Legal Updates

Although an illegal agreement is not enforceable the party who initiated the illegality cannot take advantage of it so as not to pay

October 20, 2021

A subcontractor who completed the construction demanded payment from the main contractor, among other things due to the expenses incurred because of the extension of the construction period, but the main contractor contended that no building permit was ever obtained - when the construction period is due from the date of receipt of the permit, and also there is no place to pay because it is an illegal agreement.

The Supreme Court held that the subcontractor is entitled to payment. An illegal contract is not enforceable and no compensation can be claimed for it. However, to the extent that one party to the invalid contract has performed its obligation under the contract, it must be examined whether it is appropriate to order the other party to fulfill its obligations, in whole or in part. Among the considerations are the degree of performance of the contract, the severity of the illegality, the degree of relative guilt in the conduct of the parties to the contract and their good faith. Here, even if the agreement is an agreement to perform an illegal construction contract based on unauthorized and unreleased building permits, the entity who ordered the construction and who was responsible for issuing the permits and was also the strong party who dictated to the subcontractor the terms of the contract can not contend that the agreement is illegal and demand exemption from payment. The main contractor should not be allowed to enjoy the fruits of the illegality that it itself initiated and therefore there is no reason to exempt it from payment.