Opinion
Decided April 7, 1939.
Contract — Action on gambling debt — Defendant compromised and gave note for unpaid portion of compromise debt — Note free from taint of alleged gambling contract — Directed verdict for plaintiff, not error.
1. In an action on a cognovit note, given pursuant to an order of a court in a compromise agreement in a suit on a promissory note obtained for the dismissal of an action based on an alleged gambling transaction, the maker cannot set up the defense permitted under Section 5965, General Code, making a gambling contract void, such cognovit note not being tainted with the gambling transaction.
2. Where upon the trial of such action, counsel for the defendant recites the pleadings and makes a statement to the jury, a motion is made by the plaintiff for a directed verdict, and it appears from such pleadings and statement that reasonable minds could arrive only at the conclusion that the plaintiff was entitled to recover, it is not reversible error for the trial court to instruct the jury to bring in a verdict for the plaintiff.
APPEAL: Court of Appeals for Franklin county.
Mr. Phil S. Bradford, for appellee.
Mr. David T. Keating, for appellant.
This matter is in this court upon appeal, on questions of law, from an order of the Court of Common Pleas sustaining a motion for a directed verdict for $2,617.20 against the defendant. This is the second time this case has been in this court.
It is necessary to state the pleadings at some length.
The case had its inception in an action of Don R. McGill, as trustee in bankruptcy, upon a cognovit note for $1,800 signed by E.R. Miller, defendant below. An answer was filed confessing judgment and judgment was entered upon such note in the sum of $1,866. Thereafter the defendant filed a motion for an order to set aside the judgment for the reasons stated and hereinafter noted. Upon this motion the court below found that the answer tendered did not constitute a valid defense and that the defendant was not entitled to have the judgment vacated. From this order the defendant appealed to this court which held:
"The answer as presented, if proven, contains a complete defense and under the circumstances we think that the court was in error in not permitting the same to be filed."
Upon the cause being remanded defendant filed an amended answer admitting the execution and delivery of the cognovit note and alleging that the sole consideration was money lost by the defendant in gambling; that he and Rutherford Company had mutual and numerous transactions which were wagers upon the course of the market; that the real agreement between the parties was that if the market should rise the defendant would pay Rutherford the losses or if the market should decline Rutherford would pay the defendant the profits (the transactions of the defendant were short sales); that the market advanced and the defendant paid to Rutherford certain sums to cover margins; that no actual sale was made and that defendant was not at any time the owner of such stocks and did not intend to purchase the same; that on pretended purchases no stock was ever delivered to the defendant, nor was any such delivery intended; that both parties well knew the purpose and intention, which was that all transactions were upon margin; that he disclosed to Rutherford Company his intention not to enter into a regular contract of sale or purchase but that it was on the contrary only his intention to gamble in stocks and securities; that Rutherford Company was not a broker or a member of a stock exchange; and that the stocks were not bought or sold in accordance with the rules of any stock exchange.
For a second defense he says that Don R. McGill, as trustee in bankruptcy, has sold and disposed of and therefore has no title to the alleged claim, and that the cause is not being prosecuted by the real parties in interest. He appends to his answer certain interrogatories which were answered by the plaintiff and will be noted later.
A lengthy reply was filed to the amended answer admitting numerous mutual transactions and averring that the note was executed by the defendant in settlement of an earlier obligation which had been found and adjudged by the United States District Court, to be valid and enforceable and in pursuance of an order which such court made at the request of the defendant and which is unreversed.
It is further alleged in the reply that prior to the 28th day of April, 1932, the trustee filed an action in the Court of Common Pleas of Franklin county in which he asked for judgment against the defendant on the account stated for $8,000; that same was regularly assigned for hearing and as the trial was about to proceed the defendant made an offer in writing to the trustee in bankruptcy that he would give the trustee a cognovit note for $2,500 secured by certain shares, the action for the $8,000 to be dismissed; that the judge of the Court of Common Pleas found that the offer was such a proposition as could be lawfully made, and ordered the trial discontinued; that plaintiff filed his application in bankruptcy praying for instruction as to whether he should accept the proposition; that that court found that the proposition could be legally accepted and was to the interest of the trust and ordered the trustee to accept same; that the plaintiff notified the defendant and demanded the note and security offered which the defendant failed and refused to execute; that on July 5, 1932, an application was filed in the United States District Court praying that defendant be ordered to appear before the referee and testify concerning his failure to carry out the proposition. Thereupon the defendant was ordered to appear before the referee and then claimed that he was under no valid obligation to comply with the proposition; that evidence was taken and the referee found that the defendant was obligated to comply; that upon defendant's request there was an extension of time in which to pay the $2,500; and that the court ordered that the defendant, in consideration of the release from his obligation to pay the $2,500 note and the dismissal of the $8,000 suit, should pay the trustee the sum of $700 and execute a promissory cognovit note for $1,800 securing the payment by mortgage; that the defendant did pay the sum of $700 and executed the note and mortgage upon advice of his counsel, and thereafter the $8,000 suit was dismissed.
It is alleged that the note for $1,800 is the note described in the petition, and by obtaining the approval of counsel to the dismissal of the suit for $8,000 on the order of the court, the defendant has relieved himself from an asserted liability; that the order of the Common Pleas Court in continuing the cause and the finding of the United States court that the proposition was lawful and ought to be accepted and its further finding that the proposition constituted an obligation, are all unreversed and unmodified. The defendant filed a motion to the reply asking that a large portion thereof be stricken. This motion was overruled in all its branches. The defendant also demurred to the reply. We find no entry disposing of this demurrer.
Upon this state of the case it came on for hearing before the court and a jury. Thereupon the attorney for the plaintiff made a statement to the jury reciting the petition and the reply to the amended answer and also read the answer to the interrogatories to the effect that the plaintiff says that Rutherford was a member of a regularly established board of trade and transacted business through a firm that was a member of the New York Stock Exchange. As to the interrogatories in reference to the ownership of the claim the answer was that the trustee in bankruptcy had sold the claim for which the note was given to the McGill Company by virtue of an order of the referee in bankruptcy.
The statement on behalf of the defendant through his attorney consisted of reading the amended answer in full and noting the filing of the interrogatories and a statement reciting the origin of the original note for $8,000; the subsequent steps leading to a compromise; and the giving of the $1,800 note upon which the suit was brought. It was stated that defendant claimed that the original consideration was a gambling transaction, and being such, no compromise would have any more force than the original obligation and that the whole obligation was null and void. That is his defense. Thereupon counsel for the plaintiff stated:
"Now following the statement of defendant's counsel plaintiff moves that the court instruct the jury to return a verdict for plaintiff."
After a colloquy between the court and the attorneys the court instructed the jury to bring in a verdict in favor of the plaintiff on the note stating:
"The court sustains the motion for this reason, that the note sued on was not a note given for a gambling transaction, irrespective of what the rules between the defendant and Rutherford were in the first place. * * *
"The consideration for this note was the settlement of a claim for $8,000, and therefore it is a valid consideration irrespective of what their relations were prior to that time."
The question before us is, first, whether the court was correct in its instruction to the jury to return a verdict for the plaintiff on the ground that the $1,800 note was not given for a gambling transaction, but for the settlement of a formerly asserted claim for a larger amount; and, second, whether, irrespective of the court's reason, his instruction was justified on the pleadings and statement of counsel.
We are first confronted with the opinion of this court that the defendant asserted a good defense to the cognovit note when he alleged that the action grew out of a gambling transaction. We think we can safely dispose of this matter by calling attention to the fact that the pleadings at that stage did not disclose that the $1,800 note was given in compromise of a larger claim arising out of stock transactions. The only question then determined was whether there was an abuse of discretion on the part of the trial court in refusing to open the judgment and permit defendant to file an answer, which if proven contained a complete defense.
The defendant seeks to be relieved from the payment of the note on the ground that it arises out of a gambling transaction and that attracts our attention to the law of Ohio in reference to contracts based upon such transactions.
Sections 13069 to 13082, General Code, are statutes covering "bucket shops," and they may be briefly summarized as follows, without specifically stating the number of the statute:
Whoever contracts to have or give to himself or another the option to sell or buy at a future time any commodity or stock of any company shall be fined, and all contracts made in violation of a penal section shall be void, but provision of such section shall only apply to contracts where the intent of the parties is that there shall not be a delivery of the commodity sold but only a payment of the difference by the party losing upon the rise or fall of the market.
It shall not be necessary in order to commit the offense that both buyer and seller shall agree to do any acts therein prohibited, but such offense shall be complete against a person thus pretending or offering to sell or buy, whether the offer is accepted or not.
One section provides the duties of the broker as to statements that must be made by him. A definition of the word "margin" is given to the effect that sales on margins are illegal.
Section 5965, General Code, provides that all contracts, when the whole or any part of the consideration is for money won or lost upon a game of any kind, are void and of no effect.
Section 5966, General Code, provides that a person losing on a wager and who pays a part thereof to the winner, may sue within six months and recover from the winner, "Provided, however, that neither this section, nor Section 5969 of the General Code, shall apply to any business transacted upon a regularly established stock exchange or board of trade."
There are many cases in Ohio which are to the effect that where a person deals with a broker and buys or sells commodities or stock without the intention of receiving or delivering the commodities so bought or sold, such transaction is a gambling transaction and falls within both the statutory and common law condemnation of gambling, and further that such transactions fall within the provision of the present Section 5965, General Code, holding that gambling contracts are void. These cases may be noted briefly as follows:
Kahn v. Walton, 46 Ohio St. 195, 20 N.E. 203, where it is held that contracts for the sale of property to be delivered at a future date, if the parties intend the property shall be delivered are valid though the seller has not the goods or means of getting them other than to go upon the market and buy them; but when the real intention of the parties is merely to speculate on the rise and fall of prices, and the property is not to be delivered, but one party is to pay the other the difference between the contracting price and the market price of the goods at the time specified for executing the contract, the transaction is against public policy and void. The case further holds that checks given for losses are tainted with the vice of their origin and subject to all the infirmities of securities given for illegal considerations.
In Lagonda National Bank v. Portner, 46 Ohio St. 381, 21 N.E. 634, it is held that the endorsee of a check given for money lost at a game of chance can not recover upon it against the drawer though a bona fide holder for value. A check so drawn is absolutely void and of no effect.
The case of Lester v. Buel, 49 Ohio St. 240, 30 N.E. 821, 34 Am. St. Rep., 556, holds that a contract whereby one of the parties is to have the option to buy or sell at a future time a certain commodity on the understanding of both that there is to be no delivery, the party losing to pay the other the difference in market price, is by common law as well as by statute a gambling contract and void.
In King Co. v. Horton, 116 Ohio St. 205, 156 N.E. 124, it was held that a contract between parties for buying and selling on margin without the intent of delivering the commodity is a gambling device falling within the condemnation of the statute.
In the case of Otis Hough v. Thompson, 4 Ohio App. 61, it was held that in an action to recover money lost in margin or wagering transactions in stocks it is competent to prove that back of the form in which the transactions were clothed there existed a mutual intention not to complete the transaction by a payment in full and delivery, but to rest on the rise and fall of the market value.
The case of Hawke v. Roberts Hall, 13 Ohio App. 198, holds that in order to invalidate as a wagering contract an agreement which on its face is legitimate, both contracting parties must have understood and intended it to be a wager.
In Kinker v. Aberegg, 40 Ohio App. 43, 177 N.E. 645, the court held that a cognovit note based on an alleged debt arising from gambling transactions is void. A cognovit note given to take up a note previously given for the same amount, both based upon a gambling transaction, is void.
The Court held in Spring Valley National Bank v. Somers, 9 N.P. (N.S.), 481, 21 O.D. (N.P.), 772, that the Negotiable Instruments Act does not repeal the section providing that contracts for options shall be held void; and a note given in furtherance of such a contract is not enforceable even though in the hands of an innocent holder for value. See, also, 19 Ohio Jurisprudence, 871, Section 26 et seq.
These statutes and decided cases clearly establish the law as to gambling contracts in the state of Ohio, but in none of them have we found a decision upon the exact point here in issue, as to whether, where the matter in suit was a compromise of a larger claim asserted by the defendant to have arisen out of a gambling contract, such smaller amount is still tainted with the original infirmity, or whether it is as a matter of fact a claim based upon an agreement of the parties in the settlement of a suit and is free from the original taint, and as to the effect of an order of a court as here alleged.
The motion in this case for judgment on the pleadings and statement of counsel is based in part on Section 11601, General Code, which provides that when, upon the statements in the pleadings or upon the evidence received upon the trial, one party is entitled to judgment, judgment shall be so rendered by the court. See, also, 19 Ohio Jurisprudence, 866, Section 20 et seq.
Without again reciting the facts in the case but considering the whole matter from every angle, we have arrived at the conclusion that the court did not err in instructing the jury as it did. After reading the pleadings and hearing the statements of counsel, reasonable minds could only arrive at the conclusion that the plaintiff was entitled to recover, and that the note in suit was not tainted with the original infirmity of a gambling contract. It lost such infirmity when, with the permission of the court it was accepted in settlement of a suit for a larger sum under the circumstances shown in the case.
The judgment will be affirmed and the cause remanded.
Judgment affirmed and cause remanded.
HORNBECK, P.J., and BARNES, J., concur.