CONTRACTS IN VIOLATION OF STATUTE STILL ENFORCEABLE?

In Grape Solutions, Inc. v. Majestic Wines, Inc., 2015 NY Slip Op. 30770(U) (NY Sup. Ct. May 11, 2015), the court held that in an action for breach of contract, the contract may be enforced even though the contract may have violated a New York statute:

""Contracts which violate statutory provisions are, as a general rule, unenforceable on public policy grounds where the statute which is violated is enacted to protect the public health and safety." Eber Bros. Wine & Liquor Corp. v Rare Spirits, Inc., 21 Misc3d 201, 208 (Sup Ct, Monroe County 2008); Rosasco Creameries v Cohen, 276 NY 274, 278 (1937). However, `"[i]f the statute does not provide expressly that its violation will deprive the parties of their right to sue on the contract, and the denial of relief is wholly out of proportion to the requirements of public policy . . . the right to recover will not be denied.'" Benjamin v Koeppel, 85 NY2d 549, 553 (1995), quoting Rosasco Creameries, 276 NY at 278. Courts generally enforce the contract "where there are [other] regulatory sanctions and statutory penalties in place to redress violations of the law." Lloyd Capital Corp. v Pat Henchar, Inc., 80 NY2d 124, 127 (1992).

"To constitute a valid defense to an action on a contract, the alleged illegality must be `central to or a dominant part of the plaintiff's whole course of conduct in performance of the contract.'" FCI Grp., Inc. v City of New York, 54 AD3d 171, 177 (1st Dept 2008), quoting McConnell v Commonwealth Pictures Corp., 7 NY2d 465, 471 (1960). The illegality defense is inapplicable where it would result in a substantial forfeiture to one party while allowing the other party, who has already reaped the benefit of the transaction, to avoid the corresponding obligation. Murray Walter, Inc. v Sarkisian Bros., 107 AD2d 173, 178 (3d Dept 1985). "This is particularly true where the two parties are equally culpable with respect to the illegal conduct." Unger v Leviton, 5 Misc3d 925, 929 (Sup Ct, Nassau County 2004). Forfeitures by operation of law are disfavored where the party who is alleged to have breached the contract is attempting to improperly use public policy "`as a sword for personal gain rather than a shield for the public good.'" Charlebois v J.M. Weller Associates, Inc., 72 NY2d 587, 595 (1988). Thus, once the party seeking such enforcement has performed his obligations, "the court should consider the quality of the illegality, the extent of public harm, the relative guilt of the parties, and the cruelty of the forfeiture involved in a denial of remedy." Murray Walter, Inc., 107 AD2d at 177."

This case is also discussed at http://www.schlamstone.com/court-enforces-contract-that-violates-statute/