How to Create a Legal Agreement in Indonesia

Agreements are always used in our everyday life. There are a lot of business and non-business transactions that involve agreements.

An agreement does not have to be written, it can also be made verbally. There are a lot of examples of verbal agreements in our daily life, such as when we shop or ordering a meal.

However if we want to do a transaction that involves large sum of money, the benefit of writing an agreement is very crucial. Not only for reminding us about the points of agreements that has been created, but also as a written proof in case if the other party break the agreement or even claim that they have never made an agreement in the first place.

With that in mind, the understanding of the procedures to make a valid legal agreements according to the Indonesian Law is much needed in order to minimalize the risk of dispute arising in the future.

What is an Agreement? And how to make a legal Agreement?

Here are the explanations:

Based on Indonesian Law, Agreement or Contract is a legal act where there are minimal two people that binds them on the deal made. An agreements can have binding legal power if it fulfill the conditions stated in Article 1320 of Indonesian Civil Code (ICC).

According to Article 1320 of ICC, there are four conditions that need to be fulfilled to be legally valid:

1. All parties have mutually agreed;
2. All parties must be feasible by law to create a bind/engagement;
3. There is a certain matter agreed; and
4. It does not break the law, moral, or public order.

Regarding the feasibility in creating an agreement, it is ruled in Article 1330 of ICC that a person is not yet an adult and/or under conservatorship, is not legally feasible to write a legal agreement under the person own name.

According to ICC, an Adult is person whose age is 21 and over or is married, and is feasible to make a legal agreement under his/her name. But nowadays, the limit of 21 is seen unfit with the current age and in practice a person that has acquired Indonesian Citizen ID Card is seen as an adult. The minimum age to have the Citizen ID Card in Indonesia is 17 to 18 years of age.  As a result this issue is still debated and there are no set rule regarding the adult status in Indonesia.

Can a legal entity be a party in an agreement?

The answer is yes. By law, a legal entity is considered as Rechts Persoon meaning that it carries rights and obligations just like a person would.

By law, person or human is divided by two:

1. Natuurlijke Persoon / Personal Entity, the human itself; and
2. Rechts Persoon / Legal Entity, the human by law or legal entity.

Therefore it is clear that a legal entity (Limited Liabilities Company, Cooperatives, or a Foundation) is able to be a party in an agreement.

What is conservatorship?

Conservatorship is a guardianship agency which according Article 433 of ICC is reserved to accompany those that even though is already adults, is in state of simple-mindedness, insanity or rage. Adults can also be placed under conservatorship because of improvidence.