LAW OF

CONTRACT
Definition
• A contract is an agreement entered into voluntarily by two parties or more with the
intention of creating a legal obligation.
• A contract is a legally enforceable promise or undertaking that something will or will not
occur. The word promise can be used as a legal synonym for contract.
• The parties may be natural persons or juristic persons (legal entity).
• The remedy for breach of contract can be “damages” (kerugian akan kerusakan) or
compensation of money. In equity, the remedy can be specific performance of the
contract or an injunction. Both of these remedies award the party at loss the “benefit or
the bargain” or expectation.
• A contract is nothing other than a voluntary private agreement to exchange valuable
things. It most often is an exchange of valuable promises. For example, a home-buyer
might promise to pay $250.000 to the seller, who in exchange promises to deliver
unencumber title to the buyer.
Definition
• Contract law is based on the principle expressed in the Latin phrase pacta
sunt servanda, which is usually translated “agreements must be performed”
but more literally means “pacts must be kept/respected/performed”.
Legally it means that a contract becomes a law for the parties. So, it is
binding to the parties.
• A contract is a legally enforceable agreement between two or more parties.
The core of most contracts is a set of mutual promises (in legal terminology,
“considered”). The promises made by the parties define the rights and
obligations of the parties.
• Contracts are, in a sense, private law created by the agreement of the
parties. The rights and obligations of the parties are determined by the
contract’s terms, subject to limits imposed by relevant statutes,
Definition
• Contract are enforceable in the courts. If one party meets it contractual obligations
and the other party doesn’t (“breaches the contract”), the nonbreaching party is
erected to receive relief through the courts.
Example: Developer promised to pay Graphic Designer IDR 50,000,000.00 for
creating certain promotional materials for Developer's multimedia work. Graphic
Designer created the materials and delivered them to Developer, as required in the
contract. Developer admits that the materials meet the contract specifications. If
Developer does not pay Graphic Designer, Graphic Designer can go to court and get
a judgment against Developer for breach of contract.
• A contract comes into existence [1] one party make an offer their the another
party accepts, and [2] the parties there by agree to exchange valuable benefits on
specified terms and conditions, with reasonably specific agreement on the price,
place, time, the goods or services to be delivered, and the other essential terms of
the exchange.
Definition

• Because contracts are enforceable, parties who enter into contracts can rely
on contracts in structuring their business relationships.
• Example: Developer entered into a contract with Composer, promising to pay
Composer IDR 4,000,000.00 for composing a brief composition for
Developer's multimedia work. Shortly after Composer started work on the
piece for Developer - before Developer paid composer any money -
composer got an offer from a movie studio to compose all the music for a
movie and abandoned Developer's project. Developer had to pay another
composer IDR 6,000,000.00 to do the work that composer had contracted to
do. Developer can sue the composer and obtain a judgment against the
composer for IDR 2,000,000.00 (the amount that will result in Developer's
obtaining the music for a net cost of IDR 4,000,000.00 (the contract price).
 Contract:
 A Contract is an agreement which legally binds the parties.
 Sometimes contracts are referred to as “enforceable
agreements”. This is misleading since one party cannot usually
force the other to fulfill his part of the bargain. The usual remedy
is damages.
The underlying theory is that a contract is the outcome of
“concenting mind”, each party being free to accept or reject the
term of others.
  Human interaction/relationship
The basis for a contract  Certain interest in the relationship such as
Public, Social, dan privat interest
 Legal implication (legal relation that creates
right and obligation)
 Mutual interest between/among the parties on
the basis of mutual dependence
 The Legal relation is formalized for creating
legal protection and legal certainty.
Elements of Contract

Essential elements of Contract:

 An agreement is made as a result of an offer and

acceptence

 An agreement contains an element of value known as

consideration, although sometimes a promise is binding if
it is made by deed

 The parties intend to creat legal relation

Elements of Contract

1. A “Meeting of the Minds” (Mutual Understanding)

ELEMENTS OF 2. Offer and Acceptable
CONTRACTS 3. Intention to Create Legal Relations, and Legal
Consideration
4. Mutual Consideration (Exchange or something of
value)
5. Performance or Delivery
6. Goof Faith
7. No Violation of Public Policy
Elements of Contract
Typically, in order to enforceable, a contract must involve the following elements:
• A "Meeting of the Minds" (Mutual Consent)
The parties to the contract have a mutual understanding of what the contract
covers. For example, in a contract for the sale of a “Kuda”, the buyer thinks he
will obtain a car and the seller believes he is contracting to sell a horse, there is
no meeting of the minds and the contract will likely be held unenforceable.
• Offer and Acceptance
The contract involves an offer (or more than one offer) to another party, who
accepts the offer. For example, in a contract for the sale of a piano, the seller
may offer the piano to the buyer for IDR 1,000,000.00. The buyer's acceptance
of that offer is a necessary part of creating a binding contract for the sale of the
piano.
Elements of Contract
Typically, in order to be enforceable, a contract must involve the following
elements:
 Intention to create legal relations, and consideration.
A contract forms a legal document that is binding to the parties in the
contract. The contract becomes a law to both parties who must respect
and obey the contract in the form of performance of the contract. The
contract oblige each party to perform what has agreed upon in the
contract.
 Mutual Consideration (Exchange of something of value)
In order to be valid, the parties to a contract must exchange something of
value. In the case of the sale of a piano, the buyer receives something of
value in the form of the piano, and the seller receives money.
Elements of Contract
Performance or Delivery
In order to be enforceable, the action contemplated by the contract
must be completed. For example, if the purchaser of a piano pays the
IDR 1,000 million purchase price, he can enforce the contract to require
the delivery of the piano. However, unless the contract provides that
delivery will occur before payment, the buyer may not be able to
enforce the contract if he does not "perform" by paying the IDR 1,000
million. Similarly, again depending upon the contract terms, the seller
may not be able to enforce the contract without first delivering the
piano. In a typical "breach of contract" action, the party alleging the
breach will recite that it performed all of its duties under the contract,
whereas the other party failed to perform its duties or obligations.
Elements of Contract
• Good Faith
It is implicit within all contracts that the parties are acting in good
faith. For example, if the seller of a “kuda" knows that the buyer
thinks he is purchasing a car, but secretly intends to sell the buyer a
horse, the seller is not acting in good faith and the contract will not
be enforceable.
Elements of Contract
• No Violation of Public Policy
In order to be enforceable, a contract cannot violate "public policy". For
example, if the subject matter of a contract is illegal, you cannot enforce the
contract. A contract for the sale of illegal drugs, for example, violates public
policy and is not enforceable. Please note that public policy can shift.
Traditionally, many states refused to honor gambling debts incurred in other
jurisdictions on public policy grounds. However, as more and more states
have permitted gambling within their own borders, that policy has mostly
been abandoned and gambling debts from legal enterprises are now typically
enforceable. Similarly, it used to be legal to sell "switchblade kits" through
the U.S. mail, but that practice is now illegal. Contracts for the interstate sale
of such kits were no longer enforceable following that change in the law.
Offer and Acceptance
 The most important feature of a contract is that one party makes an offer for
an arrangement that another accepts. This can be called a concurrence of
wills or consensus ad idem (meeting of the minds) of two or more parties.
The concept is somewhat contested. The obvious objection is that a court
cannot read minds and the existence or otherwise of agreement is judged
objectively, with only limited room for questioning subjective intention.
 The idea of 'meeting of minds' may come from a misunderstanding of the
Latin term 'consensus ad idem', which actually means 'agreement to the
[same] thing. There must be evidence that the parties had each, from an
objective perspective, engaged in conduct manifesting their assent, and a
contract will be formed when the parties have met such a requirement. An
objective perspective means that it is only necessary that somebody gives the
impression of offering or accepting contractual terms in the eyes of a
reasonable person, not that they actually did want to form a contract.
OFFER AND ACCEPTANCE

A contract is formed when one party (the "offeror") makes an offer which is accepted by the other party
(the "offeree"). An offer - a proposal to form a contract - can be as simple as the words, "I'll wash your
car for you for IDR 50,000.00." An acceptance - the offeree's assent to the terms of the offer - can be as
simple as, "You've got a deal." Sometimes acceptance can be shown by conduct rather than by words.
When an offer has been made, no contract is formed until the offeree accepts the offer. When you make
an offer, never assume that the offeree will accept the offer.
Contractual liability is based on consent.
Example: Developer offered to pay a Photographer IDR 5,000.00 to use Photographer's photo in
Developer's multimedia work. Photographer said, "Let me think about it." Developer, assuming that
Photographer would accept the offer, went ahead and used the photo. Photographer then rejected
Developer's offer. Developer has infringed Photographer's copyright by reproducing the photograph for
use in the multimedia work. Developer must now either remove the photo from the multimedia work
before distributing the work (or showing the work to others) or reach an agreement with Photographer.
 When you are an offeree, do not assume that an offer will remain open indefinitely. In
general, an offeror is free to revoke the offer at any time before acceptance by the
offeree. Once the offeror terminates the offer, the offeree no longer has the legal
power to accept the offer and form a contract.
Example: Animator offered his services to Developer, who said, "I'll get back to you."
Developer then contracted with Client to quickly produce a multimedia work involving
animation (making the assumption that Animator was still available to do the
animation work). Before Developer could tell Animator that he accepted Animator's
offer, Animator sent Developer a fax that said, "Leaving for Mexico. I'll call when I get
back." Developer and Animator did not have a contract. Developer should not have
assumed, in entering into the contract with Client, that Animator was still available.
 When you are the offeree, do not start contract performance before notifying the
offeror of your acceptance. Prior to your acceptance, there is no contract. An offer can
be accepted by starting performance if the offer itself invites such acceptance.
 Where a product in large quantities is advertised in a newspaper or
on a poster, it generally is not considered an offer but instead will be
regarded as an invitation to treat, since there is no guarantee that the
store can provide the item for everyone who might want one.

 A display of goods on the shelves of a self-service shop is also an

invitation to treat, with the offer being made by the purchaser at the
checkout and being accepted by the shop assistant operating the
checkout.