CONTRACT LAW

SULISTIOWATI

CONTRACT LAW

• Article 1313 Civil Code, a contract is an act of two or more persons binding themselves to one or more other persons.

• an agreement between two parties becomes a contract when it is intended to create legally binding obligations on the parties.

Phase of making contract

– Pra Contractual : negotiation between parties, demand and supply.

– Contractual : the validity of contract is obtained and contract is performed.

– Post Contractual : hidden defect is guaranteed ( vrijwaring ).

Commencement of Contract

• Civil Law: A contract comes into existence through the acceptance of the offer without the offeror needing to be notified of acceptance. (BGB §151)

• Common Law: An acceptance has no effect until it is communicated to the offeror. An acceptance is “communicated” when it is actually brought to the notice of the offeror. (G. H. Treitel)

• Silent or inactivity does not in itself amount to acceptance (UNIDROIT Art. 2.1.6; CISG Art. 18)

Validity of contractArticle 1320 Civil Code

• For the validity of a contract needs 4 qualifications:

1. the consent of parties;

2. a capacity to contract;

3. certain subject;

4. a lawful cause.

Consent

• The parties must consent to the basic matters contained in the contract.

• Contract is prior to consent.

• Duress, mistakes, fraud and undue influence make contract be voidable. (Art. 1321)

Capacity

• The parties shall have the capacity to contract.

• All persons legally capable of entering contracts, except :

(1) minors (persons under 21 years of age);

(2) persons placed under guardianship. (Art. 1330)

Certain Subject

• The subject must be determinable, otherwise the contract is null and void.

• Subject meant both of the performance: the goods and the performance.

• The types of contract’ subject could be rights, services, goods; whether in existence or to come into existence, as long as they are determinable. .

Lawful Cause

• The object of contract is lawful, if it is not contrary to law/act, good morals or public order.

Legal effect

• If the first and/or second qualification (consent and/or capacity of parties) is not fulfilled, then the contract is voidable.

• If the third and fourth qualification (certain subject and/or lawful cause) is not fulfilled, then the contract is null and void.

Formalities

• As a general rule, no formal requirements (written, registration, etc.) need be observed to make a contract binding. This is a consequent of Chapter II Book III Civil Code as optional law.

• Some exceptions to this general rule, certain contracts must be written and executed in the form of an “authentic” deed drawn by a notary or other authorized public official.

Principles of making contractArticle 1338 Civil Code

1. Consensualism;

2. Freedom of making contract;

3. Pacta sunt servanda;

4. Good faith.

Consensualism

• There must be a mutual consent between parties regarding to the contract.

• Duress, mistakes, fraud and undue influence make contract be voidable.

Freedom of Making Contract

1.Free to create or not to create a contract

2.Free to create a contract with anyone they want

3.Free to determine the form of contract they’re about to make

4.Free to determine contents and provisions of the contract

5.Free to set up the law (optional law)

Pacta Sunt Servanda

• All contract lawfully concluded are legally binding as law on the parties and can’t be revoked, except by the mutual consent or based on reasons authorized by law.

• The parties are bound not only by what is specifically provided in the contract, but also by that which, according to the nature of the contract, is required by reasonableness, custom and statute.

Good Faith

• Good faith in a subjective manner: the sincerity of the parties in the preliminary of the contract.

• Good faith in an objective manner: performance of the contract must be based on the equity (reasonableness) and ethics.

Stipulations for third persons

• Basically, a contract cannot impose liability on a third person, and a third person cannot acquire rights under a contract to which he is not a party, unless he has given a mandate to stipulate in his name.

• Exception: article 1317 Civil Code, contract for the benefit of a third person.

Default

• Default is the fails of Debtor to do what he has promised, by:

- not doing it at all;

- doing it overdue;

- doing it contrary to the terms of the contract;

- doing something which is prohibited by the contract.

Terms of default

• Material term: mistake

• Formal term: summon ( a warrant issued by the clerck of District Court or a registered letter he himself prepaires.

Remedies

• Specific performance;

• damages: expenditures, losses and interest.

• Dissolution.

Assignment of risk

• Force majeur• No general provisions dealing with assignment of risk in

Civil Code.• Article 1460 Civil Code, the risk in sale contract which

has as its object a thing certain shall be borne by purchaser.

• Article 1545 Civil Code, if a definite goods, that has been promised to be exchanged, is obliterated not because of the fault of the owner, then the agreement is deemed void, and whose party that has accomplished the agreement, can claim the return of the goods that he has given in the exchange.

Termination

6 ways to extinguish a contract:• Be determined in a contract;• Be determined by law/act;• Making a statement to extinguish a

contract;• By Judge decision• Objective already achieved• Consent by parties.

Termination

• Article 1381 Civil Code recognizes 10 ways in which an obligation can be extinguished:- performance- certified tender plus deposit- novation- compensation- confusion- remision of debt (release)- destruction on the subject matter- dissolution- occurrence of a resolutory condition- prescription.