Encroachment on Freedom of Contract: the Statutes

Section 23: the Act's own general encroachment clause

The consideration or object of an agreement is lawful, unless:

it is forbidden by law; or

is of such a nature that, if permitted, it would defeat the provisions of any law; or

is fraudulent; or

involves or implies injury to the person or property of another; or

the Court regards it as immoral, or opposed to public policy.

In each of these cases the consideration or object is unlawful, and every agreement of which the object or consideration is unlawful is void.

Section 23 is the hinge of Module I, and the five limbs are not alike.

"Forbidden by law" is a statutory encroachment, and the Act's own footnote points to sections 26, 27, 28 and 30.

"Would defeat the provisions of any law" is wider than forbidden, and reaches an agreement designed to circumvent a statute that does not in terms prohibit it. This limb is what makes statutory encroachment effective, because without it every prohibition could be evaded by an arrangement the statute had not anticipated.

"Fraudulent" and "injury to the person or property of another" are the third-party limbs, and they answer individualism's assumption that a bargain concerns only the two parties.

"Immoral, or opposed to public policy" is the judicial limb, and it is the only one that gives the court its own power to refuse. Taken in full in [Public Policy under Section 23].

Section 24 completes it: if any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void. The whole agreement falls, not merely the tainted part, which is severity worth marking; the illustration is an agreement to superintend both a legal indigo manufacture and an illegal traffic for one salary, and the agreement is void entire.

The two objections, and their answers

Objection one: encroachment defeats the parties' intention. Answer: it defeats the intention of the stronger party and vindicates the position of the weaker, and where the terms were printed there was no common intention to defeat. Where the bargain was negotiated between equals, the statutes do not reach it, which is why minimum wage law has nothing to say about a contract between two merchants.

Objection two: it makes the law uncertain. Answer: statutory encroachment is the most certain form of law there is, being written, prospective and published; the uncertainty objection belongs to the judicial mode, not this one. That is a reason to prefer legislation to litigation as the instrument of control, and it is the strongest argument available in this topic.

Worked example

MU's blank label means the examiner expects the candidate to supply the structure.

Open with the three modes, and say the third is the one the label does not name.

Give six fields of statutory encroachment, one sentence each, with the statute named.

Give section 23's five limbs and say they are not alike, marking the "defeat the provisions of any law" limb as the one that makes prohibition effective.

Give section 24's severity.

Close on the two objections and their answers, ending on the preference for legislation over litigation.

What it does NOT mean

It does not mean the parties have no freedom left. It is the default and the encroachments are exceptions.

It does not mean all encroachment is statutory. Three modes, and the judicial one is separately criticised.

And it does not mean section 23 voids only the offending term. Section 24 voids the agreement.

Quick revision

• Three modes: by statute, which is prospective, general and democratic; by the courts, which is retrospective, particular and unelected; and by the standard form, which MU's label does not name and which is an encroachment by one party on the other, the other two existing largely to answer it.
• Six fields: rent control, fixing price and duration; minimum wages and labour law, where an agreement to accept less than the minimum is void and consent does not cure it; consumer protection, with section 2(46)'s unfair contract and no contracting out; insurance regulation, prescribing wordings and compelling third-party motor cover; competition law, section 3 voiding anti-competitive agreements and section 4 controlling a dominant enterprise; and insolvency, whose moratorium suspends a contractual right to terminate.
• Section 23, five limbs: forbidden by law; of such a nature that if permitted it would defeat the provisions of any law; fraudulent; involves or implies injury to the person or property of another; and the Court regards it as immoral, or opposed to public policy. Every agreement of which the object or consideration is unlawful is void.
• The limbs are not alike: the first is statutory; the second is wider than the first and is what makes prohibition effective, reaching an arrangement designed to circumvent a statute that does not in terms forbid it; the third and fourth are the third-party limbs, answering individualism's assumption that a bargain concerns only the two parties; and the fifth is the judicial limb.
• Section 24: where any part of a single consideration, or any part of any one of several considerations, is unlawful, the AGREEMENT is void. The whole falls, not merely the tainted part.
• Two objections answered: it defeats intention, but the intention defeated is the stronger party's and where terms were printed there was no common intention, and the statutes do not reach a bargain negotiated between equals; and it creates uncertainty, which is an objection to the judicial mode and not to legislation, which is a reason to prefer legislation to litigation as the instrument of control.

Test yourself

1. What are the three modes of encroachment? Encroachment by statute, where a legislature writes a term into every contract of a class or forbids one, and the encroachment is prospective, general and democratic. Encroachment by the courts, where a judge holds that a term already agreed is void or will not be enforced, using section 23, section 16 or a rule of construction, and the encroachment is retrospective, particular and made by an unelected body, which is the standing objection to it. And encroachment by the standard form, where a party with market power writes the terms and the other signs, which is the mode the syllabus label does not name and the one that matters most, because it is an encroachment on the freedom of one party by the other rather than by the State, and because the statutory and judicial modes exist largely in order to answer it.

2. Give the fields of statutory encroachment and section 23's limbs. Six fields. Rent control legislation fixes standard rent, restricts the grounds of eviction and controls sub-letting, removing both the price and the duration from the parties. Minimum wage and labour legislation fixes the price of labour and controls termination, hours, leave and dispute settlement, and an agreement by a worker to accept less than the statutory minimum is void, no consent curing it. Consumer legislation defines an unfair contract in section 2(46) of the Consumer Protection Act, 2019 and empowers the commissions to declare such a term void, with no contracting out. Insurance regulation prescribes policy wordings and makes third-party motor cover compulsory, so that the contract itself is compelled. Competition law voids anti-competitive agreements under section 3 of the Competition Act, 2002 and controls the terms a dominant enterprise may impose under section 4. And the Insolvency and Bankruptcy Code, 2016 imposes a moratorium that suspends a party's contractual right to enforce or terminate.

Section 23 provides that the consideration or object of an agreement is lawful unless it is forbidden by law; or is of such a nature that if permitted it would defeat the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral or opposed to public policy; and that every agreement of which the object or consideration is unlawful is void. The limbs are not alike. The first is statutory. The second is wider than the first and is what makes any prohibition effective, since without it a statute could be evaded by an arrangement it had not anticipated. The third and fourth are the third-party limbs, which answer individualism's assumption that a bargain concerns only the two parties to it. And the fifth is the judicial limb, the only one that confers on the court a power of its own to refuse enforcement.

3. What are the objections to encroachment and how are they answered? That it defeats the parties' intention, and that it makes the law uncertain.

The first is answered by asking whose intention is defeated. It is the intention of the stronger party, and where the terms were printed before the weaker party existed there was no common intention to defeat at all. The answer is confirmed by the scope of the statutes: minimum wage legislation has nothing to say about a contract between two merchants, rent control does not reach a commercial lease freely negotiated in a competitive market, and consumer legislation applies only where one party contracts for a personal purpose. The statutes are drawn to operate exactly where the assumption of equality fails, which makes them completions of the doctrine rather than attacks upon it.

The second is answered by distinguishing the modes. Statutory encroachment is the most certain form of law there is, being written, prospective and published, so that a party knows before contracting which terms are unavailable. The uncertainty objection belongs to the judicial mode, where a term is struck down after the event by a judge applying a standard rather than a rule. That is a strong reason to prefer legislation to litigation as the instrument of control, and it is the best argument available on this topic, because it accepts the objection and answers it by choosing the better instrument rather than by denying the problem. Section 24 should be added to any account of severity: where any part of a single consideration for one or more objects, or any part of any one of several considerations for a single object, is unlawful, the whole agreement is void and not merely the tainted part.