Illegal Contracts: Everything You Need to Know
Contract becomes illegal if the formation of the agreement or its performance causes one or both of the parties to enter into anything that is deemed illegal.3 min read
2. Examples of Illegal Contracts
3. When A Party Breaches an Illegal Contract, What Happens?
4. Should You Consult a Lawyer for Illegal Contract Issues?
Proving a Contract is Illegal
The contract can be proven illegal based on the subject matter around which the contract was written. An example would be an employment contract used in hiring a poker dealer for an illegal gambling operation. If gambling is illegal in the state, then the contract can not exist.
However, a contract for selling a deck of cards used in an illegal gambling establishment cannot be considered illegal since the actual cards and sale of them are not illegal. There is no illegal performance required in the act of selling or receiving the cards themselves.
Though it can sometimes be difficult to prove that a contract is illegal, in general, if any part of the contract asks one or more party to perform something that is illegal, the contract could be considered an illegal contract.
Examples of Illegal Contracts
While an illegal contract can occur during the formation or when anything in the contract requires illegal activities, below are some common examples of illegal contracts that occur.
- Contracts for the distribution or sale of controlled substances
- Contracts for activities that may be illegal in certain states such as gambling and prosecution
- Employment contracts used to hire underage workers
There are also some contracts that may be around subjects that are not specified as illegal but go against the policies of fair dealing and public policy. An example of this type of contract would be one that compels a party to perform labor in a way that would effectively force them to be a slave. While these statutes may not exist in a legal policy, the court will often treat these contracts as though they were illegal.
Another type of illegal contract often used is one that restricts trade or restricts an individual's right to perform trading. Since only laws are capable of restricting trade, these would be considered illegal and unenforceable.
When A Party Breaches an Illegal Contract, What Happens?
When a contract is determined to be illegal, it will immediately be deemed unenforceable and no longer exist. Since no enforcement can be made, the court will put the parties back to an "as they were" status before the breach occurred and neither party will be allowed to seek damages.
For example, if a person agrees to an employment contract where the performance is based on illegal activity, and they are not paid their wages, they cannot use the court to receive lost wages because the entire contract will be voided and treated as though it never was agreed to in the first place. There is no legal remedy for an illegal contract.
Should You Consult a Lawyer for Illegal Contract Issues?
When illegal contracts occur, there can be some unique challenges for both parties involved. Since damages are not able to be recovered, a person who is party to an illegal contract will run the risk of loss if the contract is not fulfilled. Because of this, it is beneficial to consult with a contract attorney before entering into an agreement to be sure that the contract is considered illegal or not.
If you need help with illegal contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.