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Question

Can I be sued for refusing to perform an illegal contract?

I realized the contract may require something illegal, so I stopped performing. Can the other party still sue me?

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Answer

Possibly. A person can file a lawsuit even if a contract may involve illegal activity. However, whether they can successfully enforce the agreement depends on the facts, the nature of the alleged illegality, and the applicable law.

In general, courts do not enforce contracts that require illegal conduct or violate public policy. Even so, disputes can arise over whether the contract is actually illegal, whether only part of the agreement is affected, and what legal remedies may be available. 

However, a party generally should not assume a contract is illegal without careful analysis, because refusing to perform a lawful contract may itself create liability.

When can refusing to perform be justified?

Questions about performance may arise if the contract appears to require unlawful conduct, such as:

  • The agreement requires an illegal act.
  • A contract provision violates applicable law.
  • Performance would conflict with a legal or regulatory requirement.
  • The contract's purpose is unlawful.
  • A law changed after the contract was signed.
  • Only part of the agreement may be affected by the alleged illegality.

Whether refusing to perform is legally justified depends on the specific facts and governing law.

What happens if the other party files a lawsuit?

A lawsuit does not necessarily mean the contract will be enforced. If the agreement's legality is disputed, that issue may become a central part of the case. Relevant factors may include:

  • The nature of the alleged illegal activity.
  • Whether the entire contract or only one provision is affected.
  • The parties' conduct before and after signing.
  • Applicable federal, state, or local laws.
  • Whether the remaining parts of the agreement can stand on their own.
  • The remedies available under the law.

The outcome will depend on how these issues are resolved.

What to do next…

  1. Review the contract and identify the provision that may be unlawful.
  2. Gather documents and communications related to the agreement.
  3. Document why you believe performance may be illegal.
  4. Consider obtaining legal guidance before deciding whether to continue or refuse performance.

What to consider in your specific situation

  • The type of contract and the nature of the alleged illegal activity.
  • Whether the concern involves the entire agreement or a specific provision.
  • Whether one or both parties participated in the illegal conduct when deciding whether any legal remedy is available.
  • The laws or regulations that may apply.
  • The stage of performance when the issue was discovered.
  • The parties' communications and conduct after the concern arose.
  • The potential financial and business impact of stopping performance.

Since every situation is different, consider getting more information through Rocket Copilot or an attorney review to move forward more confidently.

Published on 07/31/2026Written by Laura BojartReviewed by Legal Pros

At Rocket Lawyer, we follow a rigorous editorial policy to ensure every article is helpful, clear, and as accurate and up-to-date as possible. This page was created, edited and reviewed by trained editorial staff who specialize in translating complex legal topics into plain language, then reviewed by experienced attorneys to ensure legal accuracy.

Please note: This page offers general legal information, but not legal advice tailored for your specific legal situation. Rocket Lawyer Incorporated isn't a law firm or a substitute for one. For further information on this topic, you can Ask an Attorney.

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Disclosures

  1. This page offers general legal information, not legal advice tailored for your specific legal situation. Rocket Lawyer Incorporated isn't a law firm or a substitute for one. For further information on this topic, you can Ask an Attorney.