Recovery of Damages for Breach of an Illegal Contract

As a matter of public policy a party who suffers damages by reason of the breach of a contract to perform an illegal act may not recover damages. For example, if two parties enter into a contract to engage in a transaction the essence of which is in the essence of which is in violation of existing law, and one of the parties breaches the contract, the non-breaching party ordinarily may not recover damages. However, what if the party who breaches the contract was also guilty of fraud or has violated the Consumer Fraud Act in connection with the transaction. In such a case, according to a recent decision of the Illinois Appellate court, the non-breaching party can recover damages. It should be noted that there were extenuationg circumstances that may have influenced the court’s decision, such as evidence that the plaintiff was not aware of the illegality of the transaction, and that the defendant’s representations were knowingly false.

Admittedly, the circumstances are fairly narrow, but not necessarily uncommon. Certainly, there appears to have been a motivation on the part of the court to allow the innocent party to receive compensation from the bad actor not otherwise allowable under strict contract law. Some might say that the court’s holding is a good example of a court bending over backwards to do justice. Still others might say it is an example of the oft-cited maxim that “hard cases make bad law”.