| Md. | Jan 13, 1904
Lead Opinion
The appellee Deneen in the bill filed by him in this case declares his purpose to repudiate certain contracts, made with the appellant Baxter a stock broker, for speculating in stocks on margins and asks the Court to compel the return to him of the margins paid by him to Baxter under the contracts. He also asks for an injunction to prevent the withdrawal from bank by Baxter of certain money standing there to his credit upon the ground that it consists of the margins so paid.
Both parties to the record admit on their briefs that the contracts in question were mere gambling contracts predicated upon the expected rise or fall of the stock market and were not intended to be executed by actual purchases or sales of stocks. They both also concede the proposition that equity will not lend its aid to enforce gambling contracts but the appellee contends that his bill does not ask the Court to enforce any contracts but simply to compel the return to him of the margins which he paid upon gambling contracts that he now repudiates.
The material facts of the case as we find them from the record may be stated as follows:
Early in September, 1902, Baxter at his office in Pittsburg, Pennsylvania, informed Deneen that he was considering the desirability of opening what is commonly called a "bucket shop" for speculating in stocks on margins in the city of Cumberland where Deneen resided. A similar business had *198 theretofore been conducted in Cumberland by one Cummings who is said to have decamped with all the funds of the business thereby inflicting serious losses upon Deneen and other persons who were his customers. Deneen replied to Baxter that it would be useless to send a stranger there, as he could get no trade, and advised him to get H.H. Hartsock who had been Cummings agent to take charge of the office, if he determined to open one, and to permit Hartsock to handle the money. To this Baxter replied that he would not put money in Cumberland in any other name than his own but he was willing to do anything else and would not object to permitting to be known how much money he had in bank in Cumberland from time to time.
Within a few days thereafter Baxter opened a bucket shop in Cumberland and placed it in charge of Hartsock as manager. He at the same time deposited $10,000 in his own credit in the Third National Bank of Cumberland and instructed the bank to inform Hartsock from time to time of the amount standing to the credit of the account. Hartsock thereafter deposited to the credit of the bank account, thus standing in Baxter's name, all margins received from customers in the course of the business at the Cumberland office. When the deal of any customer at the office was closed the balance, if any, due to him was paid out of this money standing to Baxter's credit in the bank which was drawn out by checks signed by Baxter and not by Hartsock.
Deneen, who was a frequent if not habitual speculator in stocks on margins at once began operating through the Cumberland office and soon became its chief customer. Within a few days after opening the office Hartsock, its manager, wrote with the knowledge of Deneen the following letter to Baxter, his principal.
"Cumberland, Md., Sept. 10th, 1902.
Mr. A.B. Baxter, Pittsburg, Pa.
Everybody seem to be pleased with our arrangements except on one point and that is a weak one and makes the whole structure without a good foundation and that is you can with *199 draw all the funds in bank at any time and we are left as we were last week by Cummings Co.
Cannot you fortify the point and then we can get the trade? The President of the 3d Nat'l B'k thinks you should do so, in fact unless it is done, certain large and the best trade cannot be secured and it may be hardly any business can be retained, as there is an effort being made to have a N.Y. Stock Exchange open an office here which would get that trade at least.
Let me hear from you on this matter and favorably: The Cumberland trade has had a hard knock and something out of ordinary must be done to restore confidence.
Very truly yours, H.H. Hartsock."
To that letter Baxter sent the following reply which was shown to Deneen.
"Pittsburg, Pa., Sept. 11th, 1902.
H.H. Hartsock, Esq., Cumberland, Md.
Dear Sir:
Your favor of 10th inst. rec'd noted. We talked the matter of which you speak over with both Mrss. Deneen when they were here told them that we would not consent to anybody controlling ourfunds. There is no doubt that a good many of your people there feel very badly over the treatment received from Cummings Co. I told them (Mess. Deneen), to inquire as to our standing here,not only at the bank, but on the street generally, from other brokers I am satisfied that they would find that we are regarded in a different manner from which the people regarded Cummings Co.
We would like to have your business; we could not under anycircumstances agree to have anybody interfere with the managementof our finances.
Yours truly, A.B. Baxter."
Subsequently after Deneen had been trading for sometime with the Cumberland office he was called by it for over $6,000 additional margins. When he responded to that call with the money asked for, he said to Hartsock that his understanding was that all margins were to remain in bank until the trades for which they were put up were closed or the margins were exhausted and he desired to know something more about it. Hartsock thereupon telegraphed to Baxter for information on *200 the subject and received from him a reply saying "We will alwayshave more money than the sheet is worth there. We don't want —draw any money down or have not done so. Ask the bank forbalance."
The precise meaning of the technical expression "more money than the sheet is worth" was the subject of a conflict of testimony, but it is not necessary in the view which we take of this case to settle that controversy.
After these occurrences Deneen continued to deal heavily with the Cumberland office in similar stock transactions until October 7th, 1902, up to which time he had paid to Hartsock $18,253 as margins on deals then remaining open and unfinished. At that time $33,253 stood to the credit of Baxter on the account already referred to in the Third National Bank. On that day, October 7th, just before the bank closed, Baxter drew out of it $15,000 through an agent whom he had sent to Cumberland for that purpose, and who on the next morning presented a check for $17,000. The bank refused to pay this check, as Deneen, having gotten wind of Baxter's purpose to withdraw the money, had filed the present bill and procured an injunction thereon restraining the bank from paying out any of the money standing to Baxter's credit until the further order of the Court Deneen also sued out of the law side of the Court an attachment against Baxter for the recovery of the $18,253 of margins and laid it in the hands of the bank.
The bill of complaint alleges that all of the contracts were entered into by the plaintiff and the margins thereon paid by him upon the distinct understanding and agreement between him and Baxter with the knowledge and assent of the bank that the margins were to remain in the bank until the contracts on which they were paid were closed. The evidence, however, does not satisfy us that Baxter made any positive agreement to do more than keep money enough there to make the sheet good, whatever may be the exact meaning of that expression, although he disclaimed any desire to withdraw the balance of his account. There is no evidence at all that the bank had *201 any knowledge of or gave any assent to the arrangement or understanding between Deneen and Baxter relative to the retention of the money in bank.
The bill also charges that the drawing of the $15,000 out of bank by Baxter and the attempted drawing of $17,000 more constituted flagrant violations of the agreement, under which Deneen had paid his margins, and that it had been done with a deliberately fraudulent intent and purpose to remove the money from this State and convert it to his own use and cheat and defraud Deneen and the other customers who had dealt with him at Cumberland upon the same terms. It is also averred that the other persons who are named as defendants had similar stock dealings with Baxter and may be interested in the balance to his credit in bank, and also thathe is financially irresponsible.
The prayer for relief asks for a decree for an accounting between the parties to the suit in respect to their relative rights to the money in bank to Baxter's credit, and for an injunction to restrain the bank from parting with the moneypendente lite, and for general relief. An injunction was granted as prayed and the defendants made a motion for its dissolution.
The bank's answer admits the making of the several deposits with it and that it was instructed by Baxter to let Hartsock know the balance whenever he wished, but it flatly denies that it had any knowledge of any agreement between Deneen and Baxter as to the deposits or the uses to which they were to be put.
Baxter's answer admits the dealings on margins in stocks with Deneen but insists that it was definitely understood that the margins were to be paid by Hartsock to him for his own account to be dealt with as he saw fit, and that he only agreed to keep as much money in Cumberland as the sheet was worth and he avers that he did keep that much money there.
Two other defendants, Botchford and Swartzwelder, answer the bill admitting that they had dealings with Baxter through Hartsock but do not state the particulars thereof and *202 they submit their rights to be determined by the judgment of the Court.
The Court below by its decree of May 23rd, 1903, overruled the motion to dissolve the injunction, and held the plaintiff to be entitled to the relief for which he prayed and sent the case to the auditor to state an account. An account was stated and returned by the auditor distributing the net balance of the money in bank to Deneen to the extent of $18,096.86 to Hetzel to the extent of $68.60 and to Swartzwelder to the extent of $88.20. This account was ratified and Baxter appealed from the decree of May 23rd, 1903 and also from the order ratifying the account.
We do not agree with the conclusion arrived at by the learned Judge below. It plainly appears by the record that Baxter, when urged by Deneen and Hartsock to keep some money in bank at Cumberland upon such terms that he could not withdraw it at will, positively refused to do so saying to them that he would under no circumstances agree to have anybody interfere with him in the management of his finances. The most that he could at any time be induced to agree to was to keep more money there than the sheet was worth accompanied by the statement that he did not wish to draw down any money.
With these facts staring him in the face Deneen did not require the money supplied by him for margins to be retained under the joint control of Baxter or Hartsock and himself or to be held by some third person as stakeholder, nor did he retain any lien thereon. He deliberately paid them over absolutely to Hartsock knowing that they would be deposited in bank to the credit of Baxter and would thus pass under his absolute control. He thus voluntarily parted with his title to the money and relied solely for his protection upon the personal agreement of Baxter which he himself asserts formed a material part of his gambling contracts.
He now by his bill in this case in effect asks a Court of equity to compel the performance of this agreement. He does not in terms ask for a decree for a specific performance but *203 he does so in effect, for the avowed purpose for which he asks an injunction against the bank is to prevent Baxter from violating his agreement by withdrawing from the bank the balance of the money still standing to his credit. To prevent Baxter from violating his agreement is to all intents and purposes simply to compel him to perform it. Equity regards the substance of a transaction and not its mere form. Nor can we yield assent to the appellee's contention that the money in bank should be treated as affected by a trust or subject to an equitable lien in his favor without in effect enforcing the agreement, for such a trust or lien must rest upon or arise out of the terms of the agreement which the appellee insists required that the money should remain in the bank until the deals in connection with which it was paid were completed.
This Court has repeatedly held that even the law does not permit actions to be maintained on contracts like those now under consideration for ficticious purchases and sales of stocks because they are regarded as gambling contracts. Stewart v.Schall,
This rule as was said in Roman v. Mali by former CHIEF JUDGE ALVEY, "is most salutary and conservative as a means of suppressing illegal and fraudulent contracts and nothing should be done by the Courts to weaken its force or operation." *204
If Deneen desires to repudiate his gambling contracts and sue Baxter for the recovery of the margins paid on account of them, as constituting the stakes of executory wagers a Court of law is the appropriate forum in which to test his rights in that respect. Conceding for the sake of the argument without so deciding that he would be entitled to recover in such a suit at law, we see no special circumstances in the facts appearing in this record which should induce a Court of equity to depart from the salutary rule to which we have already referred and intervene in his behalf. The bill alleges that a number of persons named as defendants were similarly interested with the plaintiff in the money in bank and that an accounting between all parties interested would be necessary in order to determine their conflicting interests and to prevent a multiplicity of suits at law. But only two of those persons answered the bill and they declined to state what transactions they had had with Baxter or the circumstances under which they were made and simply in the most general terms submitted their rights to the determination of the Court. After the case was sent to the auditor Swartzwelder, one of the defendants, testified that he had put up $90 with Hartsock on a deal and that he saw no other way to get back his money than to claim a percentage of the money in bank. Another witness Hetzel testified that he had put up $70 as margins with Hartsock on some deals but had afterwards dropped the deals. In our judgment the facts disclosed by this evidence afforded no sufficient ground upon which to rest the jurisdiction of a Court of equity in a case like this.
The case of Dauber v. Campbell, 178 Pa. St. 23, 35 Atl. R., in which a Court of equity did intervene for the relief of persons who had put up money to be used as margins in stock gambling adventures, was much relied on by the appellees, but it is distinguishable from the one at bar. In that case a person, to whom a number of individuals had entrusted money to be employed in speculation in stocks, put all of the money in the hands of a banking firm, to the credit of the broker through whom the dealings were to be made, upon the *205 express understanding that the bankers were not to allow thebroker to draw any of the money without the consent of thedepositor. There were many deposits and still more numerous withdrawals of money which was applied to different stock dealings. The Court there held the controversy to be over a resulting balance in which many persons were interested and took jurisdiction of the case because the remedy at law would have been inadequate. Under the circumstances of that case the depositors of the money not only had retained control over it but were the actual owners of the balance remaining in the hands of the bankers. It was quite a different case from the one now before us in which the plaintiff voluntarily paid over the margins to the broker in reliance upon a mere personal agreement the practical enforcement of which is essential to affording him the relief which he now seeks.
Nor will the Court exercise its equitable powers at the suit of Deneen to prevent Baxter from violating his agreement, to allow the money to remain in the bank at Cumberland, upon the ground of preventing the accomplishment of a gross fraud on his part by its withdrawal from bank and its removal from the limits of this State. The same difficulty lies in the way of the Courts actively interfering in any manner which would practically give to Deneen the benefit of the enforcement of any of the provisions of these gambling contracts into which he voluntarily entered without oppression or compulsion and with a full knowledge of their nature and effect.
The decree and order appealed from will be reversed and the bill dismissed.
Decree and order reversed and bill dismissed with costs.
(Decided December 4th, 1903.)
Addendum
After a careful examination of the record in this case, I find myself unable to agree to the conclusions reached by the majority of the Court, and though it is exceedingly distasteful *206 to dissent, I am constrained to do so for the reasons which I will now briefly state. Without narrating the facts disclosed by the evidence, it is sufficient to say that the litigation had its origin in a gambling transaction between the appellant and the appellees. The gambling transaction was a betting on the rise or fall of the market price of stocks and was made between some very foolish men, on the one side, and, according to the evidence, a very tricky man, on the other side. The appellant conducted in Cumberland, what is known as a bucket shop. The foolish people bet on the market price of stock and put their money in the hands of the bucket shop proprietor. They might just as well have bet their money against loaded dice or marked cards. The money which they put up was deposited in the name of the bucket shop proprietor in the Third National Bank of Cumberland, to abide the result of the bet, but it did not, even under the terms of the contract between them, thereby become the property of the appellant or cease to belong to the appellees, at least until the gambling transactions were actually closed and the money was in fact paid over by the stakeholder to the winner. Before the event had occurred upon which the wager depended, the appellees rescinded their contract and demanded from the stakeholder, The Third National Bank, a return of the money they had staked. They did this by way of attachment, and they followed that proceeding by filing a bill in equity to restrain the stakeholder from paying to the appellant the money held by the bank. The Court below decreed that the money belonged to the appellees and made the injunction perpetual. As I understand it, a majority of this Court now holds, that the decree thus passed was erroneous, because both parties to the gambling transaction, namely, the foolish men, on the one side, and the tricky man, on the other, were in equal fault, and being in equal fault, the Court will leave them where they have placed themselves and will give its aid to neither.
That conclusion seems to me to be the contrary to the whole current of judicial decisions both in England and in *207 this country. The doctrine of in pari delicto cannot possibly, it seems to me, have any application to the situation disclosed by this record, and for two reasons. First: In a sense both parties to the gambling transaction were equally in fault for violating the law in making these bets, but there the equality of fault comes to an end. Their conduct was not criminal or immoral, but it was illegal. The appellees besides acting illegally were guilty of folly just as they would have been, if instead of betting on the rise and fall of the market, they had bet against loaded dice or marked cards; but the appellant, if the evidence adduced be worthy of credit, was involved in a scheme to defraud, which, of course, included a degree of moral turpitude which cannot be ascribed to the appellees. After the funds had been deposited with the stakeholder, to be held under stipulated conditions, the appellants surreptitiously endeavored to withdraw the funds that remained in the custody of the stakeholder after secretly checking out a considerable portion of the money that he had agreed should remain on deposit in the Third National Bank. I fail to see, in the light of these circumstances, how the folly of the appellees can be said to be on a footing of equality with the turpitude of the appellant, and if there is no equality in this regard there can be no such equal fault as to justify the application of the doctrine that where the plaintiff and defendant are in pari delicto the condition of the defendant is the better. There is a distinction between contracts which are immoral or criminal and those which are simply illegal and void. To the latter class gambling contracts belong. They are made void by the Statute of 9 Anne, ch. 14. In Vischer v. Yates, 11 Johns. R. 23, CHANCELLOR KENT said: "And the Courts take a distinction between contracts that are immoral and criminal and such as are simply illegal and void. Assistance is usually giventhe party in the latter cases to recover back his money; and this Court lent such assistance in the case of Mount, c., v.Wates, 7 Johns. 434" court="N.Y. Sup. Ct." date_filed="1811-02-15" href="https://app.midpage.ai/document/mount--wardell-v-waite-5472768?utm_source=webapp" opinion_id="5472768">7 Johns. 434." But beyond this the policy of our statutory law is distinctly against the application of the inpari delicto doctrine to gambling contracts, and *208 that doctrine furnishes no defense to an action brought by the loser to recover back money won from him and actually paid over to the winner. By the Code, Art. 27, § 127, it is enacted that "any person who may lose money at a gaming table, may recover back the same as if it were a common debt." And sec.128 provides that "All games, devices and contrivances at which money * * * * shall be bet or wagered shall be deemed a gaming table within the meaning of the six preceding sections." And bysec. 130 it is declared that "the Courts shall construe the preceding sections relating to gambling and betting, liberally, so as to prevent the mischiefs intended to be provided against." Surely a defendant who has been sued for money which he won from the plaintiff by gambling could not successfully invoke as a defense the maxim in pari delicto potior est conditiodefendentis. Why should he be able to do so in a Court of equity?
Secondly: But in addition to this I have never known it to be suggested that a man who bets and then recants and repudiates the transaction whilst the wager is still in the hands of the stakeholder, was precluded from recovering the money he had staked, if the holder of the stakes refused, upon demand, to return it. This, if authority were needed for the proposition, has been explicitly decided by the Supreme Judicial Court of Massachussetts in Morgan v. Beaumont,
The jurisdiction of a Court of equity in Maryland to grant relief in a case like this is clear, unless Gough v. Pratt,
(Filed January 13th, 1904.)
A motion for a re-argument was made and in overruling the same.
Addendum
The appellant has made a motion for a re-argument of this case and has filed a carefully prepared brief in support of his motion. The brief reasserts the arguments advanced in his brief used at the hearing of the case and urgently contends.
First. That the money paid on account of the gambling contracts by Deneen to Baxter and by the latter deposited in bank to his own credit must be considered to be the property of Deneen to which Baxter never had any legal or equitable title and the bank must be treated as holding it in the capacity of a stakeholder, and
Secondly. That under the authority of the decision in Gough
v. Pratt,
This money is clearly not stakes in the ordinary sense of that term, which signifies something deposited by two persons with a third on condition that it is to be delivered to the one who shall become entitled to it by the happening of a specified contingency. Deneen voluntarily paid the money to Baxter with full knowledge of the latter's positive refusal to hold it subject to any condition or any joint control. Although it is *213 now in the bank it was deposited by Baxter alone and for his own account and was entered to his credit by the bank. Deneen himself distinctly admitted on cross-examination that he knew that Baxter had the right to withdraw the money from the bank at any time and that he had dealt with Baxter on the faith of the latter's promise that he would not withdraw it and not upon the idea that he had no legal right to withdraw it.
Furthermore when Deneen determined to repudiate his contracts he did not at first claim that this money was his own or that it was held by the bank as a stakeholder and appeal to a Court of equity to compel its return to him; but, acting advisedly and with the aid of counsel, he, as he informs us in his brief, sued out an attachment from a Court of law against Baxter to recover it from him and laid the writ in the hands of the bank to bind the money as a credit due from it to Baxter. Copies of the account filed and affidavit made by Deneen in the attachment case appear in the present record and they charge Baxter with the indebtedness as for money loaned to him by Deneen a form of pleading entirely inappropriate to the recovery of money knowingly paid or advanced as the stakes of a gambling venture. The record contains no indication that this attachment suit has ever been dismissed or abandoned.
The evidence shows that the money was in fact paid to Baxter on account of the gambling contracts as margins just as the margins were paid which were involved in the case of Burt v. Meyer, cited in our opinion now on file in this case, with the additional circumstance that Baxter agreed as part of the contracts in the present case to keep money enough on deposit in Cumberland to make the sheet good or as Deneen in his cross-examination expresses it "The sheet was to be covered at all times, more than enough money left here."
Nor do we think that the case of Gough v. Pratt when rightly understood furnishes any authority for granting the relief prayed for in the present case. What was decided in that case was that equity would prevent the enforcement of a gamblingcontract by enjoining the issue of execution on a *214 judgment which had been recovered on a gambling debt. The case was decided upon the authority of Thomas v. Watson and the opinion of JUDGE TANEY in that case was inserted in full by our reporter as an appendix to Gough v. Pratt. In Thomas v.Watson the bill was filed by an assignee of the alleged debtor for discovery and for relief by injunction against an execution on a judgment that had been recovered on two notes one of which was alleged on information and belief to have been recovered for a gambling debt and the other for an usurious debt. That also was a case in which equity extended relief against the attemptedenforcement of gambling and usurious debts. Nothing that was required to be decided in either of those two cases affords any authority for the active interference of equity in aid of the practical enforcement of any of the stipulations of a gambling contract which we have, in our opinion already filed, shown is the relief which the Court is in effect asked to afford in the present case.
In JUDGE TANEY'S opinion in Thomas v. Watson, there appear the obiter statements that in a case of usury or gambling, although the party pays his money not only with a knowledge of the facts but with a knowledge of the law also, equity will relieve him and compel the adverse party to refund the money, and that in such cases the money may be recovered back again either by a suit at law or a bill in equity, but an examination of the authorities cited in support of the statements satisfies us that that distinguished jurist could not have intended by what he there said to assert that the plaintiff in such cases might resort to either law or equity according to his own preference or caprice or that a Court of equity would entertain his suit for the recovery of his money in the absence of facts constituting recognized grounds of equity jurisdiction.
1 Fonblanques Equity B, 1 Ch. 4, sec. 7, the authority cited in reference to usurious contracts says that equity will give relief to the borrower in cases where the law will not reach thelender. In Rowden v. Shadwell, Amb. 269, the authority relied on for gambling contracts, the bill was filed for the cancellation of a bond which had been given for money lost at *215
gaming and to recover back a part payment which had been made on account of the bond. No opinion appears in the report of the case but there were plain grounds of equitable jurisdiction in that case for if the plaintiff had sued at law and recovered the money which he had paid on account, the bond which was an illegal instrument would have remained outstanding against him. In such cases we have recognized as recently as in Levi v.Oppenheimer,
Money lost at gaming could not be recovered at common law. The Statute of 9th Anne which is relied on in Gough v. Pratt, only authorized the recovery of money lost at gaming, in "anaction of debt" although it required any one liable "to be sued" under the statute to answer a bill of discovery filed in aid of the action of debt for discovering the money or thing lost at gaming. Our own Code, Art. 27, § 127, authorizes the recovery of money lost at gaming "as if it were a common debt." Certainly nothing in either of these statutes confers jurisdiction on equity to entertain proceedings for the recovery of such debts when unaccompanied by special circumstances which render a Court of law inadequate to grant relief. There is no contention that the bill in the present case was filed for discovery and we have already expressed our views upon the inadequacy of the facts relied on in it as affording special grounds for the equitable relief for which it asks.
The decision in Gough v. Pratt, has been several times affirmed by this Court but in no case, so far as we are aware has the proposition, that one having lost money at gaming may elect whether to proceed at law or in equity for its recovery, been the subject of approval by us, nor are we aware of any case in which this Court has upheld a Court of equity in giving effect directly or indirectly to the terms of an illegal contract at the suit of a voluntary party to that contract.
The cases of Morgan v. Beaumont,
The motion for re-argument will be overruled.
(Decided March 23rd, 1904.)