A contract is considered illegal when the action required by one or both parties is against criminal or civil law or detrimental to the good of the public. An illegal contract can include a contract in which the end result is illegal or the steps to reach the end result are illegal. A contract can also be considered illegal if it goes against a previous contract. A court will not uphold an illegal contract in most cases, although this determination is left to the discretion of a judge. This gray area also allows a court to determine a contract is illegal even none of the actions detailed in the contract are against the law.
There are two main types of illegal contracts. The most common is a contract between two parties in which one agrees to exchange money or property for the illegal actions of the other. The simplest example of this would be one person hiring another to commit murder. A court will not require either party to hold up their end of the deal.
An illegal contract can also describe a contract in which one person agrees to provide another with money or property through illegal means. This could refer to a drug dealer promising to pay another dealer a percentage of earnings. In addition, if someone buys illegal drugs but doesn't pay for them, the dealer can't go to court to force the customer to pay up because the underlying transaction is illegal.
An agreement that requires a person to break an existing contract is also considered an illegal contract. This often exists in employment cases in which a potential employee goes to work for a new employer while still under contract with the current employer. In most instances, a court would probably rule that the employee must first satisfy the initial contract before entering into a new one; the second agreement would be considered an illegal contract and therefore void.
In almost every country, the legality of a contract is often a complicated issue, and, as a result, in many cases is left up to the discretion and interpretation of the court. While unusual, a court may uphold an illegal contract if there is no harm to either party or the public at large. This same discretion is also used to determine the legality of a contract where intent is concerned. The sale of weapons or household items may be legal; a court can determine, however, that the contract for sale is illegal if the buyer intends to commit a crime and the seller is aware of this intent.
Contract law varies greatly by jurisdiction. In an effort to avoid entering into an illegal contract, it is beneficial to hire an attorney to review any contract before it is signed. This review can protect both parties from future legal and financial problems.