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Caribe Hilton Hotel v. Toland

Decided: June 26, 1973.


For reversal and remandment -- Chief Justice Weintraub, Justices Jacobs, Hall, Mountain and Sullivan, and Judges Conford and Lewis. For affirmance -- None. The opinion of the Court was delivered by Mountain, J.


[63 NJ Page 302] 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 (E. & A.

1900), and Schwartz v. Battifarano, 2 N.J. 478, 483 (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 (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 (1951); Colozzi v. Bevko, Inc., 17 N.J. 194, 202 (1955); Hudson v. Hudson, 36 N.J. 549, 555 (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 2 d ยง 188; Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 492-493 (1961); HIMC Investment Co. v. Siciliano, 103 N.J. Super. 27, 34 (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 contacts 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, any 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 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. ...

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