Legal Literacy - Before discussing unilateral termination of contract, we need to understand what a contract is.

A contract or agreement is an agreement between two or more people regarding a specific matter agreed upon by them. Contracts can be oral or written, and can be made for various purposes, such as buying and selling, leasing, cooperation, and so on.

According to Indonesian civil law , a contract must meet four conditions in order to be considered valid, namely:

  1. Agreement of the parties. Both parties must agree to make a contract.
  2. Capacity of the parties. Both parties must have the capacity to make a contract.
  3. A specific matter that can be clearly determined. The contract must regulate a specific matter that is clear and identifiable.
  4. A cause/causa that is permitted by law. The cause/causa of the contract must be permitted by law.

Regarding the unilateral termination of contracts, there is Jurisprudence Number 4/Pdt/2018 which has become a new fulcrum for judges in deciding cases of unilateral termination of contracts. Previous decisions stated that the action was unlawful because it was contrary to the provisions of Article 1338 paragraph (1) of the Civil Code (hereinafter referred to as “KUHPerdata”). So how is this norm applied?

The Term “Cancellation” vs “Termination”

In principle, Jurisprudence Number 4/Pdt/2018 contains norms regarding unilateral termination of contracts. This is because the termination is based on default. For information, there is a fundamental difference between cancellation and termination of a contract.

Cancellation of a contract means that one of the conditions for the validity of the agreement is not met, while termination of a contract means that one of the parties is in default.

The phrase “…ontbindende voorwaarde…” in Article 1266 of the Civil Code is more appropriately translated as ‘termination condition’. This inconsistency of terms can be seen in several decisions, such as Decision Number 704 K/Sip/1972 which uses the term cancellation, while Decision Number 1001 K/Sip/1972 uses the term termination.

Pros and Cons of Unilateral Termination of Contracts

Unilateral termination of contracts has been used in practice for a long time, but is considered normatively wrong. The opinion that contracts are based on provisions in the Civil Code that prohibit unilateral termination of contracts, including Article 1266 paragraph (2), Article 1267, and Article 1338 paragraph (2).

If interpreted a contrario, then according to Article 1266 paragraph (2) of the Civil Code, all forms of contract termination must go through the courts. This norm is dwingend because it contains the word 'must' in it. In addition, ratio legis of this norm is to avoid the arbitrariness of creditors in terminating contracts.

Opinions that reject unilateral termination of contracts are also based on several decisions, including Decision Number 1051 K/Pdt/2014, Decision Number 28 K/Pdt/2016, and Decision Number 5 K/Pdt/2016. Take for example the judge's considerations in Decision Number 1051 K/Pdt/2014, namely:

“That the actions of the Defendant/Appellant who has unilaterally canceled the agreement made with the Plaintiff/Appellee are qualified as unlawful acts because they are contrary to Article 1338 of the Civil Code, namely that the agreement cannot be withdrawn except with the agreement of both parties.”

On the other hand, opinions that accept unilateral termination of contracts are based on the location of Article 1266 and Article 1267 of the Civil Code in Book III of the Civil Code which is aanvullend so that it can be deviated from. In addition, if the parties have agreed on unilateral termination of the contract, then based on the principle freedom of contract, must be considered binding.

Furthermore, the waiver of Article 1266 and Article 1267 of the Civil Code constitutes a 'customarily stipulated condition' (bestandig geberuikelijkbeding) and therefore must be considered binding. Moreover, Article 265 paragraph (1) of Book 6 Nieuw Nederland Burgerlijk Wetbook (Dutch Civil Code) already accommodates unilateral termination of contracts.

Issuance of Jurisprudence Number 4/Pdt/2018

Amidst the uncertainty regarding unilateral termination of contracts, the Supreme Court issued a new norm through Jurisprudence Number 4/Pdt/2018, stipulating that unilateral termination of contracts constitutes an unlawful act. This is because since 2014, the Supreme Court has consistently applied this legal stance. In addition, it is certainly expected that judges will adopt the same legal stance in similar cases.

However, this hope was dashed when the judge in Decision Number 5 K/Pdt/2018 stated that termination of the agreement did not constitute an unlawful act because the necessary steps had been taken. The considerations were as follows:

“That before the Defendant in Convention terminated the contract …, the Defendant in Convention had attempted to overcome obstacles in the field, and furthermore, the Defendant had issued warnings to the Plaintiff in Convention, but the Plaintiff in Convention was unable to implement them …, thus, the Defendant in Convention cannot be said to have committed an unlawful act in terminating the contract.”

Validity of Unilateral Contract Termination

Basically, Indonesia is not a country that adheres to acommon law system , so jurisprudence should only be used as a guide by judges in deciding cases. In addition, when using comparative studies, many international contract provisions have adopted unilateral contract termination. Unilateral contract termination can be said to be valid if it meets the existing conditions.

The conditions for terminating a contract unilaterally boil down to four, including one party committing a breach of contract, the breach of contract must be serious, the parties must have positively regulated the right to unilaterally terminate the contract, and there must be notification to the party who is in default that the creditor chooses to terminate the contract unilaterally. Regarding the level of seriousness of the default, it can be assessed using the lens of the principle of proportionality and the doctrine of fundamental breach.