CONTRACT & AGREEMENT

By : Shelly Selviana
Background
• The Agreement is governed in Article 1313 of ICC as “an act in which one
or more persons commit themselves to one or more persons.” Unlike
the engagement which is a legal relationship, the agreement is a legal
act. It is the legal act that results in a legal relationship of engagement,
so it can be said that the agreement is the source of the engagement.
• If the agreement has been poured in written form, then the Agreement
is called Contract. The content of the Contract are in fact the Agreement
itself. The terms of the contract and the agreement are identical,
without needing to be differentiated and can be used simultaneously.
The term of contract is more often used in business practice.
Questions of the paper
The issues to be studied and analyzed into the discussion on
this paper are:
1. What are contracts and agreement?
2. What elements are there in the contract and the agreement?
3. Who are in the contract and the agreement?
4. What principles are there in the contract?
5. What is the implementation of the contract?
6. What are the types of contract?
7. How is the birth of an agreement?
8. How is the terms of validity of an agreement?
9. How is the termination of an agreement?
10. What is the legal arrangement of a contract?
 Definition of Contracts & Agreements
CONTRACT
AGREEMENT
According to Indonesian Dictionary, contract
is: According to Van Dunne's new theory,
agreement is :
1. Agreement (in writing) between two
parties in trading, leases, etc. “a legal relationship between two or more
parties on the basis of an agreement to
2. Approval of a legal sanction between cause legal consequences”.
two or more parties to undertake or not
to engage in an activity.
3. Binding with the agreement.
4. Rent.

The 2nd chapter of 3rd book of Indonesia Civil Code (ICC) is literally entitled:
“Engagement born of Contract or Agreement”
so ICC never distinguish the two terms if used interchangeably.
Neither the agreement nor the contract have the same understanding, that is, a legal act to
mutually bind the parties into a legal relationship of engagement.
Elements of Contract / Agreement
1. The Essential Element
It must be exist in a contract because without any agreement on this essential element
there is no contract. Example: in a contract of sale and purchase there must be agreement
on goods and prices because without it, the contract is null and void because there is no
certain thing that is promised.

2. The Naturally Element

It always considered to exist in the contract. It has been regulated in the law. If it is not
regulated by the parties to the contract, the law governing it. Example: if in a contract not
promised of hidden defects, automatically apply provisions in the Indonesia Civil Code
that the seller must bear the hidden flaw.

3. The Accidental Element

This element will exist or bind the parties if the parties agree to it. Example: in a sale and
purchase contract with an agreed installment that if the debtor fails to pay his debt is
liable to a two percent monthly fine of delay, and if the debtor fails to pay for three
consecutive months, the purchased item may be withdrawn by the creditor without trial.
Parties to the Contract
1. Businessmen
Business actor is any individual or business entity, whether in the form of a legal
entity established and domiciled or conducting activities within the territory of
the Republic of Indonesia, either alone or jointly through agreements in the
conduct of business activities in various economic fields.

2. Consumer
It is any person or user of goods and / or services available in society, whether
for self-interest, family, other person or any other living being and not for sale.

3. Nonprofessional
It referred to the person who sells the goods, but the sales are not his job so that
although the person who buys the goods uses the goods, but cannot be
classified as a consumer as stipulated in the Consumer Protection Act because
he / she is not dealing with the business actor.
 Principles of Contract
1. The Principle of Freedom of Contract
It can be analysed from the provisions of Article 1338 paragraph (1) of ICC, which states: “All legally-made
agreements act as laws for those who make them”. This principle gives freedom to the parties to:
a. Making or not making agreements;
b. Enter into an agreement with anyone;
c. Determine the contents of the agreement, its implementation, and its terms, also
d. Determine whether the agreement is written or oral.

2. The Principle of Consensualism

It can be summarized in Article 1320 paragraph (1) of ICC, which determined that one of the conditions of the
validity of the agreement is the existence of an assent between the two parties. This principle states that
agreements are generally not formally held, but only by the agreement of both parties. Agreement is a
conformity between the will and statements made by both parties. This principle inspired from Roman law and
German law. In Indonesia Civil Code, it is related to the form of agreement.

3. The Principle of Legal Certainty (Pacta Sunt Servanda)

It is a principle relating to the effect of the agreement. The term “Pacta Sunt Servanda” means “the promise is
binding”. The intent is that a contract made legally by the parties binds the parties in full accord with the
contents of the contract. This is the principle that judges or third parties must respect the substance of
contracts made by the parties, as appropriate by law. They should not intervene on the substance of the
contract made by the parties. It can be concluded in Article 1338 paragraph (1) of ICC.
 Principles of Contract …(Cont’d)
4. The Principle of Good Faith
It is contained in Article 1338 paragraph (3) of ICC which states: “The agreement shall be executed in good
faith”. This is the principle of the parties, namely the creditor and the debtor must exercise the substance
of the contract based on a firm belief or conviction or good will of the parties. This principle divided into
two types, namely good faith relative and absolute good faith. In the first intentions, one looks at the real
attitude and behavior of the subject. In the second intent, judgment lies in common sense and fairness and
an objective measurement is made to assess circumstances (impartial judgment) according to objective
norms.

5. The Principle of Personality

This is the decisive principle that a person who will do and / or make a contract only for the benefit of the
individual only. This can be seen in Article 1315 of ICC which states: “In general, a person cannot enter
into a contract or an agreement other than himself”. The essence of this provision is clear that to enter into
an agreement, it must be done for his own sake. And Article 1340 of ICC which states: “The agreement only
applies between the parties that make it”. It implies that the agreement made by the parties only apply to
those who make them.
 Implementation of the Contract
1. Performance (Prestasi)
It is an obligation that must be fulfilled by the parties in a contract. The forms of
performance are determined in Article 1234 of ICC, among others:
1. Giving something,
2. Do something,
3. Do nothing

2. Default / Non-fulfillment (Wanprestasi)

Default or injury to an appointment shall be the Non-fulfillment of obligation as may
be imposed by the contract to the parties. It arise if one party (the debtor) does not do
what is promised. It can be divided in four categories:
1. Not doing what he or she is willing to do.
2. Implement what is promised, but not as promised
3. Doing what is promised but too late
4. Doing something according to the agreement should not be done.
 Types of Agreements
1. Based on rights and obligations
It is based on the rights and
obligations of the parties.
Example: sale and purchase
agreement and also lease
agreement.
a. Unilateral Agreement
An agreement with only one obligation on the one hand, and
there are only rights in the other. This agreement always creates
obligations only to one party. Example: Loan agreement.
b. Reciprocal Agreement
An agreement whereby rights and obligations are on both sides.
So the party who is obliged to make an achievement is also
entitled to demand a counter achievement. Example: buy-sell
agreements and lease agreements. It is divided into two types:
1. Perfect mutual agreement
2. Imperfect mutual agreement
It always creates a fundamental obligation for one party, while
the other party must do something. Here seems to be a
balanced achievement with each other. Example: the recipient
is always obliged to carry out the message given by the
person who gave the it. The recipient carries out the
obligation, if the recipient has incurred expenses or has been
promised a wage, the message-giver must replace it.
 Types of Agreements …(Cont’d)
2. Based on the benefits gained
It is based on the benefits of
one party and the
achievements of the other.
3. Based on name and settings
It is based on Article 1319 of
ICC and Article 1355
Netherlands Burgelijk
Wetboek (NBW) which
mentions two kinds of
agreements by its name,
namely:
a. Free agreement
An agreement that benefits one party only. Example: Grant
agreements and loan agreements.
b. The weighting constraint agreement
An agreement on the achievement of one party and there is
always the counter-achievement of the other party and between
the two achievements are related according to law. Example: A
promises to B a certain amount, if B hands over a particular
object to A.
a. The Named Agreement (Nominaat)
It means an agreement which is known and contained in Article
1319 of ICC, which reads: “All agreements, whether of a special
name, or unknown with a particular name, are subject to the rules
general terms contained in this chapter and last chapter”.
Example: Sale and Purchase Agreements, Renting, Lending,
Insurance, Transportation Agreements, Debt Settlement, Grants,
Custody, etc.
b. Unnamed Agreement (Innominaat)
This agreements arise, grow, live and thrive in society. This type
of contract is not yet known in the Civil Code. Example: lease
purchase, franchise, utility contract, joint venture, contract work,
production sharing, etc.
 Types of Agreements …(Cont’d)
4. Based on the purpose of the
agreement
It is based on the elements
contained in the agreement,
namely:
5. Based on the birth of the agreement
It is based on the establishment of
the agreement. The agreement is
formed because both parties agree
to enter into an agreement.
a. Material Agreement
It is for the object being transferred or handed over to another party.
Example: the agreement of imposition of guarantee and delivery of
property rights.
b. Obligatory Agreements
It creates an obligations from the parties.
c. Liberatoir Agreement
An agreement that exempt from the existing obligations. Example:
Debt relief (Article 1438 of ICC).
a. Consensual Agreement
Binding since there is consensus from both parties. So it was born
from the moment the agreement was reached. Example: sale and
purchase, lease rent.
b. Real Agreement
It is binding if accompanied by a real action. So only with the word
of agree, it is not binding on both sides. For example, custody
agreements, loan agreements.
c. Formal Agreement
It is bound to a particular form, so the form shall be in accordance
with the applicable provisions. If it is not in accordance with the
provisions, then it is not valid. Example: the sale and purchase of
land must be in the PPAT deed, the establishment of a Limited
Liability Company must be by Notarial Deed.
 The Birth of Contract/ Agreement
There are several theories that can be used to determine the birth of the contract, namely:

1. Theory of statement (Uitings Theorie)

According to this theory, contracts existed when an acceptance letter for an offer was
written. In other words the contract is present when the other party declares acceptance.

2. Theory of Delivery (Verzending Theori)

According to this theory when submitting an acceptance answer is the birth of a contract.
Postmark date can be used as a benchmark of contract date of birth.

3. Theory of Knowledge (Vernemingstheorie)

According to this theory the birth of the contract is at the time the contents of the
acceptation answer is known by the offer party.

4. Theory of Acceptance (Ontvangtheorie)

According to this theory the birth of the contract is at the time of receipt of the answer,
regardless of whether the letter has been opened or left unopened. The main thing is when
the letter arrives at the address of the recipient, the letter is used as a benchmark at the
birth of the contract.
 Terms of Validity of Contract/ Agreement
a. Subjectively Requirements
It deals with the subject matter of the
agreement. The legal consequences of
non-fulfillment of one of the subjective
requirements is the contract may be
“irrevocable” or “canceled” by one of the
parties concerned. If the cancellation is
not done, then the contract remains and
must be executed as a legitimate contract.
Those requirements are:
b. Objectively Requirements
It deals with the object of the agreement.
The legal consequences of non-fulfillment
of one of the objective requirements below
is a contract made null and void. So since
the contract was made, the contract has
been cancelled. Those requirements are:
1. The existence of the agreement intent
A contract shall be deemed valid by law if both parties have an
agreement of opinion on what is stipulated in the contract. As
in Article 1321 and article 1449 of ICC, the disability of intent /
agreement may occur due to: Coercion, Fraud, Mistake, Misuse
of circumstances and etc
2. Abilities to act by law
As in Article 1330 of ICC, it is determined that each person is
competent to make engagement, unless the law determines
that he is incompetent. Of those who are incompetent to enter
into an agreement i.e.: People who are immature and those
who are under the ability
1. Specific object
The existence of this requirement means that a contract must
be subject to certain things, clear and justified by law. Of this
we can find in Article 1332 and Article 1333 of ICC.
2. A lawful cause
No contract should be made to do things that are against the
law. And the contents of the agreement are not prohibited by
law or not contrary to the morality / public order (Article 1337
of ICC). It is also determined that an agreement made without
cause or created for a false or forbidden cause is
unenforceable (Article 1335 of ICC).
 Termination of Contract/ Agreement
Article 1381 of ICC regulates other factors that may lead to the termination of the agreement, for example:

1. Payment
It is not always interpreted in the form of money delivery, but the fulfilment of a number of achievements that
are agreed also include fulfilling the elements of payment.

2. Payment offer, followed by storage or custody

It is executed in accordance with the terms of the agreement including the time of fulfilment. But not
infrequently these achievements can be met before the promised time. Offer and acceptance of premature
achievement may be the reason for the termination of the agreement. Example, a borrowing and lending
agreement that is paid in installment, if the debtor can pay all the loan amount before maturity, then the
agreement may expire prematurely.

3. Debt renewal
It may result in the termination of the agreement, as the emergence of a new agreement causes the renewed
agreement to expire. The new agreement may arise because of the change of the parties in the agreement,
such as novasi agreement in which the debtor takes place or due to the change of the sale and purchase
agreement into the lease agreement, because the buyer is unable to pay off the remaining payment.

4. Debt or compensation encounter

It occurs because between the creditor and the debtor mutually owes the other, so that both debts are
considered paid by their respective accounts.
 Termination of Contract/ Agreement …(Cont’d)
5. Debt mixing
Changing position of the party to an object of agreement may also lead to a debt mixing that terminates the
agreement, for example a tenant who turns into a homeowner because he bought the house before the lease expires
while there are still unpaid rent arrears.
6. Debt relief
It may occur because of the willingness of the creditor to free the debtor from the obligation to pay the debt, so that
with the release of the debtor from the obligation of debt fulfilment, then the thing agreed in the agreement as a
condition of the validity of the agreement becomes non-existent, thus ending the agreement.
7. The loss of goods owed
The disappearance of the promised goods also causes the non-fulfilment of the terms of the agreement because the
goods as the object of the agreement are not present, thus implicating the termination of the agreement.
8. Cancellation
The cancellation procedures agreed upon in the agreement may also serve as the basis for termination. If it is not
regulated in the agreement, it can only occur on the basis of the agreement of the parties as regulated in Article
1338 of ICC or by a court decision based on Article 1266 of ICC.
9. Applicability is void
Article 1265 of ICC stipulates the possibility of cancellation of the agreement due to the fulfilment of the void terms
agreed in the agreement.
10. Time passes
It may be due to the passage of time (expiration) of the agreement. This is regulated in Article 1967 of ICC.
 Legal Arrangement of Contract & Agreements
It is set out in 3rd book of No. Arrangement in 3rd book of Indonesia Civil Code (ICC) Articles
ICC, which consists of 18 1. Engagement in general 1233 - 1312
Chapters and 631 Articles. 2. Engagement born of a contract or agreement 1313 - 1351
3. Removal of the engagement 1381 - 1456
Starting from Article 1233 4. Sale and Purchase 1457 - 1540
until Article 1864 of ICC, 5. Exchange 1541 - 1546
as listed follows: 6. Lease Renting 1548 - 1600
7. Approval to do work 1601 - 1617
8. Alliance 1618 - 1652
9. Association 1653 - 1665
10. Grants 1666 - 1693
11. Deposit counter 1694 - 1739
12. Loan Agreement 1740 - 1753
13. Borrowing 1754 - 1769
14. Fixed or lasting interest 1770 - 1773
15. Covenant of profit 1774 - 1791
16. Authorization 1792 - 1819
17. Debt settlement 1820 - 1850
18. Peace 1851 - 1864