Defenses to enforceability - Illegality, unconscionability, ...

Learning Outcomes

This article explains how illegality, unconscionability, and public policy operate as defenses to contract enforceability on the MBE, including:

• Identifying fact patterns showing illegality in formation or performance, and distinguishing regulatory from revenue-raising licensing statutes, usury, gambling, and agreements to commit crimes or intentional torts.
• Recognizing when contracts are void, voidable, or merely unenforceable in whole or in part, and linking that classification to remedies such as expectation, rescission, restitution, and severance of particular terms.
• Applying in pari delicto principles and protected-class doctrines to determine when a party may obtain recovery despite an illegal contract or a statutory or public-policy violation.
• Evaluating procedural and substantive unconscionability in consumer, employment, and commercial settings, especially in adhesion, arbitration, penalty, and exculpatory clauses, and predicting how courts may strike, limit, or blue-pencil those provisions.
• Assessing when noncompete agreements, restraints on marriage or family relationships, witness- or jury-tampering arrangements, and waivers of important statutory protections are void as against public policy.
• Structuring bar-exam essays and MBE explanations by separating formation issues from enforcement defenses and clearly addressing illegality, unconscionability, public policy, severability, and available remedies in a logical sequence.

MBE Syllabus

For the MBE, you are required to understand defenses to enforceability of contracts, with a focus on the following syllabus points:

• Illegality in contract formation or performance, including licensing and crime/tort agreements.
• The doctrine of unconscionability (procedural and substantive) and its remedies.
• Contracts void or unenforceable on public policy grounds (e.g., restraints of trade, interference with justice).
• The consequences of these defenses and when courts allow restitution despite them.
• How these doctrines are applied under both common law and the UCC.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is most likely to render a contract unenforceable?
   1. The contract is for the sale of goods worth $400.
   2. The contract is for a legal service, but the provider is unlicensed in a state requiring a license for protection of the public.
   3. The contract is for the sale of a car between two friends.
   4. The contract is for a service performed by a minor.
2. A court will most likely refuse to enforce a contract term if:
   1. The term is unfavorable to one party but was freely negotiated.
   2. The term is so one-sided that it shocks the conscience and was imposed in a standard form contract.
   3. The term limits damages to direct losses only.
   4. The term requires written notice of breach.
3. Which contract is most likely void as against public policy?
   1. A contract to pay a witness for truthful testimony.
   2. A contract to pay a witness for not appearing in court.
   3. A contract to sell a business.
   4. A contract to lease office space.

Introduction

Contracts may be unenforceable even if offer, acceptance, and consideration are all present. The main enforcement defenses tested on the MBE are illegality, unconscionability, and public policy. These doctrines are invoked by a party when sued on a contract; they do not prevent contract formation, but they give a court a reason to refuse enforcement.

They serve several goals:

• Preventing courts from assisting parties in carrying out crimes, torts, or statutory violations.
• Refusing to enforce bargains that were imposed in an oppressive or fundamentally unfair way.
• Protecting important societal interests, such as the integrity of the judicial system or freedom of competition.

Key Term: Illegality
A contract is illegal if its subject matter, consideration, or required performance is prohibited by law or requires a party to commit a crime or tort.

Key Term: Unconscionability
Unconscionability is a defense where a contract or term is so unfair or oppressive that no reasonable person would agree to it, and no fair person would impose it, given the circumstances at the time of formation.

Key Term: Procedural Unconscionability
Procedural unconscionability concerns unfairness in the bargaining process—such as surprise, oppression, or lack of meaningful choice—rather than the content of the term itself.

Key Term: Substantive Unconscionability
Substantive unconscionability concerns the harshness or one-sidedness of the contract terms themselves, as opposed to how the contract was made.

Key Term: Public Policy
A contract or term violates public policy if, although not necessarily criminal, it contravenes established societal interests recognized by statutes or common law (for example, obstructing justice or unreasonably restraining trade).

Key Term: In Pari Delicto
Parties are in pari delicto when they are equally at fault in relation to an illegal bargain; a party who is not in pari delicto may sometimes obtain relief that would be denied to an equally culpable party.

Key Term: Adhesion Contract
An adhesion contract is a standard form contract drafted by the stronger party and offered on a “take-it-or-leave-it” basis to a party with little or no ability to negotiate its terms.

Key Term: Exculpatory Clause
An exculpatory clause is a term purporting to relieve a party from liability for future conduct, usually negligence.

Key Term: Noncompete Agreement
A noncompete agreement (or covenant not to compete) restricts a party’s ability to engage in a competing business or occupation after the relationship ends.

Key Term: Severability
Severability is the principle that a court may strike an illegal or unenforceable term while enforcing the remainder of the contract if the legal parts can stand on their own.

Key Term: Regulatory Licensing Statute
A regulatory licensing statute is a law requiring a license to protect the public (for example, for doctors, lawyers, or certain contractors); contracts made in violation of such statutes are often unenforceable by the unlicensed party.

Key Term: Protected Class
A protected class is a group that legislation is designed to protect (for example, employees under wage-and-hour laws); a member of a protected class may sometimes enforce a contract even when it violates a statute intended for their benefit.

Key Term: Blue Pencil Rule
The blue pencil rule is the approach by which a court narrows or reformulates an overbroad provision (such as a noncompete) to make it reasonable, rather than striking the entire provision.

Key Term: Restitution
Restitution is recovery based on unjust enrichment—typically the value of a benefit conferred—rather than on enforcing the contract’s terms.

Key Term: Void vs Voidable
A void contract creates no legal rights or obligations from the outset; a voidable contract is valid and enforceable unless and until the entitled party elects to avoid it.

Enforcement Defenses vs. Formation Defenses

Illegality, public policy, and unconscionability are usually treated as enforcement defenses, not formation defenses. The parties may have had a “meeting of the minds,” but the court declines to aid one party in enforcing the bargain.

This is different from:

• Mistake, misrepresentation, duress, incapacity, which go to whether a valid contract was formed at all.
• Statute of Frauds, which focuses on whether certain contracts were properly memorialized.

On the MBE, expect to see these doctrines raised when one party is sued for breach and argues that the court should not assist the other party in enforcing all or part of the contract.

A useful way to think about the distinction:

• Formation defenses say: “There never was a contract (or it is voidable at my option).”
• Enforcement defenses say: “Even if there is a contract, the court should not enforce it (or this part of it) because of the nature of the bargain.”

That distinction often matters for restitution: a party may be able to recover in restitution even when the contract itself is not enforceable.

Illegality

A contract is unenforceable if its formation or performance involves illegal conduct. Illegality can arise in several ways:

• The contract’s subject matter is criminal or tortious (e.g., a murder-for-hire agreement).
• The consideration is illegal (e.g., paying someone with contraband).
• The contract requires performance that violates a statute (e.g., usurious interest rates, unlicensed professional services under a regulatory licensing scheme, illegal gambling).

The MBE typically tests illegality in three settings:

• Agreements to commit crimes or intentional torts.
• Agreements that violate specific regulatory statutes (usury, licensing, gambling).
• Employment or service contracts where the provider lacks a required license.

When is a contract “illegal”

Common categories include:

• Agreements to commit crimes (e.g., arson, bribery, drug trafficking).
• Agreements to commit intentional torts (e.g., battery, fraud).
• Agreements that violate specific statutes, such as:
  • Usury statutes (charging interest above the legal maximum).
  • Gambling prohibitions.
  • Insurance statutes (e.g., unauthorized insurers).
• Contracts by unlicensed professionals where the licensing statute is regulatory (designed to protect the public), such as:
  • Lawyers, doctors, accountants.
  • Contractors in residential construction or electrical work.
  • Real estate brokers (in many jurisdictions).

By contrast, if a licensing requirement is merely revenue-raising (intended to collect fees rather than protect the public), many courts will still enforce the contract, though the unlicensed party may face administrative penalties.

Exam Tip:
When you see an unlicensed contractor on the MBE, ask:

• Does the statute expressly say that unlicensed contracts are void or unenforceable?
• Is the purpose public protection (safety, competence) or just raising revenue?

If it is clearly regulatory, assume the unlicensed party cannot enforce the contract price. If it is purely revenue-oriented, assume the contract may still be enforced, with the government separately enforcing the licensing requirement.

Effect of illegality

• An illegal contract is generally void: neither party may sue for expectation damages, and courts will typically leave the parties where they find them.
• Courts will not enforce the bargain or grant restitution to an equal wrongdoer.
• If the contract is only partly illegal, the legal part may be enforced if it can be separated without defeating the contract’s main purpose (this is where severability comes in).
• A party that has not yet performed under an illegal contract normally cannot be compelled to perform; if both still have executory obligations, the court simply refuses enforcement.

Worked Example 1.1

A agrees to pay B $5,000 to burn down a competitor's warehouse. B takes the money but does not perform. Can A recover the money?

Answer:
No. The contract is for an illegal act (arson). Courts will not enforce the contract or assist either party. Because the agreement is criminal on its face and the parties are in pari delicto, A cannot recover the money.

Licensing statutes

Licensing issues are a standard MBE pattern. You must distinguish:

• Regulatory statutes that protect the public (e.g., medical license requirements, home-improvement licensing aimed at safety and competence).
• Revenue-raising statutes that mainly collect money (e.g., a city business license fee with minimal qualification requirements).

Typical results:

• Violation of a regulatory licensing statute:
  • The unlicensed party usually cannot recover the contract price.
  • Some courts also deny restitution, but a few allow restitution for work that was properly done to avoid unjust enrichment.
• Violation of a revenue statute:
  • The contract is often enforceable, but the unlicensed party may be fined or sanctioned by the government.

Worked Example 1.2

A home-improvement statute in State X requires all residential contractors to hold a license “for the protection of homeowners.” An unlicensed contractor fully and properly renovates Owner’s kitchen for $20,000. Owner refuses to pay and the contractor sues for the price.

Answer:
Because the licensing statute is regulatory and intended to protect the public, most courts will refuse to let the unlicensed contractor enforce the contract. The contract is treated as illegal for enforcement purposes. Some jurisdictions might allow limited restitution to avoid unjust enrichment, but on the MBE you should assume the contractor cannot recover expectation damages.

Exam Tip:
Be careful when the problem specifies that the owner knew the contractor was unlicensed. Many courts still refuse enforcement to the unlicensed party; the illegality is about protecting the public, not about protecting the particular homeowner.

Contracts merely related to an illegal act

A contract that is not itself illegal but is entered into in contemplation of an illegal act is still generally enforceable, so long as performance does not itself violate the law.

• Selling an ordinary product to someone you suspect may use it illegally does not automatically make the sales contract illegal.
• However, if the seller agrees to assist the illegal scheme (e.g., agrees to falsify invoices, hide transactions, or share in illegal proceeds), the contract may cross the line into illegality.

The more actively the party is involved in the illegal plan, the more likely the contract will be void for illegality or public policy.

Parties not in pari delicto and protected classes

Even where illegality is present, a court may grant relief to a party who is less at fault or belongs to a protected class:

• A party who is not in pari delicto (less culpable or misled about the illegality) may sometimes rescind and recover money paid.
  • Example: A wage earner pays a “consultant” for advice on how to fraudulently obtain government benefits, believing the plan is legal. The court may allow the wage earner to recover the fee.
• Members of a protected class (e.g., employees under a minimum-wage statute, borrowers under usury statutes) are often allowed to enforce the contract despite the statute’s violation, because refusing enforcement would undermine the statute’s purpose.

Courts may also allow restitution when:

• The party seeking relief withdraws from the illegal purpose before it is carried out.
• Denying recovery would give the more culpable party a significant unjust windfall.

On the MBE, if the statute is clearly intended to protect one side, assume that side has stronger arguments for enforcement or restitution even if the statute was technically violated.

Restitution and illegality

Because illegal contracts are usually void, traditional contract remedies (expectation damages, specific performance) are unavailable. But the question remains: can a party ever recover in restitution for benefits conferred under an illegal contract?

General patterns:

• If the parties are equally at fault (in pari delicto), courts typically refuse both contract and restitutionary remedies.
• If the plaintiff is less at fault, in a protected class, or withdrew before the illegal purpose was carried out, courts may allow restitution to prevent unjust enrichment.
• Some courts permit restitution up to the extent allowed by statute (for example, borrower can recover interest paid above the usury cap but must still pay legal interest and principal).

On the MBE, unless facts clearly invoke an exception:

• Assume no recovery on an illegal contract.
• Recognize that the protected party may still recover.

Partial illegality and severability

Contracts often contain multiple promises. If only one clause is illegal (for example, an overbroad penalty or usurious interest term), a court may:

• Strike the unlawful clause and enforce the rest; or
• “Blue pencil” the clause by reducing it to a lawful limit, if consistent with the parties’ intent and jurisdictional practice.

Whether courts take a “blue pencil” approach or simply void the clause depends on the jurisdiction and the nature of the term. For purposes of the MBE, you can assume:

• If the illegal term is ancillary and the contract makes sense without it, courts may enforce the rest.
• If the illegal term goes to the main purpose of the contract (e.g., payment for a crime), the entire contract is void.

Worked Example 1.3

A lender agrees in writing to loan Borrower $10,000 at 30$10,000 plus $3,000 interest, then sues to recover the interest.

Answer:
The interest rate violates the usury statute, so the interest provision is illegal. Most courts will treat only the usurious term as illegal, not the entire loan. Typically, Borrower can at least recover interest paid above the legal maximum (here, the extra 15%), and may sometimes recover all interest. The principal remains due. The exact remedy depends on the statute, but the key MBE point is that only the illegal part is severed.

Unconscionability

Courts may refuse to enforce a contract, or a particular term, that is unconscionable at the time of formation. This doctrine appears both in the UCC (e.g., UCC § 2-302) and in common law.

Unconscionability typically has two aspects:

• Procedural unconscionability – problems in the process of making the contract.
• Substantive unconscionability – problems with the contract terms themselves.

Most courts look for some of each, on a sliding scale: the more oppressive the term, the less serious the procedural unfairness must be, and vice versa.

Procedural unconscionability

Procedural unconscionability focuses on how the contract was made. Indicators include:

• Surprise:
  • Hidden terms in fine print or dense legalese.
  • Terms placed on the back of a form or in an inconspicuous location.
  • Terms not reasonably brought to the weaker party’s attention (especially in consumer transactions).
• Sharp practices:
  • High-pressure sales tactics.
  • Rushing a signatory at closing.
  • Misrepresenting the meaning or importance of terms.
• Significant disparity in bargaining power:
  • Large institutional seller vs. individual consumer.
  • Employer vs. unemployed individual needing the job.
• Lack of meaningful choice:
  • The weaker party has no practical alternative (e.g., essential service available only on oppressive terms).
  • “Take-it-or-leave-it” adhesion contracts in markets where no reasonable substitute is available.

Adhesion contracts are common, especially under the UCC, but they are not automatically unconscionable. The key is whether, in light of the parties’ circumstances and the market, the weaker party had any real choice and any meaningful opportunity to understand or negotiate the term.

Substantive unconscionability

Substantive unconscionability focuses on the content of the term:

• One-sided remedy terms:
  • Seller can repossess all items for a small default; buyer has limited remedies.
  • Employer can compel arbitration but keeps right to go to court.
• Extreme price terms:
  • Grossly excessive price relative to market value.
  • Exorbitant interest rates combined with harsh default charges.
• Harsh forfeitures or penalties:
  • Loss of all equity for a minor payment delay.
  • Liquidated damages far exceeding reasonably anticipated harm.
• Exculpatory clauses that purport to relieve a party from:
  • Intentional or reckless misconduct.
  • Gross negligence.
  • Violation of important statutory duties (e.g., landlord’s duty to maintain common areas).

Not every harsh or unfavorable term is unconscionable. Courts reserve this doctrine for terms that “shock the conscience” given the relative positions of the parties.

Worked Example 1.4

A consumer signs a standard form contract with a lender. The contract contains a clause allowing the lender to repossess all of the consumer's property for any missed payment, even if the missed payment is $1. The consumer misses a$1 payment and the lender seeks to enforce the clause.

Answer:
The court may find the repossession clause unconscionable. The contract is likely an adhesion contract, the clause is buried in fine print, and the remedy (repossession of all property for a trivial default) is grossly one-sided. A court may strike or limit the clause while enforcing the rest of the contract.

Unconscionability under the UCC

Under UCC § 2-302:

• The court may refuse to enforce the contract, enforce the remainder without the unconscionable clause, or limit application of the clause.
• The parties must be given a reasonable opportunity to present evidence as to the commercial setting, purpose, and effect of the term.
• The judge decides unconscionability as a matter of law, though factual development may be needed.

The UCC applies this doctrine primarily to sales of goods, but common-law courts often adopt similar reasoning in service and employment cases.

Exam Tip:
If a problem mentions that the judge is holding a hearing on the commercial background of a clause, and the clause looks harsh and one-sided, think UCC unconscionability.

Arbitration clauses and unconscionability

Modern MBE questions sometimes feature arbitration clauses. Such clauses are not automatically unconscionable, but red flags include:

• Requiring the weaker party to arbitrate all claims while leaving the stronger party free to sue.
• Imposing large up-front or forum fees on the weaker party.
• Selecting a distant forum that is impractical for the weaker party.
• Severely limiting discovery or remedies (e.g., prohibiting statutory damages).

The more one-sided and burdensome the arbitration term, especially in an adhesion contract with a consumer or low-wage employee, the more likely a court is to find it unconscionable.

Worked Example 1.5

An electronics retailer’s standard form sales contract requires consumers to arbitrate all disputes in a distant state and pay an initial arbitration filing fee of $5,000, regardless of the amount in dispute. The retailer remains free to sue in court for unpaid balances. A consumer sues the retailer in her home state for breach of warranty, and the retailer moves to compel arbitration under the clause.

Answer:
A court may find the arbitration clause unconscionable. Procedurally, the clause is in a standard form contract presented on a take-it-or-leave-it basis. Substantively, the clause is extremely one-sided: consumers must bear prohibitive fees and travel burdens, while the retailer retains access to courts. A court may refuse to enforce the arbitration requirement or rewrite it to eliminate the unconscionable features.

Remedies for unconscionability

If unconscionability is found, a court may:

• Refuse to enforce the contract at all.
• Enforce the contract without the unconscionable term.
• Limit the application of the unconscionable term to avoid an unfair result.

The choice among these options often turns on:

• Whether the unconscionable term was central to the bargain.
• Whether the contract makes sense without the term.
• The relative fairness of allowing partial enforcement.

Because the goal is to avoid unfair surprise and oppression, courts are more willing to cut back individual terms than to void an entire transaction, especially when the parties have partly performed.

Public Policy

Even if a contract is not criminal or statutorily illegal, it may be unenforceable if it violates public policy. Public policy is derived from statutes, case law, and widely accepted societal interests.

Examples include:

• Contracts unreasonably restraining marriage or family relationships.
• Contracts unreasonably restraining trade (overbroad noncompete agreements).
• Contracts that interfere with the administration of justice (e.g., paying a witness not to testify).
• Contracts that require waiver of essential legal rights in a way contrary to statute (e.g., exculpatory clauses covering statutory employer duties).
• Contracts that require illegal discrimination or further serious wrongdoing, even if not criminal.

Worked Example 1.6

A and B enter into a contract where A promises to pay B $10,000 if B agrees not to testify in a lawsuit against A. Is this contract enforceable?

Answer:
No. The contract is void as against public policy because it interferes with the administration of justice. Even though paying someone is not itself illegal, using payment to suppress testimony undermines the court system, so the agreement is unenforceable.

Restraints of trade: noncompete agreements

Noncompete agreements are common on the MBE. They are enforceable only if reasonable:

• Ancillary to a legitimate relationship:
  • The sale of a business.
  • An employment relationship.
  • A partnership or LLC agreement.
• Reasonable in scope:
  • Time: typically months or a few years, not decades.
  • Geographic area: limited to where the employer actually does business or has legitimate interests.
  • Type of activity: limited to competing activities, not an entire field unrelated to the employer’s business.

Overbroad noncompete agreements may be:

• Struck down entirely; or
• “Blue penciled” to reasonable limits in some jurisdictions (a form of severability).

In assessing reasonableness, courts balance:

• The employer’s legitimate interest (e.g., protecting trade secrets, customer relationships, goodwill).
• The employee’s interest in earning a living.
• The impact on the public (e.g., access to professionals).

Worked Example 1.7

Seller sells a small neighborhood bakery to Buyer and agrees “never again to operate any food-related business anywhere in the United States.” Buyer sues to enforce the clause when Seller opens a local coffee shop.

Answer:
The covenant not to compete is likely unreasonable and void as against public policy. It is broader than necessary in geography (“anywhere in the United States”) and scope (“any food-related business”) to protect the bakery’s local goodwill. A court may refuse to enforce the clause entirely or narrow it to a reasonable time and area if the jurisdiction permits blue penciling.

Exam Tip:
A noncompete ancillary to a sale of a business is given more leeway than one in ordinary employment, because the seller received a sale price for the goodwill. Still, the covenant must not be substantially broader than the goodwill being protected.

Exculpatory clauses and public policy

An exculpatory clause that releases a party from liability for ordinary negligence may be enforceable in some contexts (for example, recreational activities) if:

• The language is clear and conspicuous.
• The activity is genuinely voluntary (e.g., skiing, bungee jumping).
• No statute prohibits such waivers.

However, clauses that attempt to exempt a party from:

• Liability for intentional, reckless, or grossly negligent conduct, or
• Statutory duties designed to protect the public (for example, employer safety obligations, residential landlord duties in many jurisdictions),

are typically void as against public policy.

Common examples that are often invalid:

• A landlord’s clause purporting to waive all liability for injuries due to failure to maintain common areas.
• An employer’s clause purporting to waive all workers’ compensation rights.
• A hospital’s clause purporting to waive liability for professional negligence in emergency care.

Worked Example 1.8

A ski resort includes, in small print on the back of every lift ticket, a clause stating that the resort is not liable for any injuries, “even those caused by the resort’s own negligence in maintaining lifts in a safe condition.” A patron is injured when a lift cable snaps due to the resort’s failure to perform required inspections. The resort invokes the clause.

Answer:
Many courts would treat this exculpatory clause as void against public policy. The resort operates a potentially dangerous facility and owes statutory and common-law duties to maintain equipment safely. A blanket waiver of liability for its own negligence in this context is likely unenforceable, especially given the lack of meaningful notice. The patron can sue despite the clause.

Other public policy concerns

Contracts may be unenforceable where they:

• Unduly restrict the right to marry:
  • Promises never to marry.
  • Substantial gifts conditional on remaining unmarried, without legitimate justification.
• Encourage or reward divorce:
  • Agreements that pay a spouse to initiate divorce.
• Interfere with parental duties or custody determinations:
  • Payments to a parent to surrender custody in ways that disregard the child’s best interests.
  • Agreements that predetermine custody outcomes regardless of future circumstances.
• Require illegal discrimination:
  • Agreements to refuse to hire or serve someone based on protected characteristics in violation of civil rights statutes.
• Interfere with the integrity of governmental processes:
  • Contracts for lobbying may be valid if they involve lawful advocacy, but agreements to use improper influence, bribes, or undisclosed payments are void.

Courts weigh:

• The interest in freedom of contract.
• The severity of harm to public interests.
• The clarity of the public policy (clear statutory policies are applied more robustly than vague notions of morality).

Public policy vs. illegality vs. unconscionability

On the MBE, these doctrines can overlap. Keep them conceptually distinct:

• Illegality usually involves:
  • Contracts whose performance would violate a statute or require a crime or tort.
• Public policy covers:
  • Contracts that do not necessarily violate a statute but undermine important interests (family, courts, fair competition).
• Unconscionability focuses on:
  • Extreme unfairness and oppression, especially in the contracting process and terms.

The same clause might be attacked on multiple grounds. For instance, an exculpatory clause that waives liability for intentional battery could be described as both unconscionable and void as against public policy.

Exam Warning

Courts distinguish between contracts that are illegal by statute and those merely contrary to public policy. Not all unfair or undesirable contracts are void—there must be a clear violation of law or policy. On the MBE, identify:

• Whether a statute expressly prohibits the bargain (illegality),
• Whether the term is so one-sided it is unconscionable, or
• Whether the agreement undermines a recognized public interest (public policy).

Also pay attention to remedies:

• Illegal contracts are generally void; no enforcement and limited restitution.
• Public policy and unconscionability often lead courts to refuse enforcement of specific terms while enforcing the rest, especially through severability or blue penciling.

Revision Tip

When a contract seems grossly unfair or involves prohibited conduct, ask three questions:

• Does performance require a crime, tort, or statutory violation? → Illegality.
• Was the term imposed in a way that left the weaker party with no real choice, and is the term itself shockingly one-sided? → Unconscionability.
• Does the agreement interfere with marriage, trade, or the justice system, or waive important statutory rights? → Public policy.

Then consider:

• Is the entire contract tainted, or only a clause?
• Is any party in a protected class or clearly less at fault?
• Is restitution available even if the contract is not enforced?

Being explicit about these steps will help you organize MBE and essay answers quickly.

Key Point Checklist

This article has covered the following key knowledge points:

• Illegality renders a contract void or unenforceable if it requires criminal, tortious, or prohibited conduct, or violates a regulatory licensing statute.
• Illegal contracts are generally void; courts will not aid either party unless an exception applies (e.g., unequal fault, protected class, withdrawal before performance).
• A contract entered in contemplation of an illegal act, but not itself requiring illegal conduct, may still be enforceable if performance remains lawful.
• Restitution may be available despite illegality when the plaintiff is not in pari delicto, is in a protected class, or withdraws before the illegal purpose is carried out.
• Partial illegality can be handled through severability; courts may strike or “blue pencil” an offending provision while enforcing the lawful remainder.
• Unconscionability allows courts to refuse to enforce contracts or terms that are extremely unfair, focusing on both procedural and substantive aspects at the time of formation.
• Adhesion contracts are not automatically unconscionable, but they are scrutinized closely when combined with harsh, one-sided terms or oppressive circumstances.
• Courts may respond to unconscionability by striking an offending term, limiting its application, or refusing to enforce the entire contract, especially under UCC § 2-302.
• Contracts may be unenforceable if they violate public policy, even if not strictly illegal—for example, overbroad noncompetes, contracts encouraging divorce, or agreements to suppress testimony.
• Noncompete agreements must be reasonable in time, geography, and scope and ancillary to a legitimate business interest; overbroad restraints of trade are subject to invalidation or narrowing.
• Exculpatory clauses attempting to waive liability for intentional misconduct, gross negligence, or statutory duties are typically void as against public policy, though clauses for ordinary negligence in recreational settings may be enforceable.
• Public policy, illegality, and unconscionability are all enforcement defenses; they assume formation but restrict what courts will enforce and what remedies are available.

Key Terms and Concepts

• Illegality
• Unconscionability
• Procedural Unconscionability
• Substantive Unconscionability
• Public Policy
• In Pari Delicto
• Adhesion Contract
• Exculpatory Clause
• Noncompete Agreement
• Severability
• Regulatory Licensing Statute
• Protected Class
• Blue Pencil Rule
• Restitution
• Void vs Voidable