A contract may be ruled to be illegal by any court of law. Illegality can become an issue even if the normal requirements of acceptance of offers, consideration, contractual capacity, are present. Illegal contracts typically do not result in any liability for the involved parties. The courts may rule an illegal contract exists regardless of whether or not the parties involved in the suit raise the issue, even if the two parties believe the contract to be legal.

A severable or divisible contract may be formed by the parties to the contract or may result from actions of the courts. The parties can create a severable contract by including a severence clause into the original contract. A severance clause is a clause which states that if there is one other contractual clause that would cause the contract to be considered illegal, then the offending phrase should be stricken from the contract, so long as the removal of the clause does not substantially alter the original nature of the contract. 

Divisible contracts are similar contracts entered into by the same parties which have similar terms but can be completed independently of each other. A court may form a severable contract by utilizing a blue pencil test. If the offending phrase in a contract can be removed from the contract without enacting any change besides turning an illegal contract into a legal one, then the change passes the blue pencil test.

Contract laws generally prohibit contracts that restrain trade. Contracts restraining trade are defined as contracts that reduce the level of competition involved in the commercial exchange of goods or services. Contracts that restrain trade are considered a classification of contracts that are contrary to public policy.

These kinds of contracts are sometimes defined by contract laws as covenants not to compete and sometimes as non-competition contracts. Whichever they are known as, though, they are illegal and are thus considered unenforceable. 

Elements of contracts that restrain trade are generally permissible if they are limited in scope or duration. A contract is permissible if it compels a party to the contract to relinquish the right to make a particular thing, but not if it attempts to force one of the parties to the contract to not compete with the other in any way in the future.

Contracts are permitted to contain non-competition clauses if the clause exists in order to protect business secrets of the employer, or if the non-competition element of the contract seeks to limit a former employee from utilizing business contacts which are considered essential to the operations of the company with which the original contract was signed.

A contract can be challenged by one of the parties to the contract if they claim their assent was not genuine because they were subject to undue influence. Undue influence is said to exist if an inordinate amount of pressure is placed upon a party to enter into a contract against their best interests. Undue influence cannot be invoked by a party simply because they are in a detrimental contract. 

Undue influence is usually only claimed in the event that the party is in a relationship wherein another person is able to influence their decisions. Normally undue influence can only be successfully claimed by a minor or an elderly person who has a guardian responsible for overseeing their legal or financial obligations.

Other relationships in which undue influence may arise include attorney-client relationships, doctor-patient relationships, and the relationships between the beneficiaries of a trust and the individual responsible for managing the trust.

An occurrence of undue influence can be difficult to establish conclusively in court. There is sometimes an automatic presumption of undue influence by the courts. A presumption of undue influence can be established if the party in the superior position influenced the dependent party to agree to a contract that benefited the superior party.

If the dependent party challenges a party that they were influenced to create by their guardian, the courts are likely to issue a presumption of undue influence because they believe that if the contract did not arise due to undue influence, then the dependent would not be challenging the contract.

The guardian involved in a court case in which the genuineness of assent in a contractual dispute involves a presumption of undue influence often bears the responsibility of disproving the charge filed against them by their ward. The undue influence charge is often repudiated by presenting evidence that the ward inquired about the terms of the contract or was afforded the opportunity to consult with an independent party that did not have a direct stake in the contractual negotiations that are being challenged.

The guardian can disprove that there has been an occurrence of undue influence even if there was a benefit conveyed to the guardian if they can demonstrate that the ward received a full disclosure of the benefit that the guardian would derive from the contract. If the guardian can prove that full disclosure was presented to the ward, that the ward obtained independent analysis of the benefits that all involved parties would receive, then the presumption of undue influence can be disproven.

In the event that undue influence is found to have existed by the courts, the courts will declare the contract to be voidable by the ward. Undue influence, however, cannot be claimed by a ward that acted upon the innocent advice of their guardian yet was harmed by the contract in a way that did not benefit the guardian.

Fraudulent misrepresentation by silence may result during a long contract negotiation if one of the parties to the contract withholds material information they learned during the negotiation process.

A severable contract is a contractunenforceable that can still remain in effect despite those provisions which are void. In order for the blue pencil test to be satisfied, the phrase stricken by the court must not result in a change to the purpose for which the contract was created by the parties. The contract must still make grammatical sense after the edits have been made to the contract. Otherwise the contract will not be considered to have become a severable contract.

A severable contract can be formed if the parties who entered into the contract do not consider it essential that all the actions be performed together. Divisible contracts may exist if a convenience store orders the soda, chips and candy it sells from the same company in three separate clauses. An indivisible contract is formed if the store hired a vendor to provide the soda, chips, and candy in a single clause. 

Whether divisible contracts or indivisible contracts have been formed can often be determined by examining the terms under which consideration has been provided. If the set of contracts provide the consideration in a lump sum, it is usually an indivisible contract. If consideration is itemized for each thing exchanged, a severable contract often exists.

If a contract contains both legal and illegal clauses, the court will attempt to enforce only the legal clauses in the event the contract is already a severable contract. If the court can employ a blue pencil test to create a severable contract, it will.

During the contract drafting process every attention must be paid to ensuring that an illegal contract is not created. As a result, individuals responsible for contract drafting employ several safeguards to attempt to decrease the probability that they create an illegal contract.

Some of these preventative methods include using boilerplate language, which are terms used in a majority of contract drafting negotiations, as well as employing lawyers or people with a legal background in the contract drafting. However, even when these safeguards are employed, illegal contracts can still result.

Even if illegality is found to exist in a contract, it may still be enforceable in pari delicto, then a legal contract will not be ruled to exist.

If the violation of the law in question is not of a serious nature, then the illegal contract may be enforced as if it were a legal contract. If the compensation that would have to be provided in the event the contract was declared illegal would be out of proportion to the infraction of the concerned law, then the contract may be enforced as if it were a legal contract. The agreement may also be treated as a legal contract if the court determines that there would be an unjust enrichment to one of the parties in the event that the contract drafting was set aside.

If a contract is ruled to be illegal after actions have been done by one of the parties which cost money, the idea of quantum meruit may come into play. Under quantum meruit, which means “as much as deserved,” an individual may be able to recoup expenses in proportion to their outlay of money for services performed in an illegal contract if they performed the actions under the belief they were executing a legal contract.

Unlike in a legal contract, quantum meruit does not entitle the individual invoking it to hold the other person liable for the terms of the contract. This legal concept only allows the individual to recoup their losses.

Blue laws are a diminishing category of law in the United States. Despite being present in thirty-one states, the exact contents of each blue law varies from jurisdiction to jurisdiction. A law is classified as a blue law if it restricts commercial activity on a particular day. 

Normally a blue law prohibits the ability of a business to operate on a Sunday. The prohibition on commerce on Sunday derives from Christian religious tradition. As a result, blue laws in some states instead preclude businesses from being open on consecutive weekend days out of respect for different Sabbath observances by different religious groups.

Most states that contain blue laws apply them to the sale of alcohol. Alcohol sales may be restricted from being sold at all on Sundays. In blue law states which do not prohibit the sale of alcohol entirely on Sunday, limitations may be placed upon the hours during which alcohol may be sold. These blue law restrictions typically preclude the sale of alcohol to hours during which church sessions would not be held.

A blue law can also restrict the sale of alcohol between certain hours during the week. Restaurants in some blue law jurisdictions can obtain permits to allow the sale of alcoholic beverages so long as a particular percentage of their revenues come from food sales.

Depending on the State, towns may be allowed to opt out of observing blue laws. Some states allow local jurisdictions to opt in or out of blue laws by a majority vote. Other states restrict the ability of a local jurisdiction to opt out of blue laws based on particular criteria. In South Carolina, for example, an area can only opt out once it can demonstrate a certain level of sales tax receipts.

Blue laws may be supported for a variety of reasons. Car dealerships sometimes support blue laws because it allows them to afford their employees a day off without being concerned that a competitor is open.

There may not be support among voters to repeal blue laws. This is the situation in Bergen County in New Jersey, the only part of New Jersey with blue laws that prohibit commercial activity on Sundays. Despite pressure from the State Government to join the rest of the State in repealing blue laws, some Bergen County residents enjoy the fact that the large commercial centers in the county are relatively empty and peaceful on Sundays.