Gambling Debts. George Aubin, the ex-president of a failed bank and a resident of Texas (where gambling debts are unenforceable), traveled to the Bahamas (where gambling debts are enforceable) to gamble at the Cable Beach Hotel and Casino, owned by

Question

Carnival Leisure Industries, Ltd. Aubin took more than $2,000, which he lost at blackjack. The casino then approved credit of up to $25,000 for Aubin, if he chose to take advantage of it. In less than two days, Aubin gambled away the entire $25,000, issued to him in exchange for drafts (instruments similar to checks that ordered Aubin's bank in Texas to pay a certain sum of money to the casino). On each draft was printed "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 returned to Texas. Over the next six weeks, Carnival sent Aubin letters asking him to pay the $25,000. When Aubin did not respond, Carnival presented the drafts to Aubin's bank for payment. Aubin had already directed his bank to stop payment. Carnival sued Aubin for the $25,000, on the ground of fraud, among other things. Aubin claimed that he had signed only markers (IOUs), not drafts, and that he had had no intention of honoring any drafts. How should the court rule? Discuss.

Answer 1

Gambling debts
The court held that Aubin had defrauded Carnival and owed Carnival $25,000 (plus attorneys' fees and costs). The court was bound by a higher court's earlier decision in this case that debts associated with gambling are unenforceable for reasons of public policy. But this court concluded that the state's public policy against fraud outweighed the policy against the enforcement of gambling debts. The court reasoned that when Aubin signed the drafts, he promised to pay them, but that he had no intent of doing so. "When there is a promise to do an act in the future, like pay on a draft, and there exists at the time of the promise an intention not to perform, there is a misrepresentation of an existing fact. The misrepresentation comes from the intention not to perform." Aubin's testimony that he had never intended to honor the drafts "establishes that at the time he promised to pay Carnival, he did not intend to keep that promise." The court found that "(a) Aubin, the ex-president of a bank, knew he was issuing drafts, (b) at the time he issued the drafts, he did not intend for his bank to honor them, (c) Aubin intended that Carnival rely on the drafts, (d) Carnival reasonably relied on them, (e) Aubin gambled and lost the money, and * * * he has made no effort to pay the drafts. Carnival has established sufficiently that Aubin intended to cheat it." Said the court, "Texas has a public policy against fraud. * * * Whatever Texas's residual hostility toward gambling may be, nothing of jurisprudential significance would suggest that the state of Texas has a policy against the in-tegrity of commercial instruments and transactions in favor of anyone, much less in favor of irresponsible recreational gamblers."