Courts will not enforce contracts that are illegal. An illegal contract either specifies prohibited goods or services, or requires illegal activity in order to fully perform its terms. Since international business by its nature involves multiple layers of law, contracts that would be perfectly legal in one country may be illegal in another and unenforceable in that country's courts.

Example: Gus and Marshall enter into a contract for the sale of hemp. While this contract is perfectly legal in countries that allow the cultivation and sale of hemp, the hemp would be an illegal subject of the contract if Gus took delivery of the hemp in a country that outlawed the product or tried to sue Marshall for breach of contract in such a country.

Illegality of performance can also negate a contract. If a contract for the sale of goods originating in Ireland requires that the shipment include a NAFTA certificate of origin, at least that clause of the contract is illegal and void. The goods are Irish, and cannot legally receive a NAFTA certificate of origin.

Intervening illegality can also affect contract validity. If a contract is legal in its terms when made, but subsequent laws outlaw performance or subject matter, the parties may have to abandon the contract. If possible, the illegal provisions can be severed from the agreement and performance can go forward. Otherwise, the parties are released from the contract. Both sides should check with their attorneys to make certain their obligations under the agreement are finished.

The variety of laws that may apply to international contracts heighten the possibility of illegality. Competent legal advice regarding the status of a contract's terms will help businesses avoid these difficulties.