As explained in our case summary, the question in this case was whether a loan agreement was unenforceable if it was funded with the proceeds of criminal activity. The Court (mem.) held that such a loan was not unenforceable on the ground of illegality.
As a preliminary matter, the Court held without discussion that defendant did not waive the illegality defense by failing to raise it in an amended answer. The Appellate Division found to the contrary but addressed the illegality defense on the merits–in effect, overlooking the waiver in the exercise of its discretion. Typically, this would restrict Court of Appeals’ review of the Appellate Division’s decision. Plaintiff did not raise this issue, however, and the Court’s decision did not address it.
Waiver aside, the Court rejected defendant’s main argument on appeal, i.e., that the loan was an unenforceable illegal contract. The fact that the loan was funded by the proceeds of criminal activity was beside the point. Citing the State’s “strong public policy favoring freedom of contract,” the Court observed that the contract called for performance–loan repayment–that was not “intrinsically corrupt or illegal.” The Court also rejected the contention that enforcing the contract would unfairly allow the plaintiff to profit from illegality. The equities favored neither side, the Court noted, as both were engaged in illegality activity.
Return to the case page for Centi v. McGillin.