Harmonize Indonesia Law of Contract

At the last time there are two things gives influence to Indonesia law of contract, first of all adat law and second Dutch rules. Adat law there are in each tribe or clan living on Indonesia archipelago were governed by their own customary which also included contract law, because before Dutch came to Indonesia in 1596, each tribe in daily activity had been set up by adat law.

When Dutch come to Indonesia archipelago, they brought many rules related to their legal system and until now Indonesia still adopted their rules such as Civil Code (Burgelijk Wetboek), Commercial Code (Wetboek van Koophandel), these codes were practically Dutch translation from French Code Civil and Code du Commerce. The Civil Code was promulgated in Indonesia by Government Announcement on April 30, 1847, Government Gazette 1847 no 23 and applied since the 1st January 1848.

Nowadays, as a consequences from open system in Indonesia Law of Contract, that is gives a chance to everybody free to make any kind of contract, even that foreign contract. Foreign contract related to foreign investment or foreign trade, because Indonesia need foreign investor to increase economic growth. In any case, if we compare between the contract that is make concerning Indonesia Law of Contract based regulated on Civil Code and foreign contracts has a many difference.

Therefore the harmonize between Indonesia Law of Contract with foreign contract that is usually used based on Common Law System needed to make contract can be enforce by each party or to prevent and minimize miss understanding between the party of contract that rise the conflict.


Indonesia contract law is a model contract law under influence of two separate system, Indonesia Civil Code (Kitab Undang-undang Hukum Perdata)[1]and Adat law. Indonesia Civil Code comes from Dutch Law divided become four book there are[2] : a. Book one : Person

b. Book two : Propertyc. Book three : Agreementd. Book four : Proof and expiration

Dutch law became applicable in Indonesia till present because, whenever Dutch came to Indonesia, there is no law applicable in general over the Indonesia archipelago. Indonesia which is consist of thousand tribe or clan living on these island were governed by their own customary law and to avoid vacuum of law Indonesia government through Indonesia constitution 1945 arrange a rule in Article I of Transitional Provisions of constitution of 1945 proclaimed that all laws in force at time of declaration of independence would remain until replaced by new laws in accordance with constitution of 1945

. This is ones reason Indonesia Civil Code or Indonesia Law derives Dutch Law applicable and it is often said that Indonesia Civil Law belong to the group of Continental Civil Law System as opposed to the Common Law System[3]. This description is not wrong to explain that much of Indonesia Law derives from Dutch, but the statement is not entirely right.

When the first Dutch ships landed in the Indonesia Archipelago, they did not find a juridical empty land. The land was full of legal institution. There was diversity of laws from the beginning of the days of VOC (vereenigde Oost Indische Compagnie) or United East Indian Company. From the beginning of Dutch colonization, the in habitants of the Indonesia archipelago have been divided for legal purposes into various population group. This distinction was not entirely based on racial differentiation, but also based on economic considerations[4].Act 163 of Indische Staatsregeling (IS)[5] divided Indonesia community into three basic population groups[6] :

1. Europeans this group includes :

a. Dutchment ;b. All other person whose origin are European, born in Europe or descended from European stock ; c. The Japanese ;d. Other persons who in their native country, are subject of family law similar to Dutch law ; e. Legitimate or properly recognized children of persons in groups b, c, d and their descendant.

2. Native. this groups includes all of the indigenous population of the archipelago, except for those Indonesians who have legally transferred to one of other groups and have not subsequently re entered the native one or native woman following her husband of another group by way of mixed marriage.

3. Foreign Oriental this groups is defined negatively to include all persons not include in the European or native groups. In practice this usually means Chinese, Arab, Indian.

Although the Republic of Indonesia has been proclaimed for 62 year ago, this differentiation in population group is still prevailing thought the Indonesia private law system. Classification made in article 163 IS and the law regarded as valid for each group according to article 131 I S remain applicable until today, in Indonesia case law as handed by the Supreme Court, even as recently as in 1970 this division into population group is still uphold.[7]

Adat Law

Almost every tribe or clan That is living in Indonesia Archipelago has their own adat law, so it might be difference among each tribe or clan, in general adat law consist of unwritten rules and not in codification otherwise it is not in codification but each tribe or clan obey the rules, because adat law is unwritten customary law which is applicable in daily activity and when they do not obey the rules they are under penalty of social community law. Particular rules are good to understood in the contextof these more general principles [8].

1. No distinction between real and personal rightAdat law makes no distinction between right which are good against the world and those which are goods only against specified individual, for example when someone who has bought something from someone who does not own it, the question of whether the future owner has a right of replevin will be answered differently in different situation, depending on the judge’s evaluation of the relative hardship which would result if one or the other party were denied his claim[9].

2. No distinction between movable and immovable property Just as adat does not distinguish between realty and personality , therefore it makes no distinction between movable and immovable goods.

3. No distinction between public and private.Adat does not distinguish between public and private, for example contract for sale of land are much more a matter of public than of private law under adat law, because the vital interest of the community are so intimately affected by used the land[10].

4. No distinction between civil and criminal It is quite difficult to separate between civil and criminal, because if there is something unlawful act happened that disturbance of the community equilibrium, the solution will be taken by the village chief by this restoration takes the form of fine in goods or money, assessed by the village chief[11].

All of principles of Adat law above, make difference rules with Civil Code or European Law introduced by Dutch to Indonesia, although the rules differed one from the other , but adat law had 3 three features in common there are communal, cash and carry and concrete, Adat law that is living in each clan more realistic and concrete, for example in traditional trading some one who want buy or sell something they must directly deliver or give something to another party, that give meaning an important in Adat Law, there is not necessary promise or acceptance but, the act of delivery of physical object to another party as evidence that the balance of relationship between party and good faith to make community equilibrium in harmony.

The same thing about promises, promises in Adat Law give not legal effect whenever one party change their mind or not to keep their first promises. In general there is non consensual nature of an adat contract, the way to be consensual nature of an adat contract by transfer a small sum of money to another party make each party bind. in common adat contract broadly divided three kinds[12] :

a. Conveyance of land. The most important contract are conveyances of land, know as sale transaction of which three are forms, outright sale, land sale and the jual tahunan. b. Other transaction involving land besides the three transaction described above, all of which result in a transfer of title, there are a number of other contract involving land which do not covey title but which usually result in a transfer of possession c. Other obligation under adat law one can own a tree without owning the land under it or own a part of an animal and there are various special rules to govern recognize the joint and several liability of an entire community for individual debt of its member.

It should be clear from this description that adat contract law is priority meant to serve the need of a closed, rural community not proper in international commerce and trade, because of the difficulty of creating enforceable obligation prior to actual performance. In fact nowadays it is common in Indonesia the civil and commerce codes plays an important role in daily activity Indonesia community law, not adat law that only living and binding in rural community, in modern transaction between indigenous Indonesia, court generally apply modern legislation and code law and whenever foreign are involved, adat law will not be applied to solve the problem arise in relation between party.

Indonesia Contract Law

In general using words contract or agreement regarding to Indonesiacontract law have identical meaning, because Book III Code Civil define a contract or agreement as an act of two or more person binding themselves to one or more other persons[13]. Mostly, all matters related to Indonesia contract law regulated by The Civil Code in Book III about Agreement and Act 1313 is part of Book III Civil Code. Book III of Civil Code is open system, which means that everybody is free to make any kind of contract. Some kind of contract that regulated in the Code Civil usually mention by nominated contract such as sale and purchase contract, lease, the extinguishment of agreement then another kind of contract regulated out of Civil Code namely In nominee contract for example Joint Venture agreement, Franchise and another else.

The Law of Book III of Civil Code concern in field of private law, agreement in public institution or organization are not covered by the civil code. Validity of contract regarding to Indonesia contract law regulated by article 1320 Civil Code, general condition for validity it must comply with 4 (four) condition namely :[14]

1. The consent of those who bind themselves ;

In contract there are at least two persons who take difference position and interest, they have the intention to come to a mutual agreement, hence a consent means a meeting of mind[15], but there is no agreement has binding forces if its granted because of mistake or obtained by force, duress or fraud[16], it’s means whenever one party of contract signing a contract under physically forced so that’s contract will not binding for each party of the contract, because there is no consent and the contract is not valid.

2. The capability to make an agreement ;

Everybody is capable to enter a contract, except those who are declared incapable by law or incompetence for that matter : a. Children who have not yet become adult[17].b. Person who have been placed under guardianship[18]

c. Women who have already married in matter which stipulated by law[19], because according to art 108 of Civil Code, a married woman is also withoutcapacity to enter contract, unless she assisted her husband, but now married woman is capable to making contract without the assistance of their husband d. In general all persons who by law are prohibited from making certain contract.

3. Certain subject matter

Certain subject matter is mean a clear description of what is agreed to resulting in the certainty of subject matter, generally a contract must be have a subject of a form of a goods, which at least is stipulated as to it’s type, quantity of goods or calculated, so only goods which may be traded may become subject of contract, quantity of subject need not be certain, provided that quantity thereafter may be determined. In general the subject of the contract may be rights, services, goods or things whether in existence or to come into existence, so as long as they determinable they may be subject of a contract.

4. A lawful cause

By a lawful cause is mean that what has to be performed by either party is not contrary to the law, public order or public morality, so if the object of contract is unlawful or if it is contrary to goods moral, public morality then the contract is void. For example a contract whereby one of the parties undertakes to commit a crime is null and void, because it has an illegal cause.

Contract in Common Law System

In business transaction, contract is needed to make regulation related to right and obligation of each party, because when the parties have been signed a contract it’s means they are entered into a legally binding agreement, the obligation they had undertaken or consequences of failing to carry out the terms of the agreement. Naturally a contract has been defined as legally binding agreement or in other words a promise or set of promises which the law will enforce[20], so the essence of contract is that islegally enforceable promise or set of promise.

Essential of a Valid Contract

To be an enforceable contract, the following four basic essential ingredients of a contract must be met [21]:

1. there is an agreement : An agreement is formed when one party accept the offer of another. The first requisite of any contract is an agreement, at least two parties are required one of the offeror make an offer which the other is offeree who is accept the offer from offeror. 2. There is consideration : The parties must show that their agreement is part of bargain, each side must promise to give or do something for the other. 3. Capacity of[22] the parties : The parties must be legally capable of entering into a contract. 4. Legality : The purpose of the agreement must not be illegal or contrary to public policy[23] when the contract involves some kind of amoral, it will be illegal contract, the court may object to agreement either because it is contrary to statute.

All of contract possesses all these requirement to be valid contract, valid contract is a one that meets all of legal requirement for a binding contract therefore valid contract enforceable in court, in the other words the absence of one essential element of contract make a contract either void, voidable ore unenforceable. Void contract will be happened whenever the purpose of agreement is illegal or there is no legal cause fulfilled the agreement, if a contract is void means that no has been contract between the parties. The other side a voidable contract, if contract founded on a misrepresentation or some agreement made by minor and the consequences is the contract may still operate like a valid contract unless or until one of the parties take steps to avoid that contract.

Both of void and voidable contract there is same meaning as invalid contract but unenforceable contract is difference because unenforceable contract is valid contract but it cannot be enforce in court if one of the parties refuses to carry out its terms, because they need another evidence of contract, therefore in most situation oral contract are legally enforceable, assuming that they can be proven but oral contract more easily misunderstood or forgotten than written contract and quite difficult to prove, that the reason writing contract is important in contract law and practical