How NY Courts Can Enforce a Contract – Even When It’s Illegal December 1, 2011

A little over one year ago, I wrote about a fascinating case where a defendant sought to avoid its obligation to pay for goods that it received – and profited from – on the grounds that the underlying agreement it had with the plaintiff was based upon an illegal scheme designed to avoid customs duties in the U.S.  Fortunately, the judge in that case was able to cut through the defendant’s argument that the contract was unenforceable, because in his view, the illegality of the scheme was only tangentially related – rather than being a central part – to the parties’ agreement, and, therefore, the defendants could not reap a windfall based upon their breach of contract.  For more details on that case, click here.

But, as one of New York’s appellate courts recently pointed out in Village Taxi Corp. v. Beltre, the general rule that illegal contracts are unenforceable under New York law is not necessarily a black and white rule, and is not without exception.

As the Court stated:

“Although illegal contracts are generally unenforceable … where the statute or regulation requiring that a license be procured … ‘is merely for the purpose of raising revenue it would seem that acts performed without securing a license would be valid. But where the statute looks beyond the question of revenue and has for its purpose the protection of public health or morals or the prevention of fraud, a non-compliance with its terms would affect the legality of the business.”

Jonathan Cooper is a New York Business Litigation and New York Commercial Litigation Lawyer with a focus on New York breach of contract and New York business fraud claims before the Nassau, Queens, Brooklyn, Bronx, Westchester and Suffolk County courts of New York State. For more information, feel free to contact his Long Island office at 516-791-5700.

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