Before drafting or entering into a contract, it's important to know if your contract is legally enforceable. There are a few situations in which a court will not enforce a contract. For example, a valid legal contract requires that the parties entering into a contract be legally competent, meaning they have the mental capacity to be responsible for their actions and decisions. Thus, if a person enters into a contract but can't understand what he or she is doing by signing it, the court may decide that the person lacked the capacity to contract and not enforce it.
Courts will also not enforce any contract that is 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.
An Example of an Illegal International Contract
Let's assume that two individuals, 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 the validity of a contract. 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. If, on the other hand, the performance can't be completed without keeping the illegal provisions in place, the parties will be released from the contract. It's important for all parties to a contract to check with their attorneys to make certain their obligations under the agreement are finished so that they don't end up unintentionally breaching the contract.
Getting Legal Help
The variety of laws that may apply to international contracts heighten the possibility of that the contract, or aspects of the contract, will be illegal. Competent legal advice regarding the status of a contract's terms will help businesses avoid these difficulties. If you have questions or concerns about whether a contract you wish to enter into is illegal, it's in your best interest to contact a local business and commercial law attorney for guidance.
For more information and resources related to this topic, you can visit FindLaw's Business Contracts and Forms section.