BRIEF LEGAL OPINION: ON THE PRINCIPLE OF FAIR CONTRACTING. ⚖️⚖️

By:

Attorney RIKHARDUS IKUN, S.H., M.H., C.MSP., C.NSP., C.LFS., C.CPr.

Director of the LAW FIRM JAMES RICHARD AND PARTNERS.

CHAIRMAN OF THE BALI CHAPTER OF PERADI UTAMA.

I. Introduction

A contract forms the basis of a legal relationship between parties, giving rise to rights and obligations. Under Indonesian civil law, the parties’ freedom to enter into a contract does not mean they may determine the contract’s terms arbitrarily. Contracts must be entered into and performed in accordance with good faith, reasonableness, balance, and fairness.

II. Legal Basis

The principles of contracting are based, among other things, on:

1. Article 1320 of the Civil Code, regarding the validity requirements of a contract.

2. Article 1338(1) of the Civil Code, which states that a validly entered into agreement is binding on the parties as law.

3. Article 1338(3) of the Civil Code, which requires that agreements be performed in good faith.

4. Article 1339 of the Civil Code, which states that a contract is binding not only with respect to matters expressly agreed upon, but also with respect to matters required by justice, custom, and law.

III. Legal Opinion

In our legal opinion, the principle of fair contracting requires a balance between the rights and obligations of the parties and the absence of clauses that unduly place one party at a significant disadvantage.

Freedom of contract is still recognized, but this freedom has limits, namely the law, public order, morality, reasonableness, and the principle of good faith.

Therefore, a contract may be challenged if it contains, among other things:

- a glaringly disproportionate imbalance of rights and obligations;

- clauses drafted in a non-transparent manner;

- abuse of a strong bargaining position;

- clauses that unduly exempt one party from liability;

- performance of the agreement that is contrary to good faith; or

- provisions that conflict with laws and regulations.

IV. Conclusion

A fair contract is not merely one that is formally agreed upon, but also one that is entered into and performed in accordance with good faith, reasonableness, balance, and without conflict with the law.

Thus, the principle of freedom of contract cannot be used as a basis to justify clauses that are exploitative or unreasonably disadvantageous to one of the parties.

Note: In assessing whether a contract is truly fair, it is necessary to examine the substance of the agreement, the bargaining positions of the parties, the process of its formation, as well as the circumstances at the time the agreement was made and performed.