Legal Literacy - Avoid legal risks! Understand 5 legal consequences that are often unrecognized when breaching agreement. Learn about compensation, cancellation, fines, and more.
Definition of Agreement
An agreement is a consensus between two or more people regarding a specific matter that is agreed upon by them. Agreements can be made orally or in writing.
Legally, agreements are regulated in the Indonesian Civil Code (KUHPerdata), specifically in Article 1313 which reads:
""An agreement is an act whereby one or more persons bind themselves to one or more other persons to do something or not to do something.."
Conditions for the Validity of an Agreement
The validity requirements of an agreement are regulated in Article 1320 of the Civil Code, namely:
- Agreement of those who bind themselves
- Capacity to create an engagement
- A specific matter
- A lawful cause
Types of agreements
Types of agreements include:
- Consensual agreement: an agreement that arises solely from the agreement of the parties, for example, buying and selling, renting, and exchange.
- Real agreement: an agreement that arises from the transfer of goods, for example, borrowing and pawning.
- Formal agreement: an agreement that must be made in a specific form determined by law, for example, marriage and grants.
Functions of agreements
The functions of an agreement include:
- Affirming the rights and obligations of the parties
- Providing legal certainty
- Facilitating dispute resolution
Examples of agreements
Examples of Agreements in daily life include:
- Sale and purchase agreement
- Lease agreement
- Employment agreement
- Credit agreement
When Does an Agreement Become Effective and Terminate?
The validity of an agreement:
- Written Agreement:
- Since it is signed by all capable parties (adult and mentally sound).
- The effective date is specified in the agreement
- Verbal Agreement:
- Since an agreement is reached between all capable parties
Termination of an agreement:
- Fulfillment of the agreement's purpose: Example: in a sale and purchase agreement, the agreement terminates after the buyer receives the goods and the seller receives payment.
- Expiration of the specified time: Example: in a lease agreement, the agreement terminates after the lease period expires.
- Cancellation of the agreement: Cancellation can be done by one of the parties or by mutual agreement; Reasons for cancellation: default, mutual agreement, or other legitimate reasons.
- The occurrence of a merger or consolidation of parties in the agreement: Example: two companies that merge, then the agreement made by one of the companies will terminate.
- The existence of changes in legislation: If the legislation underlying the agreement changes, the agreement may terminate.
- The existence of a court decision: The court may decide to terminate the agreement if there is a default or other legitimate reasons.
5 Legal Consequences of Breaching an Agreement
Breaching the agreement, or in legal terms called default, can lead to various legal consequences that are often not realized by the parties. Here are 5 legal consequences that you need to know:
1. Compensation
The party who suffers losses due to default is entitled to demand compensation from the violating party. This compensation may take the form of:
- Actual damages: compensation for actual losses incurred
- Moral damages: compensation for non-material losses (e.g., emotional distress)
- Damages for expected profits: compensation for profits that should have been obtained
2. Cancellation of Agreement
The injured party has the right to cancel the agreement if the default committed is serious enough. The cancellation of this agreement may result in:
- Refund: Money that has been paid is returned to the party who cancels the agreement.
- Return of goods: Goods that have been received are returned to the party who breaches the agreement.
3. Compulsory Performance of Agreement
The aggrieved party may compel the breaching party to perform the agreement.This can be done through:
- Lawsuit to court: A lawsuit is filed to the court so that the breaching party is punished to perform the agreement.
- Court execution: If the breaching party is unwilling to execute the court's decision, then a court execution can be carried out.
4. Fine
The agreement may contain a penalty clause which obligates the breaching party to pay a penalty to the aggrieved party.
5. Termination of Business Relationship
If a default is committed in a business relationship, the aggrieved party may terminate the business relationship with the breaching party.
Case Example
Andi and Budi agreed to buy and sell a house. Andi has paid a down payment, but Budi does not want to hand over the house. In this case, Andi can claim compensation, cancellation of the agreement, or force Budi to hand over the house.
Tips
- Before entering into an agreement, read it carefully and understand all of its contents.
- If you are unsure about the contents of the agreement, consult with a lawyer or legal consultant.
- In the event of a default, immediately contact a lawyer or legal consultant to obtain legal assistance.
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