The question in this case is whether a loan agreement is enforceable if it was funded with the proceeds of criminal activity.
Plaintiff alleged that defendant breached an oral loan agreement. At trial, plaintiff testified that he and defendant were involved in bookmaking, the two agreed that defendant would borrow $170,000 at 3.95 percent interest in 2003 to be repaid in 131 monthly installments, and defendant ceased making payments after 2009. Evidence also included physical copies of envelops defendant used to make payments to plaintiff. Plaintiff, however, admitted that he loaned the $170,000 to defendant from money that plaintiff had accumulated through illegal activities.
Supreme Court credited plaintiff’s testimony and found that defendant breached the parties’ agreement and issued judgment accordingly. The Third Department affirmed. The court held that the evidence, viewed with appropriate deference for the trial court’s credibility findings, was sufficient to support the trial court’s finding that the parties made an agreement that defendant breached. The court also held that defendant had waived any argument that the loan agreement was an illegal contract, and rejected that argument on the merits because “neither the agreement nor the performance of the agreement was illegal.” Two dissenters agreed with the majority’s assessment of the trial evidence, but would have refused the enforce the contract on grounds of illegality.
Defendant appealed to the Court of Appeals as of right based on the two-judge dissent.
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