Is a contract enforceable if it involves illegal activity?

What types of contracts may raise legality concerns?

A contract may face enforceability issues if it requires or promotes unlawful conduct, such as:

• Agreements that require illegal acts.
• Contracts that violate applicable statutes or regulations.
• Provisions that conflict with public policy.
• Agreements involving fraudulent or unlawful transactions.
• Contracts entered into for an illegal purpose.
• Terms that cannot legally be performed.

Whether the entire contract or only part of it is affected depends on the specific circumstances. Some contracts are unlawful from the moment they are formed, while others become impossible or unlawful to perform because of later legal changes. The legal consequences may differ depending on the circumstances.

What factors can affect enforceability?

If a contract is challenged because of alleged illegality, several facts may be important: 

• The nature of the illegal activity.
• Whether the unlawful provision is central to the agreement.
• Applicable federal, state, or local laws.
• Whether the remaining terms can stand on their own.
• The parties' conduct and intent.
• Any public policy considerations that apply.

The outcome often depends on the contract language and the laws governing the agreement.

What to do next…

1. Review the contract to identify the provision that may be unlawful.
2. Gather any documents and communications related to the agreement.
3. Determine whether the concern involves the entire contract or only a specific term.
4. Consider obtaining legal guidance before relying on or enforcing the agreement.

What to consider in your specific situation

• The type of contract and business relationship involved.
• The specific law or regulation that may have been violated.
• Whether the alleged illegality affects the entire agreement or only one provision.
• The parties' knowledge and intent when the contract was made.
• The stage of performance when the issue was discovered.
• Applicable federal, state, or local laws governing the contract.

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