Some examples of contracts that would be considered illegal are contracts for the sale or distribution of illegal
drugs, contracts for illegal activities such as loansharking, and employment contracts for the hiring of
undocumented workers.
An understanding of the several theories outlined herein for establishing (or challenging) capacity and legality
in contract law is essential to this area of law.
7.3
Breach of Contract and Remedies
Once a contract is legally formed, both parties are generally expected to perform according to the terms of the
contract. A breach of contract claim arises when either (or both) parties claim that there was a failure, without
legal excuse, to perform on any, or all, parts and promises of the contract.
Several inquiries are triggered when a breach of contract claims is initiated. The first step is to determine
whether a contract existed in the first place. If it did, the following questions may be asked: What did the terms
of the contract require of the parties? Were the contractual terms modified at any point? Did the breach
actually occur? Was the claimed breach material to the contract? Does any legal excuse or defense to
enforcement of the contract exist? What damages were caused by the breach?
Material vs. Minor Breach
The parties’ obligations and remedies for a breach of contract depend on whether the breach is considered
material or minor.
When something substantially different from what was expected under the terms of the contract is delivered,
the breach will be considered material. For example, the breach will be considered material if the contract
promises the delivery of Christmas ornaments, but the buyer receives a box of candies. In the case of a
material breach, the non-breaching party has the right to all remedies for breach of the entire contract and is
no longer expected to perform their obligations. In considering whether a breach is material, courts will
determine whether the non-breaching party still received a benefit, and if so, how much was received,
adequate compensation for the damages, the extent of the performance (if any) by the breaching party, any
hardship to the breaching party, the negligence or intent behind the behavior of the breaching party, and
finally, the possibility that the breaching party will perform the remainder of the contract.
There are times, however, that despite the breaching party’s failure to perform some of the contract, the other
party still receives a majority of the goods or services specified in the contract. In this case, the breach will be
E X A M P L E  7 . 5
In a state where gambling is illegal, two parties enter into an employment contract for the hiring of a
blackjack dealer. The contract would be void because the contract requires the employee to perform illegal
gambling activities. If the blackjack dealer tries to recover any unpaid wages for work completed, his claim
will not be recognized because the courts will treat the contract as if it never existed.
By contrast, parties enter a contract that involves the sale of dice to a known dealer in a state where
gambling is unlawful. The contract would not be considered void because the act of selling dice, in and of
itself, is not illegal.
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Chapter 7 Contract Law
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