How Can a Contract be Proven Illegal?

Contract legality depends on the contents of the contract. Let's say, for example, there was an employment contract for a poker dealer in a state where gambling is illegal. The contract would be illegal because it requires that employee to engage in illegal activity, in this case, gambling.

A contract to sell a deck of playing cards, on the other hand, would typically not be illegal if selling cards were legal in that state. In this case, the contract could be enforced even if these cards were sold to a gambler in a state where gambling is illegal.

Proving that a contract is illegal can be a gray area. A good general rule of thumb is to ask: By engaging in the contract, are either of the parties doing something illegal? If the answer is yes, the contract is illegal and unenforceable.

A Few Examples of Illegal Contracts

  • Contracts for selling or distributing drugs, drug paraphernalia or other controlled substances
  • Contracts for prostitution, gambling, or other illegal activities
  • Contracts for employing underage workers

Taking a closer look at our example of drug paraphernalia, a drug user may legally purchase equipment and items that could be used to take drugs. However, if the vendor made a contract to help the drug user set up a device to take drugs, that's where the contract becomes illegal.

Besides contracts that explicitly break the law, some illegal contracts go against public policy and fair dealing. Examples of illegal contracts that violate public policy are forced labor — essentially slavery — and contracts that would prevent fair market competition

What If an Illegal Contract is Breached By a Party?

Illegal contracts are unenforceable and legal action can't be taken if a party breaches an illegal contract. Looking again at our example of the poker dealer's employment contract in a state where gambling is illegal, if the employer failed to pay the poker dealer his salary, the poker dealer would not be able to take legal action against the employer and may end up losing those wages.

Should I Contact a Lawyer for an Illegal Contract Issue?

After entering into an illegal contract, you won't be able to take legal action to recover losses. If you're unsure whether or not a contract is illegal, it's best to consult a lawyer before entering into the contract. An experienced lawyer will easily be able to spot if a contract is illegal.

Illegal Versus Invalid Contracts

For a contract to be legal and binding, both parties must be aware of what they're agreeing to. Some grounds to void, or invalidate otherwise legal contracts are:

Lack of Capacity

Children, people with mental disabilities, and seniors with dementia are some examples of parties that may not have the capacity to understand and enter into a legal contract.

Misinterpretation

One or both parties misinterprets or misunderstands the terms in a way that is harmful to one of the parties. Harmless, trivial misinterpretations don't invalidate the contract.

Misrepresentation or Fraud

Outright misrepresentation or fraud is grounds to invalidate a contract. For example, one party knowingly passing off a Picasso forgery as authentic would count as blatant, fraudulent misrepresentation. However, if the seller believes the fake Picasso to be authentic, he is making an innocent misrepresentation, which may also be basis to void the contract.

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