Illegal Contracts: Are They Legally Binding?

Contracts are essential in any business agreement, ensuring that both parties hold up their end of the bargain. However, not all contracts are created equal. Some may be deemed illegal, meaning they go against the law or public policy. In such cases, the question arises: are illegal contracts legally binding?

The simple answer is no. Illegal contracts are not legally binding and are considered void. This means that neither party can enforce the terms of the contract or receive any benefits outlined in the agreement. However, there are certain circumstances in which an illegal contract may still be enforced.

Statutory Exceptions

In some cases, statutory exceptions may allow an illegal contract to be enforced. These exceptions may arise out of the public interest or the specific purpose of the statute. For example, some states allow a bride-to-be to recover payments made to a wedding vendor if the wedding is called off due to unforeseen circumstances, such as illness or death. This exception ensures that the vendor does not unfairly profit from the situation.

Severability

Another way in which an illegal contract may still be enforced is through the concept of severability. Severability allows a court to remove the illegal or unenforceable portions of a contract and enforce the remaining lawful terms. For example, if a contract between an employer and employee contains an illegal non-compete clause, the court may remove that clause and enforce the rest of the contract.

Ratification

A contract may also become legally binding if both parties knowingly and willingly agree to it after it has been deemed illegal. This is known as ratification and can occur if the parties are aware of the illegality of the contract but still choose to move forward with it. For example, if two parties enter into a contract to sell illegal drugs and then continue to make the sale, they have ratified the illegal contract.

Conclusion

In conclusion, illegal contracts are not legally binding and are considered void. However, there are certain circumstances in which an illegal contract may still be enforced. Through statutory exceptions, severability, and ratification, illegal contracts may be upheld in limited situations. As always, it is important to seek legal advice when entering into any contract to ensure that it is lawful and enforceable.