Contracts and Poker: Making Contracts

In an earlier column on player deals (Card Player Nov. 22, 2017), I reported on the Nevada Supreme Court’s decision in Sigel v. McEvoy. After Tom McEvoy refused to pay Sigel a portion of his main event win, Sigel sued McEvoy. McEvoy moved to dismiss the claim on grounds that the debt was an illegal gambling debt. The court ruled that it was a business investment, thus affirming the enforceability of contracts with backers.

McEvoy subsequently reached me, expressing concern that the court case only told part of the story. According to him, Sigel did back him in two events in the amount of $400; McEvoy won one of them and paid Sigel $22,000 (the Supreme Court acknowledged this). McEvoy claimed that was as far as their understanding went but Sigel claimed that his investment entitled him to recover a portion of all events McEvoy entered, including the main event.

After the court’s decision on the motion, Sigel did not pursue the case and that issue was never resolved. I apologize to McEvoy for telling only the half of the story I knew from the public record. The full story also affirms additional advice I gave in the article – while oral contracts are generally enforceable, they can easily lead to disputes about what in fact was agreed to.

So try to get the agreements you make in writing. It does not have to be a formal document. An exchange of emails will do, or a document signed in cyberspace on something like Google Docs. Your goal is to think through what the terms of the deal are and express them clearly. If there are any contingencies (events that will affect the performances of the parties), write those down as well.

Let’s look at some basic concepts of contract law that you might consider. Under the doctrine of consideration, each party has to promise the other something of value. So if I promise to give you 20 percent of my main event winnings, that promise will not be enforceable because you did not promise me anything in return. A promise to make a gift is generally not enforceable. But the promises do not have to be equivalent. If you promise to give me $100 in return for my promise to give you 20 percent of my main event winnings, that contract is likely enforceable even if I win $8 million.

Sometimes we regret the deals we made after we made them. The other party can of course agree to let you out of the contract, sometimes by paying them something to “buy out” of the contract. If they won’t agree, you may be out of luck. You may have one of the legal defenses to contract formation; for example, I was so drunk at the time I didn’t know what I was doing. It worked for Britney Spears, but these defenses can be hard to prove. So think twice before you sign – and be sober when you do it.

What happens if something comes up that is not covered in the contract? Under the doctrine called the parol evidence rule, if you agreed to some terms, but did not put them in the contract, those terms may be admissible to supplement the contract but not contradict it, as long as you did not intend the written contract to be final and complete. Most formal business contracts that you enter are final and complete, and you can’t later complain that the other party promised you something that isn’t in writing. But if the written agreement is basic and informal, it is unlikely the parties intended it to contain all the terms.

Other terms can be supplied by the default rules of contract law. Just as you have default settings in your word processing software that kick in unless you affirmatively change them, so does contract law provide rules that apply in the absence of the parties’ understanding. This is where a knowledge of contract law can be valuable, because it informs you what those default rules are.

For example, the general rule in the U.S. is that each side pays its attorney fees whether they win or they lose. If I have to hire an attorney to collect from you, that is going to substantially reduce my net recovery and may even dissuade me from pursuing the matter at all. As one unhappy litigant said, “I came close to ruin twice in my life. Once when I lost a lawsuit and once when I won one.” This is a default rule that you are free to change by putting in the contract that the loser has to pay the winner’s attorney’s fees. With that provision in the contract, I could recover from you not just the amount due on the claim, but a reasonable amount that my attorney charged me. I then have a much better chance of coming out ahead.

Lawyers can be pessimists, and they think about what can go wrong in the future. If one party does not perform, what can you recover? One important rule is that you can’t recover punitive damages for breach of contract. This is not a default rule of contracts that can be changed but an immutable rule. You will sometimes see that someone is claiming punitive damages, but that is because they are also making a claim in tort, where it is possible to recover punitive damages.

Another default rule is that you have to go to court to make your claim, but you are free to change that rule and agree to go to arbitration instead. The decision of an arbitrator can be enforced just like a court judgment. There are a number of advantages to arbitration. One is that the proceedings are private. Another is that you have the flexibility to choose whomever you want to arbitrate the case, such as a mutual friend whose opinion you respect.

Freedom to contract is one of our most important freedoms. Use it wisely! ♠

Scott J. Burnham is the retired Curley Professor of Commercial Law at Gonzaga Law School in Spokane, Washington. He can be contacted at [email protected]. This column is adapted from his article, A Transactional Lawyer Looks at the Rules of Tournament Poker, which was published in Gaming Law Review and Economics.