In one of its last decisions in 2019, New York’s highest court rejected a borrower’s attempt to avoid enforcement of a loan agreement on the basis that the loan was “funded by illegal gambling proceeds.” Although it was undisputed that the loaned funds derived from a criminal bookmaking operation, the court found that there was nothing wrongful about the loan agreement itself, and application of the “illegality” defense would provide a windfall to the defendant—who had directly participated in the gambling business. The decision in Centi v. McGillin, — N.E.3d —-, 2019 WL 6898639 (Dec. 19, 2019) clarifies the limits of New York’s “illegality” defense, and confirms the court’s strong preference for enforcing private agreements according to their terms.

Parties’ Criminal Bookmaking Operation and the Loan Transaction. The parties in Centi were former friends who had operated an illegal gambling business together, for which both were convicted of promoting gambling. The plaintiff later brought a civil action claiming that the parties entered into an oral loan agreement in 2003, pursuant to which the plaintiff loaned the defendant $170,000 for the construction of the defendant’s new home. Centi v. McGillin, 155 A.D.3d 1493, 1494 (3d Dept. 2017). For a time, the defendant made regular installment payments of cash in envelopes, but he eventually stopped making payments, leading to litigation.

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