Typically, a party to an illegal contract cannot sue to recover for damages arising from that contract.
Plaintiff was a dairyman who sold milk. Defendant's president offered to purchase milk from plaintiff at a "Grade A" rate (higher rate) if plaintiff agreed to pay a secret rebate of 4.5 cents per gallon. Such rebates were prohibited by the Milk Stabilization Act. At that time, plaintiff had only been able to secure contracts at a "Grade B" rate (60% of grade A). Plaintiff accepted the offer because he had no other Grade A options. Plaintiff agreed to sell defendant 51,600 pounds of Grade A milk per month at the Grade A rate. Plaintiff also billed defendant a "feeding charge" of 4.5 cents, but did not ever receive any feeding services. Plaintiff later loaned defendant $6,500.00 in exchange for reducing the rebate to 3 cents per gallon. About a year and a half later, plaintiff could not pay the rebate anymore and defendant terminated the contract. Plaintiff sued defendant to recover the $6,500.00 loan and $4,177.72 in rebates. The trial court ruled in plaintiff’s favor and granted him the requested total of $10,677.72. The defendants appealed on the grounds that the trial court erred in finding that plaintiff was not in pari delicto with the defendants.
Whether the plaintiff could sue for damages stemming from an illegal contract.
Yes, in this case, the plaintiff could sue for damages stemming from an illegal contract.
In affirming the lower court's ruling, the Court held that, while generally a party to an illegal contract had no basis for an action, plaintiff was not in pari delicto with defendants because the plaintiff's economic survival was dependent upon his ability to obtain a Grade A milk contract in an area where such contracts were extremely scarce, and he was peculiarly vulnerable to the exertion of economic coercion by defendants. Further, the Milk Stabilization Act did not expressly prevent the plaintiff's claim even though he was a party to an illegal contract.