Illegal Purpose: Breach of Contract Defenses in Texas

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Illegal Purpose: Breach of Contract Defenses in Texas

Under Texas law, illegal purpose is an affirmative defense to a breach of contract claim.  Under the defense of “illegal purpose,” the contract is said to be unenforceable as a matter of public policy.

That is, if the object or purpose of a contract is illegal, the contract may be “void” in the eyes of the legal system—and thus unenforceable.

The purpose behind this rule is not to protect or punish either party to the contract, but to benefit and protect the public.  However, a contract that could have been performed in a legal manner will not be declared void, illegal, and unenforceable merely because it may have been performed in an illegal manner or because illegal acts were committed in carrying it out.

What is an Illegal Contract?

Where the terms of a contract violate the constitution, statutes, or duly-enacted regulations, the contract may be held to be illegal and unenforceable.  A contract is illegal where it is made in violation of a statute or a regulatory rule, or where it is contrary to public policy.  A contract is also illegal where part of the agreement is to use the subject matter of the contract, or a part of it, for an unlawful purpose.

But where the illegality does not appear on the face of the contract it will not be held void unless the facts demonstrating its illegality are before the court.

The Effect of a Contract that Violates Public Policy.

Under Texas law, a contract to do something that cannot be performed without a violation of law is generally void.

Thus, even where the elements of a contract exist—that is, (1) a valid contract exists; (2) the plaintiff performed or tendered performance as contractually required; (3) the defendant breached the contract by failing to perform or tender performance as required; and (4) the plaintiff sustained damages due to the breach—a court may nonetheless refuse to enforce the contract.

In other words, such a contract is unenforceable even though it is supported by consideration.

Under Texas law, a contract made with a view of violating the laws of another country—even though it is not otherwise against the laws either of the forum or of the place where the contract is made, is illegal and will not be enforced.

 

Note, however, that if a prospective contract is unenforceable because it is void, the unenforceability of the contract provides a defense for tortious interference claims.