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 What Is A Contract?

Simply put, a contract is an agreement between two private parties which creates mutual legal obligations for those parties. A contract can be either oral or written; however, oral contracts are more challenging to enforce and should generally be avoided.

Additionally, some contracts must be written in order for them to be valid, such as contracts that involve a significant amount of money. All valid contracts must include the following elements in order for them to be enforced:

  • An offer (paying $1,000 for 1,000 items);
  • Acceptance of the offer presented with (accepting $1,000 for 1,000 items);
  • A promise to perform (providing 1,000 items);
  • A valuable consideration ($1,000);
  • A time or an event of when the performance must be made (1,000 items exactly 2 weeks from now);
  • Terms and conditions for the performance (the items must be of a certain color); and
  • Performance (the 1,000 items are delivered, and the person is paid $1,000).

Contracts covered under the Statute of Frauds must be in writing. Examples of such contracts include:

  • Marriage contracts;
  • Contracts not to be performed within one year;
  • Interest in land contracts;
  • Paying a decedent’s debt guarantees; and
  • The sale of goods contracts which are over a specific amount.

What Elements Are Required For A Contract?

All contracts must have a legal purpose, and cannot be used for illegal purposes. An example of this would be contracting to commit a crime, such as hiring a hitman. Second, there must be a mutual agreement between the parties involved, which is also known as “the meeting of the minds.” One party must have offered something to another party for acceptance. An example of this would be how signing a contract shows that there is a mutual agreement among the parties.

Some offers may not have an expiration period; in such cases, the offer remains open for a “reasonable” amount of time. Additionally, offers can be revoked until acceptance occurs. Acceptance generally refers to agreeing to the terms of the offer. If there is any change to the terms in the acceptance, it would be considered a counteroffer.

Third, consideration is required for the contract to be legally valid. Consideration refers to when both parties agree to provide something of value in exchange for a benefit. Consideration can be something such as a vehicle or manual labor, but it must be something of actual value.

It is important to note that there is a distinct difference between gifts and promises. An example of this would be how if someone gifted you a handbag, it is not considered to be a contract. If someone promised to give you a handbag and then did not, there is still no contract. However, a contract exists when the handbag is being exchanged for completing a task promised to you by someone else. An example would be a statement such as “if you clean my gutters, then I will buy you a handbag.”

Fourth, the parties must all be legally competent. What this means is that minors and the mentally impaired cannot validly contract. Additionally, the party must be of a sound mind while contracting, and without the influence of drugs or alcohol. Finally, all parties must come to an agreement based on their own will. Contracts will be void if there is a mistake, duress, or fraud by one or more parties.

What Is An Illegal Contract?

A contract is considered to be an illegal contract when the subject matter of the agreement is associated with an illegal purpose that violates the law. Contracts are considered to be illegal if the formation or performance of the agreement will cause the parties to participate in illegal activities. It is important to note that this illegality must relate directly to the contents of the contract and not some other intervening force.

A contract or agreement that is considered to be illegal will not be considered a contract at all. As such, a court will not enforce it; rather, illegal contracts are said to be void or unenforceable, meaning that it will be as if the contract never existed. If either party breaches the contract, they will not be entitled to any remedies.

Illegal contracts are useful when they are used as a defense against a breach of contract claim. This is known as the “defense of illegality.” An example of this would be if one party tries to sue the other party for breach of contract, but the court finds that the contract is illegal. The party bringing the suit will not receive any damages, and the breaching party will not be held liable for a breach because the agreement itself is prohibited by law.

Something else to note is that depending on the situation and the contents of the contract, a court may enforce an illegal agreement if removing the illegal terms would make the rest of the contract legal and enforceable.

Common examples of illegal contracts include:

  • Contracts for the sale or distribution of controlled substances, such as drugs or drug paraphernalia;
  • Agreements made for illegal activities, such as prostitution or gambling; and
  • Employment contracts that permit hiring underage workers.

A contract may refer to a subject matter that is not specifically prohibited by law, but is considered to be against public policy and principles of fair dealing. These contracts will also fall under the category of “illegal contracts,” and cannot be enforced.

An example of a contract that is void because it violates public policy would be a contract that forces a party to perform labor that would amount to slavery. Another example would be covenants not to compete that are overly broad in scope, and would violate the notion of freedom of competition among businesses.

Can You Breach An Illegal Contract?

Simply put, if either party fails to fulfill their legal obligations under the contract, that party has breached the contract. When one party violates the contract, the other party will suffer economic losses. An example of this would be if you hired a construction company to complete a project according to a certain deadline, and that company failed to do so. You will most likely suffer financial losses because they failed to fulfill their obligations.

There are several options available to compensate for those losses. You can either sue for damages, demand specific performance, or terminate the contract. In the end, the court will decide the outcome and the amount of compensation.

It may be difficult to prove whether or not a contract is illegal. A general rule to follow would be that if the contract requires either of the parties to do something illegal, it is generally not enforced.

Additionally, illegal contracts prevent recovery for damages other than monetary damages. What this means is that recovery will not be permitted for contract rescission, restitution, and/or specific performance.

Do I Need An Attorney For Problems With An Illegal Contract?

If you are involved with an illegal contract, you should contact a contract attorney immediately. An experienced contract attorney can help you understand your legal rights and options, and will also be able to represent you in court, as needed.

You should also consult with a contract attorney before entering into any type of contract or agreement. They can draft, review, and ensure that the contract is legally enforceable, and ensure that your rights under the contract are protected.

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