debts that are "tainted" by gambling are unenforceable. Gulf Collateral, Inc. v. Johnston, 496 S.W.2d 123 (Tex.Civ.App. — Waco 1973, writ ref'd n.r.e.). This rule persists in the face of a public policy that allows churches, charities, and the state itself to operate gambling establishments. The judicially-created policy has survived despite the public's having twice amended the Texas constitution to expand both private and socialist gambling.

Gambling was legal in Texas until the late 1940s when the legislature mandated that people in Texas could not gamble. The courts embellished the new legislation by declaring that gambling debts, like other illegal transactions, were not enforceable. Later the state said gambling was so evil and immoral that only churches and other charities could sponsor it through bingo games and raffles. Then the state allowed parimutuel gambling and betting at dog and horse tracks. Finally, the state concluded that potential profit outweighed the harm inherent in gambling. In 1992, the state launched a billion dollar state lottery. In the first 15 months, the state sold over $2.25 billion in lottery tickets. Public policy toward gambling has changed. The pendulum has swung.

The courts discovered a public policy against gambling debts based on the legislative prohibition of gambling and a common law rule about enforcing illegal contracts. Because gambling is no longer generally illegal in Texas and because the state sponsors and regulates it, there is no longer a foundation from which this secondary public policy can be derived. Asserting a sweeping public policy against gambling is anachronistic. If there really was a policy, it is totally defunct.

3. Debts and Drafts.

Texas state courts have held that gambling debts are not enforceable. If two people are shooting craps, and one goes $100 into the hole, that debt is not enforceable at law. Similarly, a note given later for that gambling debt is not enforceable. Aubin, 481 S.W.2d 952.

Negotiating a draft does not create a debt. The consideration is the medium of exchange received for the draft, whether it is dollars, Deutsche marks, sea shells, or poker chips. It is unclear whether the law of this case after the appeal extends beyond debts to drafts. Aubin contends that, even if the appellate court's holding does not extend to drafts, (a) the papers he signed were not negotiable instruments but rather promises to honor his debt to the casino, and (b) even if the papers are negotiable instruments, they are unenforceable on their face. Aubin's arguments are wholly unsupported by Texas law.

A. Negotiable Instrument.

For each instrument Aubin signed in the casino, he received chips. His drafts were not made in payment of an existing, mounting debt; rather, he signed his name so that he could get more chips to gamble. In exchange for each draft, the casino delivered chips to him, many chips, which he promptly lost.

Aubin asserts that these papers were merely markers to keep track of his debt to the casino for what he lost at blackjack. Aubin is wrong. Under Texas law, these papers are negotiable instruments, specifically drafts. Tex.Bus. & Com.Code Ann. § 3.104 (1968). Each draft Aubin signed contained an unconditional promise to pay specified amounts, was payable to the order of Carnival, and was payable on demand. Id. at §§ 3.104, 3.108.

B. Enforceability.

Aubin contends that even if the papers he signed are negotiable instruments, they are unenforceable on their face because they were incomplete when he signed them and he did not give Carnival authority to fill in the blanks. When Aubin signed the drafts, the spaces for the date, name of his bank, and account number were blank. His arguments are as successful as his gambling.

A negotiable instrument that is not dated is payable on demand. Tex.Bus. & Com.Code Ann. § 3.108; First Nat'l Bank v. McKay, 521 S.W.2d 661, 662 (Tex.Civ. App. — Houston 1st Dist. 1975, no writ); Gill v. Commonwealth Nat'l Bank of Dallas, 504 S.W.2d 521, 523 (Tex.Civ.App. — Dallas 1973, writ ref'd n.r.e.). The negotiability of a draft is not affected by the fact that it is post-dated, ante-dated, or not dated at all. Tex.Bus. & Com.Code Ann. § 3.114(a); McKay, 521 S.W.2d at 662.

Even though the drafts were payable on demand, Carnival did not intend to deposit the drafts until at least 30 days after Aubin signed them. Carnival wrote to Aubin twice, giving him ample opportunity to arrange alternate payment, before negotiating the drafts. Aubin ignored the letters. After attempting collection, Carnival wrote Aubin two more times asking that he honor the drafts. Aubin ignored these letters too. Aubin knew that Carnival intended to deposit the $25,000 of drafts. At no point could Aubin have concluded that Carnival did not intend to collect its money by depositing the drafts. McKay, 521 S.W.2d at 664.

Aubin further gripes that the drafts he signed did not have the name of his bank, the bank address, his account number, or his home address. He asserts that the drafts are unenforceable because they were not adequately complete and he did not give Carnival authority to complete them. As an ex-president of a bank, Aubin knows that this argument is wrong.

A complete draft must be signed by the maker and contain an order to pay, a designated payee, and the amount payable. Tex.Bus. & Com.Code Ann. §§ 3.104, 3.115(a) comment 2; Hoss v. Fabacher, 578 S.W.2d 454, 455 (Tex.Civ.App. — Houston 1st Dist. 1979, no writ). When Aubin signed the drafts at the blackjack table, they were sufficient. Each was a promise to pay to the order of Carnival Leisure Industries, and the amount was precisely either $2,500 or $5,000.

These negotiable instruments are enforceable also as checks because each draft was drawn on Aubin's bank. Tex. Bus. & Com.Code Ann. § 3.104(b)(1). Aubin argues, however, that he did not authorize Carnival to add information to the instruments. A check is enforceable without the account number, bank address, or maker's home address. A negotiable instrument that is incomplete in any necessary respect is unenforceable until adequately completed by the maker or with the maker's authorization. Tex.Bus. & Com.Code Ann. § 3.115.

For the instruments to be enforceable as checks, Carnival must have had Aubin's authority to add his bank as the drawee. Tex.Bus. & Com.Code Ann. §§ 3.115(a), 3.407(a)(2). Before Texas adopted the Business and Commercial Code, a transferee had implied authority to complete incomplete instruments. Antrim v. McMurrey, 549 S.W.2d 463, 466 (Tex.Civ. App. — Austin 1977, no writ). Current Texas law does not expressly grant implied authority, but it places the burden of proof on Aubin to show that Carnival did not have authority to complete the drafts. Id. Aubin has not met this burden.

The presumption of implied authorization is difficult to overcome. Id. Aubin's testimony, five years after his

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