CHAPTER III CONTRACT LAW

One of the most frequent sources of conflict between Western and adat law has been contracts. The two
systems differ significantly on such fundamental issues as how a contract is formed, who bears the risk of
loss and what remedies are available for breach. These differences in turn reflect very different conceptions
about the nature of property and religious implications of its transfer. In the first part of this chapter, we
discuss some of these basic conceptual differences between the two systems, and we describe briefly the
general scheme of adat contract law. In part two we examine in more detail the rules of the Civil Code, which
apply to most transactions involving foreigners. Finally, in the last sections, we discuss special types of Civil
Code contracts La. the sales agreement, the agency agreement and other contracts.

It should be noted with respect to our discussion of adat that we have relied like most who write on the subject
on the data of Dutch and Indonesian scholars who conducted their research many years ago, in _
predominantly rural setting. What we describe, therefore, is really the customary law of small, agricultural
villages. It may well be that an altogether new, or at least modified, adat has sprung up in the urban
kampongs of Indonesia's major commercial centers. Indeed, it would be surprising only if this had not
happened, and it is regrettable that no research on so vital a subject has yet been published.

1. PRINCIPLES OF ADAT LAW

Contract law of the Native group is largely customary and unwritten and differs from region to region.
According to the "father of Adat Law", van Vollenhoven, there are 17 adat law areas throughout Indonesia,
each with different contents.

Even so, one can identify general themes which are common to the several regions, and which together form
a system quite different from its Western counterpart. Particular rules are best understood in the context of
these more general principles, a few of which we describe below.

1. No Distinction between real and personal rights

Unlike Western law, adat makes no distinction between rights which are good against the world and those
which are good only against specified individuals. Instead, all rights are treated as a single class - "personal"
in the sense that there is always a possibility someone will come along to defeat them, but really not personal
or real, since the adat concept of an interest in property is never defined in terms of its enforce ability. When a
dispute arises as to title, the judge examines not the nature of the right but the equities of the particular
situation. Thus, for example, in the case of a bona fide purchaser 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 situations, depending on the judge's evaluation of the relative hardships which would
result if one or the other party were denied his claim.1

The absence of a distinction between real and personal rights also affects the theory of recovery in an action
for damages. For example, under the Civil Code, a lessee may have an action in tort, but not contract, against
a third party who interferes with his use of leased property. The lessee's right is personal and so
unenforceable against anyone other than the lessor. Under adat, however, it is unnecessary to base the
action on tort, as the enforceability of the lease right is not compromised by notions of personal rights. It is
enough to allege that one's use has been compromised.
2. No distinction between movable and immovable property

Just as adat does not distinguish between realty and personalty, so it makes no distinction between movable
and immovable goods. Instead, it draws a line between land - the source of nourishment, the abode of spirits
and the dead2 - and everything else. Houses, growing trees, live stock, and kitchen tables are all grouped
together without regard to their actual or theoretical movability.3 What matters - what they have in common -
is that they are not land, and so not ordinarily infused with those supernatural qualities upon which the
survival of the community must depend. It is the effect which the use or transfer of goods has on this overall
stability of the cosmos, and not the movability of goods, which is the relevant variable for adat law.

3. No distinction between public and private law

Adat does not distinguish between public and private law; or rather, insofar as it does, it uses different criteria
than Western law, so that matters thought to be suitable for public regulation under one system will often be
different from those of the other.4 Contracts for the sale of land, for example, are much more a matter of
public than of private law under adat, because the vital interests of the community are so intimately affected
by the use of land. In this context the adat Chief is an important factor, as we have seen, when discussing the
sale and purchase of land under the BAL.

4. No distinction between civil and criminal delicts

There is also no sharp division in adat law between civil and criminal wrongs, and so it is never easy to
determine on the basis of adat alone whether a particular unlawful act should be remedied in a civil or criminal
court. Most offenses are viewed by the adat community as a "unilateral disturbance of the community's
equilibrium" for the aggrieved party, but rather a response which will restore the community's lost balance.
Usually, this restoration takes the form of a "fine" in goods or money, assessed by the village chief.5

The Scheme Of Adat Contract Law

The four general principles of adat law briefly described above illustrate that different concerns have guided
adat law in prescribing rules of contract law from those which guided the makers of the Civil Code. Of
paramount importance is the potential impact which a particular action will have on the overall stability of the
community. It would therefore be reckless, for example, to prescribe a hard and fast rule with respect to the
rights of a bona fide purchaser vis-a-vis the real owner of a thing, since the cosmic implications of favoring
one or the other will vary from one day to the next, and will be so intimately bound up with the particular facts
of the situation, that the interests of the community are best served by relying for solution on the discretion
and informed knowledge of village elders.

This is not to say there are not rules, but it is to suggest that adat law is much more a pattern of observed
behavior than a system of regulation.

1. NON-CONSENSUAL NATURE OF ADAT AGREEMENT

With respect to the particulars of adat contract law, the most important principle is that an agreement is
generally effected by delivery only, never by consent.6 No enforceable obligation arises until the moment the
thing being contracted for has been transferred.
If A promises in writing to sell his bicycle to B, and B promises to pay X price, the writing is only a statement
of intention, and either party is free to change his mind. This is in sharp contrast to the Civil Code, under
which an obligation can arise based on mere promises.

Despite the non-concensual nature of an adat contract, it is possible for the parties to seal their intentions with
a "binder" (called panjer in javanese) - a small sum of money, or other object, the transfer of which operates
as a kind of token of good faith. Once the binder is conveyed, the parties feel morally bound to perform and
will rarely back down. If the one conveying the binder does refuse to perform, he loses the binder. If the party
receiving it is the one who withdraws, he must return the token, and in some areas an additional amount
equal to it. But there is still no enforceable obligation as to the thing promised?

2. KINDS OF ADAT CONTRACTS

Adat agreements are broadly of three kinds:8

a. Conveyance of land. The most important contracts are conveyances of land, known as "iual transactions",
of which there are three forms".
(1) The jual lepas, literally outright sale. It is an absolute conveyance of a right of ownership, with no
possibility of reversion.

(2) The jual gadai, or land pledge. Under this arrangement land is conveyed subject to a covenant that the
one who conveys it may subsequently redeem it by paying the buyer and amount equal to the purchase
price.9 While the object of the pledge is usually to raise cash, and the transaction itself has the appearance of
a secured loan, it differs from the latter in that the pledgee has no right of action for repayment.
The purchase price is just that, not a loan, and cannot be enforced as a loan.
Moreover, the pledgee acquires full title to the land, and is free to use it as he wishes.

(3) The jual tahunan, which is a conveyance for a term of harvests. It reverts to the seller after the specified
number of harvests. Since enactment of the Basic Agrarian Law, all three forms of conveyance have been
subject to increasing regulation by the central government.10

b. Other transactions involving land. Besides the three transactions described above, all of which result in a
transfer of title, there are a number of other agreements involving land which do not convey title, but which
usually result in a transfer of possession. These include sharecropping agreements and leases. Once again,
there has been considerable national regulation of such agreements _n the years after the introduction of the
BAL11

c. . Other obligations. In this third category are included what are, by Western standards, a great variety of
agreements, such as contracts involving rights to houses, crops, animals and other goods, plus credit
transactions.

Under adat law, for example, 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 such transactions, In the case of money loans, some regions
recognize the joint and several liability of an entire community for the individual debts of its members.

Adat Law Not Transaction Suitable For International Commercial

It should be clear even from this brief description that adat contract law is primarily meant to serve the needs
of a closed, rural community, not engaged in world commerce.
It should also be clear that this rural adat in its pure form is ill-suited for international globalisation of
commerce and trade - among other reasons, because of the difficulty of creating enforceable obligations prior
to actual performance. As a result, it is common in Indonesia to day to assume that the Civil and Commercial
Codes, not adat contract law, are applicable to Native Indoensians engaged in international business. Such
Indonesian are said to have voluntarily submitted to the Codes, either by virtue of their executing transactions
not familiar to adat, or by virtue of their entering the Western law sphere of urban commerce.12, 11'1 the
remaining sections, we will therefore focus exclusively on this Western contract law, which is based largely on
the Dutch Civil Code.

"Obligations" And Contracts Under The Civil Code

Contracts under Western law are regulated in Book III of the Civil Code. As in other Code systems Indonesian
contract law is really a sub category of a larger classification: the law of obligations, (Verbintenissen) which is
the title of Book III. Contracts are the most important, but not the only, source of obligations regulated in Book
III. An obligation can also arise based on statute - for example, the duty of a son or daughter to support
his/her parents if they become impoverished, 13 or the duty of a person who undertakes to arrange the affairs
of others to do so in a responsible manner.14 However, in this chapter, we discuss only contractual
obligations.

Elements Of A Contract

To establish a contract, four elements are required.15

(1) the consent of the parties;
(2) a capacity to contract;
(3) a subject certain;
(4) a lawful purpose;

1. Consent

For a contract to be valid, the parties must consent to the basic matters contained in the agreement.16 If one
party is physically forced to sign the contract - for example, if someone holds his hand and causes it to make
a signature on the paper - there is no consent, and the contract is not valid.

On the other hand, a contract may be valid even though consent was obtained by duress, mistake or fraud. In
such situations there is said to be consent, and therefore a valid contract, even though the consent obtained
is a suspicious manner. However, a contract thus obtained is voidable, upon application by the victim of the
duress, mistake or fraud.

"Duress is any mental intimidation - for example threat of physical violence - not sanctioned by law. If the treat
of physical violence involves an action permissible at law - bringing a law suit, say - there is no duress.
Duress can also be due to blackmail or under influence over a person in a weakened mental state.

"Mistakes" can be of two kinds: those involving the identity of the subject matter of the contract (the
"Rembrandt" is not really a Rembradt), and those involving the identity of the person with whom the contract
is made (this isn't Basuki Abdullah the famous, Indonesian painter, but another one).

In either case, for the contract to be voidable, the other party to the agreement must have been aware of the
mistake, or at least must have known that his counterpart,was entering the agreement under a
misapprehension as to the identity of the subject or person. If the party selling the "Rembrandt" believes the
other party knows this is not a Rembrandt, or thinks the other party already knows he is not Basuki Abdullah,
then the contract is valid and cannot be avoided on the ground of mistake.

"Fraud" is an overt act performed by one of the parties prior to the formation of the agreement with the
intention to deceive the other party and induce him into concluding a contract which he would not otherwise
have concluded. A false statement by itself is not fraud; it must be accompanied by a deceitful act. The
deceitful act itself must be carried out by or in the name of the party to the contract, the person perpetrating it
must intend to deceive, the act must be overt - for example, changing the serial number on a machine (mere
omission, such as failure to inform a potential buyer of hidden defect, is not a fraudulent act because it is not
overt), and the act must be of such a nature that the _ceived party would not have entered the contract but for
that deception.

Summarizing, it could be said that four elements of fraud are present, i.e:
(1) an overt act, which not include e.g. a failure to inform about a hidden defect;
(2) before the formation of the contract;
(3) with the intent of causing the other party to conclude the contract;
(4) which he would not have done but for the overt act;

A suit to avoid a contract on grounds of duress, mistake or fraud can be initiated only by the injured party, and
must be brought within five years of the cessation of the duress or within five years of the discovery of the
mistake or fraud. These consensual defects are also good defences to an action on the contract brought
against the victim. There is no prescription on their use as a defense.17

2. Capacity

A second element required in a contract is that the parties shall have the capacity to contract,18 As a general
rule, all persons are legally capable of entering contracts, except (1) minors (persons under 21 years of age)
19, and (2) persons placed under guardianship. Contracts concluded by either of these categories of persons
can be annulled by a court of law, upon application of the incapable party or his lawfull representative,
provided the action is brought within five years of the termination of the incapacity. The obligation of the other
party to the agreement is unaffected by incapacity unless and until the contract is annulled.

According to art. 108 of the Code, a married woman is also without capacity to enter contracts, unless she is
"assisted" in the making of the contract by her husband. Traditionally, this meant that a married woman's
husband had to be present when the contract was made, or else the woman had to obtain written permission
from her husband before she could enter the contract. However, some years ago, notaries in Indonesia began
drawing up contracts on behalf of married women without paying attention to art.108, on the assumption that
it would never be enforced by a court of law since it was manifestly unjust and its counterpart in Holland had
already been repealed. Then in 1963 the Supreme Court issued a Circular Letter in which it said it assumed
art. 108 was no longer in force.20 Although no case has yet been decided by the Supreme Court, the lower
courts are reported to be following this instruction, and there are Supreme Court dicta to that effect.21

Associations and businesses which qualify as "legal bodies" or legal entities (badan hukum) within the
meaning of article 1653 of the Code and other relevant legislation22 have the same capacity to contract as
individuals.23
3. Subject Certain

The third requirement in a valid contract is that the subject must be determinable; otherwise the contract is
void.24 By "subject" is meant both the object of the performance - for example, the goods which are to be
delivered, and the performance itself - for example, the delivery. It is enough that the type of goods involved
(e.g. cotton) be mentioned in the contract; the parties need not identify at the time the contract is made which
particular items (which bales of cotton) are intended. Nor is it necessary to specify the precise quantity in the
future. "The harvested cotton from such and such a field during the year 1972" is sufficient; "Cotton at 500
rupiahs per bale", without more, is not, because no ascertainable amount is stated.

In general, the subject of the contract may be rights, services, goods or things, whether in exlstence or to
come into existence, so long as they are determinable. A contract to sell a portrait which has not yet been
painted could be lawful. On the other hand, a contract which is impossible of performance at the time it is
executed is void.25

There is no requirement of reciprocity. The Code specifically provides that a person may obligate himself to
another without obtaining anything in return.26

4. Lawful Purpose

The fourth element of a valid contract is that it must have a lawful purpose IIcausa".27 If the object of the
contract is unlawful, or if it is contrary to good morals or public policy, then the contract is void. For example, a
contract to murder someone has as its object an unlawful purpose, and is therefore not valid.

Another concrete example is the sugar contract case of the Indonesian merchant Yani Haryanto versus the
English firm MAN Sugar Ltd. In this case, the Supreme Court held that the contract of sale and purchase of
sugar to the Indonesian private entrepreneur is unlawful, and have no good cause, as it is contrary to the-
Government Regulation that only BULOG (the Indonesian Logistics Bureau) can import sugar into
Indonesia.28

When Is A Contract Created?

In theory, a contract is said to arise at the moment when the intentions of the parties coinCide. In fact,
determining the moment of this "coincidence of intention" has proved too difficult, so that, in practice, what
matters are the actual declarations of the parties. A contract is concluded if the declared intentions of the
parties coincide, provided the declarations are made in circumstance which inspire confidence that they are
really intended. In practice, therefore, a contract is created at the moment a legitimate offer has been
accepted. The offer and acceptance can be explicit or tacit.

A written acceptance is effective upon receipt. A legitimate offer is irrevocable unless a power to revoke has
been reserved. If the offer is not accepted during the period of its validity, it terminates automatically at the
end of that period. If the offer has no specified duration, it is deemed made for a "reasonable" time, which
period varies according to the circumstances.

Not all offers are legitimate. For example, if a low price quoted in a newspaper advertisement is so low as to
be obviously a misprint, then the ad does not constitute a legitimate offer, since it is not reasonable to believe
that the declaration was really intended. On the other hand, if the price is a misprint, but is not so low as to be
obviously a misprint, the offer is valid even though it is not in fact what was intended by the offeror. The latter
is bound by his offer so long as it is reasonable to believe he intended to make the declaration which has in
fact been made.

Formalities

As a general rule, no formal requirements (writing, registration, etc.) need be observed to make a contract
binding. Mutual consent of the parties is sufficient, and this mutual consent, as noted above, is manifest when
one party offers to make a contract and the other accepts. The Code does, however, make some exceptions
to this general rule. For example, certain contracts must be in writing and executed in the form of an
"authentic" deed drawn by a notary or other authorized public official, such as the Article of Association for a
limited liability company (which are technically a contract according to the Civil Code)29 and the settlement by
contract of certain disputes.30 Some other contracts such as a conveyance of hypothec must be
registered.31 There are also a few contracts which become binding only upon delivery of the subject matter of
the contract: for example, a deposit. 32

It is not necessary for a company entering contract to use its company seal. However, in order to avoid
disputes regarding the authenticity of a signature or date in the event of the signing of contract abroad, it
should be authenticated by an Indonesian consulate in the country where the contract is signed as well as by
the necessary officials designated by the law of that country for the authentication of signatures. On
certificates of indebtedness should be written in longhand by the debtor the amount of the debt, preceded by
the words: "good for" (baik untuk).

For a contract to be entered as evidence in a civil law suit it must be drawn up on stamped paper or provided
with a government stamp in the amount of 2000 rupiahs.

Performance

All contracts lawfully concluded are legally binding as law on the parties and cannot be revoked, except by
mutual consent or based on reasons authorized by law (art. 1338 Civil Code). This is like the so-called "pacta
sunt servanda" principle. Furthermore, 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.33

In other words, the specific provisions of a contract are supplemented as needed by statute, custom and
reasonableness in order to give effect to the contract. The standard of reasonableness is invoked only if there
is no statutory provision or custom to settle the matter. In the event statute and custom are contrary, the
statute prevails, unless it is also customary to include the customary provision in the contract itself, in which
case the customary provision is assumed to have been included in the contract (and therefore prevails),
unless explicitly waived.34 For example, it is customary, but not a customary provision in a rental contract, for
a lessor to collect his rent at the premises of the lessee. On the other hand, art. 1393 of the Code provides
that a debtor is bound to make payment at the premises of the creditor. If the matter of where paYry1ent shall
be made is not prescribed in the contract, and neither lessor nor lessee is willing voluntarily to go to the
premises of the other, art.1393 prevails over custom, and the lessee must make payment at the place of the
lessor.

This result, however, is reversed if the custom is also customarily made a part of the contract. For example,
art.1460 of the Code provides as a general rule that purchaser bears the risk of loss from the moment a
contract of sale for a specified item is concluded, even though delivery has not yet been made.35 Ordinarily,
therefore, if the purchase item perishes prior to delivery, the purchaser is still obligated to pay for it. However,
it is customary in the case of cattle for the seller to promise that he, rather that the buyer, will assume the risk
until delivery is performed. In the event the cow dies before delivery is effected, and there is no provision in
the contract regulating the assignment of risk, the custom will prevail over art. 1460, since it is assumed to
have been included in the contract, even though not expressly provided there.

A contract must be performed by the parties "in good faith ".36 To ensure good faith, a judge in a civil suit has
power to supervise the implementation of the contract, and to invoke principles of
reasonableness and justice in doing so. In practice, this means that a judge is free to deviate from the letter of
the contract if such deviation is necessary to ensure good faith. For example, in a famous case in 1955,37 the
Supreme Court refused to allow land which had been pledged for Rp 50,- prior to World War II to be
redeemed for the same price, and instead fashioned its own formula of redemption. The Court noted that the
price of gold had increased 30 times during the intervening years.

Justice, it said, required that the risk of currency fluctuation be born equally by the parties even though the
contract fixed the price of redemption at Rp 50,-. It therefore ordered the plaintiff to pay 1/2 of 30 x Rp 50,-,
i.e. Rp 750,- for the land.38 Although this particular case involved adat law, it illustrates the principle that the
court is willing to intervene and modify contract provisions where such intervention is called for by standards
of reasonableness and justice.

In the case of a debtor who performs fraudulent acts to the detriment of this creditor - for example, concealing
assets - the Code authorizes a special action - the so-called "Pauliana action" (action Pauliana) - whereby the
creditor can avoid the consequences of those acts by obtaining a court order revoking them.39 To be
revocable, the acts in question must be extraneous to those required by the contract, and the creditor be
injured by them. Ordinarily, the requisite injury will exist whenever the debtor reduces his property to a point
where it is not sufficient to cover all his debts.

The rights of a bona fide purchaser, however, are independently protected and cannot be effected by such a
revocation.40

Stipulations For Third Persons

As a general rule, the Code provides that no one except the parties to a contract may be bound or benefited
by an obligation undertaken by them in their own names.41 In other words, as a general rule, 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.42 However, based on article 1317,43 it
is in fac;t possible to execute a
"contract for the benefit of a third person" and for the third person to acquire enforceable rights under a
contract even though he is not a party of the principal of a party. This is done merely by stipulating that . the
agreement should benefit a .designated third person, and then having the third party beneficiary ratify the
stipulation before it is revoked.

For example, if A agrees to sell his car to B for $1000 subject to the stipulation that B let C have use of the
automobile for 6 months, C acquires an enforceable right against A and B provided he makes known his
intention to take advantage of the stipulation before A changes his mind and revokes it.

A contract for the benefit of a third person is sometimes viewed by the commentators44 and courts45 as a
kind of offer by A, the stipulator, to C, the third person. C must "accept" the offer in order to acquire an
enforceable right, and A is free to "rescind" the offer before C accepts it. Actually, though, the Code requires
only that the third person "declare" his intention to take advantage of the stipulation - something less than a
juridical acceptance - and it is. apparently sufficient that he demands performance.

AII rights and duties arising out of a given contract pass to the heirs of a party in the event of his death, unless
the contract clearly provides to the contrary.46

Assignment (cession)

Article 613 of the Code provides that any chose in action may be assigned by means of a writing to that
effect. In practice an assignment is usually executed by notarial deed. In the case of land rights, the
assignment must be by notarial deed, and the conveyance must be registered. An assignment is not valid
until the obligor has been notified of the assignment of the claim against him.

Default

An obligor should perform his obligation at the time and in the manner agreed. If the fails to do what he has
promised - either by not doing it at all, or by delaying his doing it, or by doing it in a way contrary to the terms
of the agreement - or if he does something which is prohibited by the contract, he may be in default and
become liable for damages or some other remedy available to the obligee. As a general rule, however, mere
failure to perform does not in itself constitute default. The creditor must affirmatively "place" the delinquent
debtor in default by observing certain formalities; Le. he must serve the debtor with a summons in the form of
a warrant issued by the clerk of the District Court or a registered letter he himself prepares, demanding that
the obligation due be performed.47 There is also case law to the effect that a mere oral demand is
sufficient.48 This demand, or summons, is intended to give the obligor a certain time limit during which he can
still fulfill his obligation. If he does not fulfill it within the time specified, or if the does not fulfill it adequately,
then - but only then - is there a breach of contract.

A formal demand is not necessary if the contract itself calls for performance within a specified time, or if the
time limit, though not specified, is clear from the nature of the act to be performed. For example, a promise to
sew a wedding gown by its nature must be performed before the date of the wedding, and therefore a breach
can occur without being preceded by a formal demand.

This requisite of a formal demand is in the practice of the Civil procedure now used before the District Court,
the so-called "Revised Indonesian Regulation "H.I.R.", Herziene /ndonesisch Reg/ement, Reg/emen
Indonesian diperbaharui no longer required.

Various remedies are authorized by the Code to indemnify or otherwise relieve losses resulting from default.

1. Specific Performance

As general rule, a party to a contract is always free to sue for specific performance of the contract if
performance is still possible.49 This includes the forced execution of contracts for the sale of land, and the
forced execution of other contracts.

2. Damages

In addition to performance, or in lieu thereof, the creditor may sue for damages. 50 Damages consist of
money compensation for any or all of three types of injuries resulting from a breach of contract:
"expenditures" (biaya, kosten), "losses" (rugi, schaden), and "interest" (bunga, interessen). "Expenditures"
include all expenses and costs actually incurred by the aggrieved party in reliance on the contract. For
example, suppose X, a promoter, contracts with Y, a singer, to pay $100 for a 30 minute performance. X hires
a hall for $25, $100 and $25 spent by X are "expenditures" for which are can claim damages from Y.

By "loss" is meant injury to the property of the obligee resulting from the default. This covers not only injury to
the actual goods which are the subject of the contract, but also injury to other property resulting from the
default. For example, suppose B contracts to build an unfurnished house for A according to agreed
specifications. The construction is below specifications, as a result of which the building collapses B is liable
not only for the loss of the house, but also for damage to A's household furniture caused by the collapse.

"Interests", a misleading translation of the Dutch "interessen", refers not to interest as such, but to lost profit.
For example, suppose A contract to sell potatoes to B for $25, delivery on September 30. On September 30
the market value of the potatoes is $30. A fails to deliver. B ha a claim against A for the $5 profit he lost as a
result of A’s default.

The Code imposes certain limitations on the amount 'of damages which can be claimed:
a. Damages are limited to those injuries which were foreseeable at the time of the formation of the contract.51
According to case
law, the scope of the loss as well as the possibility of injury must have been foreseeable. 52

b. In addition, damages are limited to those injuries which are a

direct result of the breach.53

c. In the case where performance isto be in the form of a payment of money, the Code permits the Court to
award interest for late or non-payment. However, the interest which can be claimed is limited to 6% per
year,54 and is measured, not from the date of the breach, but from the date on which the petition for damages
is filed with the District Court.55

3. Dissolution

It should be noted that a party to a contract is not free, as a general rule, to rescind the agreement unilaterally
in the event of the other's default.

Even where the contract specifically provides for automatic termination, the actual dissolution must await an
order of the court.56 This provision in article 1266 Civil Code is in practice set aside in contracts, especially if
the parties are advised by legal counsel.

In the event a defaulting debtor is still able to perform his obligations. subsequent to default, the creditor may
petition for dissolution of the contract along with his suit for damages, to ensure that the obligation is in fact
extinguished.57 This will protect the creditor from any subsequent claims under the contract. Similarly, in
cases where there are reciprocal obligations, a creditor may petition the court to dissolve his reciprocal
obligations.
Assignment Of Risk

The Civil Code contains no general provision dealing with assignment of risk. Different rules apply to different
types of contracts.

Leases, gifts. and exchanges are normally treated one way, contracts. of sale another, and the assignment of
risk sometimes bears no relation to the question of who owns the item for which risk is being assigned.

The most important provision is art. 146O, which provides that the risk in a contract of sale which has as its
object a thing certain shall be borne by the purchaser from the moment the contract is made this, in spite of
the fact that ownership of the goods normally remains with the seller until the moment of delivery. Thus, if the
goods are destroyed prior to delivery through no fault of the seller, the buyer must pay the purchase price
even though he does not receive them.

In practice, art.1460 has been interpreted rather narrowly by the courts, so that there are a number of
situations where the risk is really with the seller. In the first place, "a thing certain" has been held to mean only
irreplaceable items specifically designated by the buyer as that which he desires to purchase.58 In other
words, if A purchases "that particular red wood table in the corner there", the risk is his from the moment the
contract is concluded. But if A simply contracts to buy a table of such and such specifications (like the red
wood table), he is burdened with no risk until a table of those specifications has actually been delivered.

In the second place, art.1460 has been held to apply only in situations in which the goods in question have
actually perished prior to delivery.59 If the non-delivery is a result, say, of a regulation prohibiting export of the
type of good in question to the country of the buyer, art. 1460 does not apply, and the risk is born by the
seller.

As we have seen, when discussing the role of the judiciary in the process of new law development, this
seemingly harsh rule or article 1460 C.C. has been repealed by the Supreme Court with Circular Letter 1963
no.3 of September 5, 1963.

In rental contracts, risk is born by the lessor,50 in contracts of exchange by the party who owns the item
which has perished.51 There are also situations in which a particular risk assigned by the Code will be
transferred to the other party as a sanction for breach of contract for example, if a creditor defaults on his
obligation to deliver a thing certain, and the thing perishes subsequent thereto. 52 Thus, if the furniture store
delays delivery of the redwood table in the corner, and the table perishes in a store fire after the date on
which delivery should have been made, the loss is born by the furniture store rather than by A.

The Civil Code also establishes different degrees of fault which have to be met for different types of contracts.
As examples could be mentioned that, if a party has undertaken to deliver something, the rather vaque
standard of care imposed on him is that of a "good father" "goed huisvader". In a fire insurance contract the
insurance company is not obliged to pay if the other party IS grossly negligent (art. 294 Common - Code). A
keeper of goods entrusted to him, must protect the objects as if it were his own (art. 1706 C.C.). In an
agreement to borrow a certain object, the borrower mus_ treat the borrowed thing as a reasonably prudent
person would under the same circumstances (art. 1745 C.C.).

Termination

Article 1381 of the Code recognizes ten ways in which an obligation can be extinguished:
(1) Performance
(2) Certified tender plus deposit
(3) Novation
(4) Compensation
(5) Confusion (Merger)
(6) Remission of debt
(7) Destruction of the subject matter
(8) Dissolution
(9) Occurrence of a resolutory condition
(10) Prescription

1. Performance

A contract obligation can always be discharged by performance. 53 The performance may be executed by a
third party with no interest in the contract, as well as by the obligor, except in the case of promise to do
something where the obligee has a particular interest in seeing that the contract is performed by the obligor
rather than by someone else - for example, a contract to paint a portrait.

The performance must be executed at the time and place prescribed by the contract. If a place is not
determined, and the contract involves particular goods or items that are specifically identified in the contract,
then performance must be carried out at the place where the goods were located at the time the contract was
made. Otherwise, performance is due at the residence of the obligee. The payment of rent, for example, is
due at the residence of the lessor. But the practice now is otherwise. Rent is usually collected by the lessor at
the lessee's residence.

2. Certified Tender

In situations where an obligee refuses to accept performance for example, the payment of a certain sum of
money - the obligor can discharge his obligation by means of a certified offer to perform ("aanbod van
gereede betaling.64 If this offer is refused, the debtor becomes entitled to deposit the money (or goods) due
with the Court and to receive an order of discharge (van waarde verklaring).

The tender of the money or goods is made by a notary or clerk of court. If the tender is refused. the notary or
clerk requests the obligee to sign a notice verifying that an offer to perform has been made. If the obligee also
refuses to sign the notice, the notary or clerk notes the refusal on the document thus verifying that an offer
has been made. Upon request of the party who made the offer, the court will then order the obligor
discharged of his obligation, provided the goods are deposited with the court. Cost of the certified tender is
born by the obligor.

3. Novation

A particular obligation can also be discharged by the creation of a new obligation intended to replace it.65 The
novation can occur in 3 ways:

a. The old contract is replaced by a new one;

b. The old obligor is replaced by a new one;

c. The old obligee is replaced by a new one;

In the first instance the object of the contract is changed; in the second and third, one of the persons subject
to the contract is changed. In all cases, however, the novation must have the agreement of both of the original
parties, and their intentions must in fact be to extinguish the original debt between them.

4. Compensation (set-off)

When two persons owe each other similar obligations, the two debts cancel one another up to the amount of
the lesser of the two.66 For example, if A owes B $12 and is owed 85 by B, B's debt to A will be discharged,
and A’s debt to B reduced to 87. For the "compensation" or "set-off" to occur, the obligations must be of a
similar type and concern similar objects - mutual obligations to pay money, say, or to deliver goods of the
same type and quality.

5. Confusion (merger)

If the position of creditor and debtor become united in one person, the obligation is extinguished.67 This
situation usually arises as a result of succession - for example, A, the debtor of B, succeeds to B's rights by
virtue of B's last will and testament.

6. Remission Of Debt (release)

As a general rule, an obligor is always free to release his obligee from an obligation.68 To be valid, the
remission must be affirmatively proved. The Code provides that voluntary delivery by the creditor to his debtor
of the original, signed copy of the agreement is sufficient evidence of release.

7. Destruction Of Subject Matter

If the goods which are the object of a contract are damaged beyond repair, are lost or perish, and the seller
himself is not responsible for this loss or disappearance, he is discharged from his obligation to deliver.69

8. Dissolution

A court, as noted earlier, can annul the contracts of minors and wards, and also contracts where the requisite
consent is obtained by duress, mistake, or fraud.7°

9. Occurrence Of A Resolutory Condition

The Code" recognizes a category of obligations known as "conditional obligations",71 that is, obligations
which either come into existence or disappear upon the happening of a particular event whose occurrence is
not certain to happen - for example, a promise to rent one's house to X in the event one goes abroad, or a
promise by X to relinquish the house he is renting from Y if and when Y returns to Indonesia from abroad. An
obligation of the latter sort, which is known as an obligation subject to a resolutory condition, is said to be
extinguish by the realization of the condition, and the creditor must return whatever he has received in the
same state as though there had never been a contract.72 It should be noted, however, that the realization of
the condition will not always automatically terminate the agreement. Article 1266, as noted earlier, specifically
provides that termination based on non performance, to be valid, must be ordered by a court. Thus, a contract
providing for automatic rescission in the event of default would not terminate at the moment of default, but
would continue in force until an order of discharge had been issued by a court unless the contract also
contained a provision explicitly waiving the protection of article 1266.

As mentioned above, in practice, it is customary in Indonesia to insert a waiver of the latter sort in the
'cQntract.73

10. Prescription (running Of Statute Of Limitations)

A creditor who waits too long to press a claim may be barred forever from doing so. Art. 1967 of the Code
provides as a general rule that all legal claims of whatever sort expire 30 years after the date on which they
arise, and all related legal obligations are discharged. Shorter periods are sometimes specified for particular
actions - for example, we have seen that an action to nullify a contract on grounds of duress, mistake or fraud
must be brought within five years of the cessation of the duress or within five years of the discovery of the
mistake or fraud.74

TYPES OF CONTRACTS IN GENERAL

The most simple type of contract is where only two parties are involved having a single cause, which can be
implemented immediately.

But in practice is it seldom that simple. The Civil Code gives provisions of other general types of contracts.

Conditional contract

(i) One is the "conditional contract" which we have mentioned above. Here we see, that the validity depends
on the occurrence of a specific future event (art. 1253 C.C.). E.g., in a fire insurance agreement, the
insurance company becomes liable for payment if a fire occurs. it is also possible that a contract will terminate
upon occurrence of a specific event, e.g. if the price of sugar drops below Rp 100,- per kilogram.
(ii) Temporal contracts
It is possible to stipulate as a condition that the contract will terminate when a certain date has been reached
(article 1268 C.C.).

This type of contract is to be distinguished from an ordinary conditional contact.

In the latter, the event is not certain to occur, it mayor may not occur. But in a temporal contract the event is
certain to occur. It is only a matter of time, when that event will take place. For example, a condition that the
contract will be implemented only upon the death of a certain person. Another example is the labour contract
for a certain period.

(iii) A/ternative Contracts

In an alternative contract the debtor is released by delivery of one of the two objects. The debtor has a choice
in fulfilling his obligation (art. 1272 C.C.) e.g. a debtor Cqn sometimes pay his debt in the form of either
money or goods.

(iv) Contracts with joint and severa/liability

This type of contract is present when several debtors are liable to a single creditor. Each of the debtors can
be sued to pay for the whole amount of the debt. The payment will release the other debtors from the creditor.

A contract with joint and several liability is usually not presumed. There must be an express provision to that
effect in the resp. contract (art. 1282 par 2 C.C.).

There are however exceptions. e.g. in a contract where several persons borrow a certain object from one
person (art. 1749 C.C.) or in a contract in which one person acts as agent for several persons (art. 1811
C.C.). A partnership contract also creates joint and several liability (art. 18 Comm. C.). So is everyone, who
endorses a bill of exchange jointly and severally liable.
(v) Divisible and indivisible contracts
A contract is divisible or not, depending on the nature of the obligation (arts. 1296-1298 C.C.). A contract is
generally presumed as indivisible, unless otherwise stated.

The fact that a contract may be performed in parts does not necessarily means that it is divisible, e.g. 100
kilogram sugar to be delivered in three installments. But one which can only be personal as a whole, e.g. the
delivery of a cow, is necessarily indivisible.

Diversibility often become an issue if one party to a contract is replaced by several persons. For example
when the original party dies and is replaced by inheritors. In this case, all the heirs are each jointly and
severally liable for the debt (art. 1299 C.C.). Unless the debt one excepted as mentioned in article 1300 C.C.
e.g. a secur_d debt or a mortgage. The creditor is entitled to one for the whole amount of the debt. And the
debtor (s) may not pay only partially.
(vi) Contract with a penalty clause
In practice it is common to use penalty clauses, in case a debtor is not fulfilling his obligation (art. 1304 C.C.).
The penalty is usually in the form of cash. It can be classified as damages, being determined in advance by
the contracting parties.

Special Contracts

The Civil Code, besides its general provisions on contract obligations, contains special articles which apply to
certain specified types of contracts, such as sales agreements, exchanges, leases, hire-purchase and powers
of attorney (agency)75. In the final sections of this chapter, we shall examine some of these special
provisions with respect to sale agreements and agency contracts.

Sales

The Civil Code defines a contract of purchase and sales as a contract in which the seller binds himself
to transfer his right of ownership in a particular item to the buyer, and the buyer binds himself to pay to the
seller an agreed price?6 In other words, a contract of purchase and sale under the Indonesian Code creates
and obligation to sell and an obligation to by, but does not itself result in any transfer of the thing being sold.
This is different from adat law, where merek promises to buy and sell are unenforceable. A sale takes place, if
at all, only at the moment possession is surrendered and the purchase price paid. Any prior agreement is a
mere statement of intention, not a contract. It also differs from Anglo-American or common law, in which the
incidents of "sale" and "transfer" are not separated?7

The manner of accomplishing the actual transfer of ownership differs, depending on the thing involved, but
always occurs at some point after the contract is concluded. For example, in the case of movable goods, the
right of ownership is transferred by surrendering actual or effective possession - for example, delivering the
keys to a building or warehouse in which the goods are stored.78 The right of ownership in personal claims
may be assigned by executing a deed to that effect.79

Because the Civil Code distinguishes between the moment of "sale" and the moment of "transfer of
ownership". it can happen that a particular item will be sold to more than one buyer. If X sells a table to V, and
then again the same table to Z, a bonafide purchaser, and follows this with a proper transfer to Z rather than
to V, Z becomes the lawful owner of the table. V has a claim against X for breach of contract, but cannot sue
to acquire the table from Z.

Expenses incurred in connection with an agreement of purchase and sale, such as stamp duties and notarial
fees, are borne by the purchaser, as are the costs of transporting the goods from the place of delivery. Costs
of transfer are bom by the seller. In all cases, though, the parties may provide otherwise in their agreement.

A transfer must be executed at the place where the goods are located, unless the contract provides
otherwise. The goods them selves must be delivered in the same condition as they were in at the moment the
contract of sale was concluded. In the case of livestock, any offspring born to the animals after the contract is
made but before transfer are the property of the buyer.

As discussed above in connection with assignment of risk, the risk in a purchase and sale contract is borne by
the buyer rather than the seller, from the moment of sale, provided the items being purchased are things
certain, and provided non-delivery is a result of absolute impossibility (e.g. the goods have perished).80

a. The Code provides two warranties by the seller to the buyer: The seller warrants title to the goods - his right
to sell them. If the buyer's right now ownership is later challenged by a third party, the buyer can implead the
seller. The seller warrants the goods being sold against hidden defects, including defects not known to the
seller at the time of sale.

b. Although the parties to a contract are ordinarily free to contract away duties imposed by the Code, such as
the warranty against hidden defects, the warranty of title can never be entirely avoided. Even if the contract
explicitly waives the guarantee, the seller remains obligated to return the purchase price in the event the
buyer later loses the goods to someone with a superior claim to them.

Agency

Contracts of agency are regulated in arts. 1792 to 1819 of the Civil Code. In addition, the Commercial Code
contains some special provisions applicable to certain specified commercial agents, such as brokers and
factors. However, unlike the Dutch Commercial Code, there are no special provisions applicable to
commercial agents generally. Because the Civil Code provisions are frequently inadequate in the commercial
context, custom and practice have developed separate rules for commercial agencies which, in general,
follow the pattern of the Dutch Commercial Code. In this section, we begin with a discussion of the Civil Code
provisions, and then examine briefly some of the modifications with respect to commercial agents.

1. The Mandate

According to art. 1792 of the Code, the "mandate" (Iastgeving, pemberian kuasa) is a contract in which
one person, the principal or mandatory gives to another, the mandatory, a power to execute a jurists act in his
name.

The literal language of the provisions would seem to refer only to agency contracts which involve
representation, that is, ostensible mandates by virtue of which an agent is able to bind his principal directly to
a third person.

However, in line with a majority of Dutch scholars, Indonesian writers have agreed that the definition of
mandate in art. 1792 is too narrow, and that the terms "mandate" refers as well to agencies which are not
accompanied by representation - e.g. the contract of "prete-nom", by virtue of which the agent will act on
behalf of another but in his (the agent's) own name and without revealing the existence of his mandator.81
The matter is of some consequence, because subsequent Code provisions which regulate the relationship
between principal and agent apply only to contracts of mandate as defined in art. 1792. thus, e.g., if the
contract of prete-nom, is not included, art. 1813 which provides that the mandate shall terminate upon the
death of one of the parties would not apply to it, and the agency would apparently survive decease - an
unhappy result, at least in the case of a mandatary's death.

Generally speaking, there are no formal requirements to create the mandate. A power of attorney (kuasa), as
the authorization is called, can be given and accepted by authentic deed or under private signature, even by
letter or orally. It is also possible to empower another tacitly. This has been inferred from par.2 of art. 1793,
which provides that acceptance of a power may be tacit, and shall be construed from the fact of fulfillment of
the act by the agent.

The mandate may be either general or special. Where it is general it does not include authorization to
alienate, hypothecate or otherwise dispose of property. With respect to attorneys at law, a general power was
formerly sufficient. The lawyer would simply appear and confirm orally that he had been instructed to appear
on behalf of his client in the pending case. Today, however, the courts require a special power. If the client is
not present, the power must be in writing and give a precise description of the case; e.g., its registry number,
the name of the parties, the object of the case the amount involved, etc. In the Pertamina V5. Kartika Thahir
cs. case before the Singapore High Court the legal aspects and scope of a mandate under Indonesia law,
was thoroughly debated, (originating summons no.3080/1976). The main issue was whether the late Thahir
was a mandate of Pertamina. In lieu of a separate writing, the client may incorporate the authorization in his
petition to the court. He may also appear personally before the judge and declare orally his intention to
authorize the attorney to act on his behalf. The attorney then declares his acceptance of the appointment.

2. Right And Duties Of Mandatary

The mandatary has three obligations: to execute the mandate, 1to compensate his principal if he fails to do
so, and to render an accounting of his acts. In the case of his failure to execute, he must indemnify the
principal not only for damages caused intentionally in bad faith but also for damages resulting from his
negligence.

The mandatary is entitled to appoint a substitute to execute his mandate unless the contract specifically
prohibits it. However, the mandatary remains fully responsible for the acts of his substitute unless the principal
has expressly authorized the substitution. Even when there is authorization, he remains responsible if the
authorization does not specify who the substitute shall be, and the mandatary selects a known incompetent or
bankrupt. In all matters the mandatary is required to act in good faith.
3. Obligations Of The Principal

The principal has three obligations: to indemnify his mandatary, to pay his salary, and to execute whatever
obligations have been contracted in his name.

The obligation to indemnify extends to all expenses incurred and all losses and risks reasonably and
necessarily assumed by the mandatary in the conduct of his agency. In this connection, the mandatary is also
entitled to interest on advances paid by him, measured from the day on which the advance was made. To
secure payment on account of advances, expenses and losses, he acquires a lien (specifically, a right of
retention) on all of the principal's money or property in his (the agent's) possession.

With regard to salaries, it is provided by the Code that the agent acts gratuitously unless otherwise agreed,
However, the principal is obligated to pay whatever salary he has promised. The amount of payment depends
on the agreement. If there is no bargain as to sum, the amount is based on what is reasonable according to
custom and the nature of the services rendered. Like the agent, the principal is required to act in good faith.

The principal is bound by all agreements concluded by the mandatary within the scope of his authority, as if
they were his own. He is not bound by the act of his agent made outside the scope of the mandate; however,
such extraordinary acts may subsequently be ratified by the principal, either expressly or by implication, in
which case they become binding on him as though there had been prior authorization.

Third parties, in determining whether and to what extend a power has been conferred, may rely on the
statements or conduct of the principal.

The principal is also liable for the torts of his agent committed while acting in his capacity as agent.

In the case of a mandatary who exceeds his authority, it is possible that the agent himself will be held liable
on the contract, provided the third person has not been sufficiently informed as to the scope of the agent's
authority. If, however, the mandatary has made his powers sufficiently known, and the third person is deemed
to have acted at his own risk, the agent will not be liable.

4. Termination

The Code specifies several ways in which a mandate can be extinguished:

1) Revocation by the principal
2) Renunciation by the mandatary
3) Death of principal or agent
4) Bankruptcy of principal or agent
5) Interdiction of principal or agent
6) Marriage of a female principal or agent

it is evident that a mandate will also terminate if a specific time for termination has been specified in the
agreement, or if a resolutory condition, upon which terminations conditioned, is realized.

A principal is always free to revoke the mandate whenever he wishes. This can be accomplished expressly or
tacitly, and the principal is entitled to sue for the return of the document embodying the procuration. However,
in the event third persons have already relied either on the conduct of the principal or on the existence of a
power of attorney, the revocation, to be valid, must be made known to them. There is also Dutch case law to
the effect that a mandate can be made irrevocable by agreement of the parties.82

The mandatary is also free at any time to renounce the mandate by so notifying his principal. However, if his
renunciation causes injury to the principal, he may be liable for damages.

As a general rule, the mandate will also terminate in the event of the principal's or agent's death, though it is
customary in the former case to deviate from the general rule, and provide in the contract that the mandate
will survive the principal's death and continue for the benefit of his heirs.

Also, if the mandatary is unaware of the principal's death and executes his mandate in ignorance of it, his acts
will be valid and the principal's heirs will be liable. In the case of a mandatary's death, his heirs are obligated
to notify the principal of the death, provided they know of the mandate, and otherwise to do what the
circumstances require in order to protect the interests of the principal. If the heirs fail in this duty, they become
liable to the principal for all damages resulting therefrom.

Finally, interdiction, bankruptcy or the marriage of a woman will cause the mandate to terminate. The latter
apparently had its origin in the incapacity of married women to contract without the permission of their
husbands.83 Given the demise of. that rule,84 it is questionable whether the marriage of a woman should or
any longer does result in termination.

Commercial Mandates

The Commercial Code refers to several types of mandataries for example, forwarding agents and brokers -
who, because of the commercial nature of their activities, are subject to special rules of the Commercial Code
which supplement, and sometimes deviate from, the rules of the Civil Code. In addition, there are other
commercial mandataries, such as managers and traveling salesmen, whose activities are not separately
regulated in the Commercial Code, but who are nevertheless subject to special rules based on custom and
practice derived from the Dutch Commercial Code. The more . elaborate Dutch rules were never formally
enacted into law in Indonesia.

However, the Dutch Code is treated as a kind of "Restatement" of Indonesian custom and practice in this
area, and is therefore used as a guide for determining the special, unwritten law governing Indonesian
commercial mandates whenever the Indonesian Commercial Code does not regulate the matter.

1. Commercial Agent Generally

In general a commercial agent is any person who makes a business of acting as an intermediary, or entering
into contracts for the order of and on behalf of a principal. The term is not actually to be found in' the
Indonesian Commercial Code, and there are no general provisions in the Indonesian Code specially
regulating commercial agents. However, as noted above, the Dutch Commercial Code contains such
provisions, and they are regarded as indicative of Indonesian custom and practice. According to the -Dutch
Code, a commercial agent is entitled to compensation as soon as the contracts is concluded, unless
performance of the contract is made a condition of payment in the mandate. The agent is entitled to a fair
remuneration for the preparation of contracts entered into after the termination of his mandate.

He is also entitled to a commission on contracts entered into directly by the principal and third party, if the
coming together of the principal and third party is a result of the agent's activities, or if the contract is within
the agent's exclusive subject. Finally, the agent is due a commission whenever he is willing and able to
execute h!s mandate but is prevented from doing so by the principal. .

It is possible to stipulate in a commercial agent's mandate the so-called del credere clause, through which the
agent guarantees the performance of a buyer to whom he sells goods on credit. In the event of the buyer's
default, the agent is liable to his principal op to the amount of his commission.

If a commercial agency is executed for a specified period of time but is continued thereafter, it is deemed to
have been automatically renewed for the same period, unless the parties agree otherwise. if no time limit has
been set, the mandate can be terminated unilaterally on agreed notice of a reasonable period. The mandate
will also terminate upon the death of the mandatary. It does. not terminate upon the principal's death unless
so provided. However, the heirs of the principal may subsequently terminate, even if the mandate was for a
specified period, subject to reasonable notice. Either party may also terminate the agreement without prior
notice, though the terminating party will be liable for resulting damages. If it is virtually impossible for either
party to continue the contract; the one not performing is still liable for damages either the actual damages or
the commissions which the agent reasonably should have received if the termination had been by stipulated
notice. Finally, it is possible for a court to terminate the mandate at the notion of either party. for compelling
reason or urgent cause or in the event requires immediate termination. The court may award damages.

Some commercial mandataries are more than agents, and certain aspects of their relationship to the principal
may be subject to different rules. Traveling salesmen, for example, are like commercial agents in most
respects except that they are also employees of their principal. As a result of this employer-employee
relationship, matters relating to the termination of the mandate contract are governed by the employment
provisions of the Civil Code as supplemented by Indonesian labor law, rather than by the custom and practice
referred to above. However, other aspects of the contract are subject to the custom and practice governing
commercial agencies generally.

2. Brokers

A broker is a licensed mandatary: who acts in the name of, and for the order of, a principal for the purpose of
buying and selling goods, but he is never entrusted either with possession or control of the goods involved.8s

Indeed, the broker is prohibited from having any interest whatever in the transaction which he is licensed to
execute. Once the contract is concluded, he charges his commission and participates no further. He has no
permanent relationship with his principal.

A broker's license may be general or special. The broker himself is required to enter a signed notation in his
books for every licensed transaction which he executes, and there are strict requirements as to the form and
manner of notation. He must also forward a copy of the "purchase notation" to the buyer and the "sold
notation" to the seller.

3. Commission Merchant

Unlike a broker, the commission merchant enters contract in his own name, at the order and for the risk of his
principal.86 He thus acts without a representation, and so binds himself rather than his principal. Also, unlike
a broker, the commission merchant acquires possession of the goods involved. The relationship between
commission merchant and principal is like that of a ordinary commercial agent and principal, except that the
commission merchant acquires several special privileges which the Commercial Code authorizes. For
example, he lis given stronger liens against the property he is authorized to sell or buy.
A commission merchant may disclose the name of his principal and act in the latter's name, in which case the
relationship between principal and third party will be governed by the regular Civil Code provisions, and the
agent will lose his special privileges under the Commercial Code.

4. Hire Purchase Contract

Hire purchase is not regulated in the Civil Code. This institution has developed in practice. It enables the
buyer to use the goods immediately, although payment and transfer of property right are not yet completed.

Payment is usually made in installments. Although the goods are immediately delivered, the title in the goods
remain with the seller until the price has been totally paid.

In this kind of transaction, the buyer cannot re-sell or mortgage the goods, as he does not yet become the
owner of them. If he nevertheless is doing this, he could be charged which embezzlement.

5. Contract Of Installment Purchase

This contract is similar to hire-purchase. But the transfer of title occurs at the time the goods are delivered.
The payment of the purchase price is made in installments.

6. Contract Of Lease

In this agreement one party delivers a particular good to another party to be used for a certain definite period.
The other party pays rent periodically. As a rule the lesse is obliged to maintain the goods as if they belonged
to him (as a "goed huisevader" (art. 1560 C.C.).

Concerning the lease of a house, the law states that the cost for minor repairs is to be borne by the lessee
(art. 1583 C.C.). It is customary to find in lease contracts of a house, that repairs under a certain stipulated
amount will be for the account of the lessee.

There are also special regulations issued by the Indonesian law maker to protect lessees of dwelling
houses.87 if the furniture of resp. house is confiscated, lessor is entitled to have a first priority upon the
proceeds from its right in order to ensure its rights to payment of the rent.

If the leased house is sold, it will not break the lease contract. The new owner is bound by the terms of the
lease contract made by the former owner (art. 1576 C.C.).

The owner is also not entitled to terminate the lease agreement on grounds that he wants to use the house
himself (art. 1579 C.C.). In the special housing regulations issued by the Government, there are certain
provisions for the owner to terminate a lease agreement of a dwelling house.
7. Surety Contract (guarantee)

A much used contract in Indonesian business practice is the contract of surety of guarantee. In the frame of
loan agreements between banks and Indonesian companies as borrowers, personal guarantee is as a rule
asked from the Board of Managing Directors or Komisaris of the companies. According to the Civil Code in
this agreement one party guaranties another's debt to a third party. Generally this kind of contract concerns
money only. If a party attempts to guarantee the act of another, usually the most that he can do is to
substitute money damages for that act.

Similar to pawn and mortgage agreements, a contract of surety is subordinate to the main contract. Thus, the
guarantor may not be burdened with a greater responsibility than that of the one guaranteed (art. 1822
Civ.C.).

If such be the case, then the contract for the remaining responsibilities is void. .

If guarantor has performed, than he is entitled to act as creditor against the one guaranteed, a right known as
subrogation. The guarantor can lose his right to use the one guaranteed:

(a) if he pays the creditor without informing the one guaranteed, as a result of which the one guaranteed also
pays creditor. Though guarantor loses his special right to sue the one guaranteed in this case, he is permitted
by law to sue the creditor to return the "over" payment (art. 1359 Civ.C.).

(b) if he pays creditor without informing the one guaranteed, who has a valid defense against creditor (art.
1832 Civ.C.).

There are two important prerogatives available to the guarantor. He may, upon being sued to pay, raise a
defense that the one guaranteed should be sued first and that, if necessary, the latter's property should be
exhausted. Further should there be more than one guarantor, he may raise a defense that the debt be borne
equally by all the guarantors. In practice, these prerogatives of the guarantor are as a rule waived in the resp.
contracts of surety.
1) Supomo. Bab-bab tental1g Hukum Adat 22-23 (4th ed. 1966)
2) tar Haar. B., Adat Law in Indonesia 89 (1962 Hoebel & Schiller trans!.), See also my report in "Asian
Contract Law" a survey of current problems editors David Allan, Mary. Hiscock, Derek Roebuck, Melbourne
(1969), parts concerning Indonesia.
3) Id.144
4) Supomo. Bab-bab tentang Hukum Adat 23 (4th ed. 1966)
5) ter Haar, B., Adat Law in Indonesia 234 (1962) (Hoebel & Schiller trans!.). For case law, see S. gautama
Landmark Decisions.
6) See id. 118-119
7) Is. 154-155
8) For a detailed discussion of these 3 kinds of contracts in English, see id. 120-158. For a discussion of land
transactions, see H. Darmawi, "Land Transactions Under Indonesian Adat Law", 2 Lawasia 283 (1972).
9) Land pledge is discussed in greater detail infra.
10) See e.g. regulations with respect to land pledge infra.
11) See supra.
12) Compare infra.
13) Civil Code art. 321.
14) Id.art.1354.
15) Id. art. 1320.
16) Id. arts. 1321 - 1328
17) Id.art.1454.
18) Id. arts. 1329 - 1331
19) There is presently a difference of opinion whether the coming of age is by becoming 21 years or 18 years.
20) Supreme Court Circular No.3 of Sept.5, 1963 (Surat Edaran Mahkamah Agung).
21) Judgment of Apr. 14, 1971, 1971 (3) Jurisprudensi Indon. 12, 16 (Mahkamah Agung).
22) E.g. Royal Decree of Mar. 28, 1870: 64, Engelbrecht 860 (Dutch text), 1 Husin 1631 (Indonesian text)
(Rechtspersoonlijkheid van vereenigingen; aturan tentang menyatakan - sah serikat-serikat sebagai badan-
badan hukum).
23) Civil Code art. 1654-55.
24) Id. 1332 - 34.
25) Id. art. 1254.
26) Id. arts. 1313-1314
27) Id. art, 1335-1337
28) See H.J. ... LMD.
29) Comm. Code art. 38.
30) Civil Code art. 1851.
31) Id. art. 1179.
32) Id. art. 1694.
33) Id. art. 1339.
34) Id. art. 1347.
35) Art. 1460 is discussed infra.
36) Civil Code art. 1338 (3)
37) Judgement of May 11, 1955, 1995 (3) Hukum 52, Subekti & Tamara 160 (Mahkamah Agung).
38) See also other cases...
39) Civil Code art. 1341 (a)
40) Id. art. 1341 (b)
41) Id. arts. 1315 and 1340
42) For a discussion of mandate see pp. 142-148 infra.
43) See also Civil Code art. 1340 (b).
44) E.g. Subekti, Hukum Perjanjian 32 (3rd ed. 1972).
45) See e.g. Judgment of Dec. 17, 1926, 1927, Ned. Jur. 257 (Netherlands Hoge Raad).
46) Civil Code art. 1318.
47) Id. art. 1238.
48) See Subekti, Hukum Perjanjian 50 (3rd ed. 1972).
49) Civil Code art. 1267
50) Id. arts. 1243-1252.
51) Id. art. 1247. The limitation is not applicable in the case of fraud or deceit (tipu daya).
52) Subekti. Hukum Perjanjian 52 (3rd ed.1972).
53) Civil Code art. 1248. The limitation is not applicable in the case of fraud or deceit (tipu daya).
54) Id. art. 1250; S. 1848: 22.
55) Civil Code art. 1250 (3)
56) Id. art. 1266. See further infra.
57) (d. art. 1267.
58) Subekti, Hukum Perjanjian 67 (3rd ed. 1972).
59) Id.
60) Civil Vade art 1553.
61) 'd. art. 1545.
62) Id. art. 1237 (2)
63) Id.art.1382-1403.
64) Id. arts. 1404-1412 65) Id. arts. 1413-1424.
66) Id. arts. 1425-1436.
67) Id. arts. 1436-1437.
68) Id. arts. 1438-1443.
69) rd. arts. 1444-1445.
70) rd. arts. 1466-1456. See supra
71) Id. arts. 1253-1267
72) Ido art. 1265.
73) See further supra
74) Civil Code art. 1454.
75) Id. arts. 1457-1864.
76) Id. art. 1457. Sales agreements are regulated at arts. 1457-1540.
77) See supra.
78) Civil Code art. 612.
79) Id. art. 613.
80) See supra
81) E.g. Wirjojo Prodjodikoro, Hukum Perdata tentang Persetujuan-persetujuan tertentu 135 (5th ed. 1964).
82) Judgment of Jan.12, 1894, W. 6458, w.P.N.R. 1266 (Netherlands Hoge Raad).
83) See supra, discussion on "Capacity" to contract for married woman.
84) Id.
85) Comm. Code arts. 62-73.
86) Id. arts. 76-85.
87) See S. Gautama, Undang-undang Pokok Perumahan, .....