INTERNAL MEMORANDUM

Date Subject

: June 6th, 2010 : Valid Agreement

Legal Basis for Valid Agreement According to article 1313 BW, an agreement means an act whereby one person or more bind themselves to one or more other persons. Every valid agreement is effective as law for those who make them and must be performed with good faith.Under article 1320 of Indonesian Civil Code (Burgelijk Wetboek [BW])an agreement is considered to be valid if it fulfilled four conditions, they are: 1. 2. 3. 4. The consent of those who bind themselves The capability to make an agreement A particular object A lawful cause

The aforesaid requirements are exhaustive. According to Prof. Subekti, the (1) and (2) condition are categorized as subjective condition, because it relates to the persons within it or the subject who commence the agreement. On the other hand, (3) and (4) are categorized as objective condition, because it relates to the agreement or object of a legal act which conducted by both subject. A. Subjective Condition According to Prof. Subekti, in event of the subjective condition are not fulfilled, such agreement can be terminated by another party. The following explanation will explain the subjective condition for a valid agreement. 1. The consent of those who bind themselves Consent of both parties must be made based on freewill. In the agreement law, there are 3 conditions to determine that the given consent was made not based on freewill, they are as follows: 1. Fraud (penipuan): Fraud occurred when one party deliberately gives a false statement or facts with intent to mislead the other party and subsequently give their consent. According to article 1328 of ICC the existence of fraud arise the rights to terminate the agreement.

2. Mistakes (khilaf): Mistakes occurred when one party had mistakenly understood the agreement. The mistake made has to be the determining factor to whether or not such person would give their consent over the agreement. According to article 1322 of ICC the existence of mistakes arise the rights to terminate the agreement. 3. Compulsion (Paksaan): Compulsion within this framework is a psychic compulsion (e.g. one are being threatened in order to agree on one agreement). According to article 1325 of ICC the existence of fraud compulsion the rights to terminate the agreement. 2. The capability to make an agreement Every person has authority to create an obligation except if he/she is declared to be incompetent for that matter. Those persons who considered being incompetent according to article 1330 BW, are as follows: 1. Minor persons/ children 2. Persons put under guardianship 3. Females, in the matters as determined by the law, and in general to whom the law has restricted to enter into certain agreements Minor persons are those people who have not reached the full age of 21 years old and have not enter into marriage before. However, in event said married are dissolved before the age of 21, they do not return to the state of minority.1 The determination of the term minor is used in some regulation toward the Indonesian. Ordinance 31st January 1931, state gazette 1931-54 ruled as follows: 1. If the regulation using the term minor it will denote: all persons who have not yet reached full age of 21 and have not been married 2. If the marriage is dissolved prior to the beginning of their twenty second year of age they will not return as a minor 3. In the context of marriage, it is not included the marriage of persons under 21 years old. Persons put under guardianship, every adult who is continually in a state of imbecility, lunacy or rage, must be put under guardianship, even if he may, at intervals possess his full intellectual faculties. 2 An adult may also put under guardianship because of squander to be put under custodian.3 Females, According to Supreme Court circular letter No.3/1963 dated 5 September 1963, art.108 and 110 of Indonesian Civil Code which provides that authority of
1 2

Art.330 BW Art.433(1) BW 3 Ibid, (2)

married women to conduct legal acts and for purposes of appearing before court requires permit from husband is no longer in force. Additionally, based on article 31 (2) Law no.1 of 1974, husband and wife can conduct a legal act. Thus, females are no longer considered to be incompetent under Indonesian law. B. Objective Condition In event the objective conditions are not fulfilled, the agreement will be null and void. In other words, the agreements are considered to have never happen and there is nothing binds the party. Hence, one cannot claim for the enforcement of such agreement before the judge, since there is no legal basis for it. The following are the explanation on objective condition. 1. A particular object The third condition stated that an agreement has to be concerning a particular object, means that what are the right and obligation in event theres a dispute between the parties. Moreover, the agreement shall also determine in minimum, the type of object within the agreement. The quantity of goods need not be certain, provided that quantity thereafter may be determined or calculated.4For example: an agreement concerning corn fields harvest in next year is legitimate, but an agreement concerning tea for Rp.100 without further explanation has to be considered as obscure. 2. A lawful cause The fourth condition is that such agreement is for a lawful cause. A cause or the reason why one make such an agreement can be seen from the clause used in such agreement. An agreement made on basis of false or prohibited purposes/cause has no binding force. If no cause is declared, but actually there is a cause, which is not prohibited, then the agreement is valid. 5 However, agreements without a cause have no binding force.6A cause is prohibited if that cause is prohibited by law or if that cause is in contradiction with decency/morality or public order.7 For example: in a loan agreement, one party wanted to borrow money from the other, and the other wish for an interest from such loan. However in event such agreement are made for an unlawful cause, such as agreement to kill one person or an agreement for buying drugs, such agreement are considered to have never exist. Furthermore, according to article 1454 ,In all events, wherein a claim of allegation annulment of an agreement does not limited by a certain law to a shorter period,
4 5

Art.1333 BW Art.1336 BW 6 Art.1335 BW 7 Art 1337 BW

such period shall be five year. Hence, the party who felt that there is reason to believe that the other party may have not fulfilled the objective person, they have the right to ask for the cancellation of such agreement within the period of 5 years.