ECN 736_ASU_ASSIGNMENT_2024_WEEK 3_STANDARDIZED AGREEMENTS IN INTERNATIONAL TRADE TRANSACTIONS

STANDARDIZED AGREEMENTS IN INTERNATIONAL TRADE

TRANSACTIONS

ARIZONA STATE UNIVERSITY

ECN 736 - INTERNATIONAL TRADE THEORY

WEEK 3

A standard agreement is also called a standard agreement, in English it is called a

standard contract, standard agreement. The word "standard" or "standard", means a

benchmark that is used as a benchmark. In this relationship, a standard agreement means an

agreement that becomes a benchmark used as a benchmark or guideline for every consumer

who enters into legal relations with an entrepreneur. What is standardized in a standard

agreement includes models, formulations, and sizes. International contract law in the form of

standardized contracts, countries have felt the importance of the role of business in increasing

economic growth. This opportunity was welcomed by traders, they pretty much formed

various trade associations in accordance with their trade business fields. The existence of

these trade associations, among other things, aims to facilitate and expedite their trade

business. One of the ways of facilitating this is by introducing standardized contracts. One

other thing that needs to be considered in relation to standard contracts is their formulation. A

standard contract or standard contract can be incorporated by reference in the contract

document or by designation only. Examples of incorporation of terms by reference, for

example, trade terms, namely FOB (Free on Board) legal responsibility with FOB trade terms

with example: PT Pusri fertilizer import-export case with FOB (Free on Board) trade terms.

With this development, especially with the development of modern trade or business

transactions, the need for contract law has become increasingly apparent. David Reitzel

argues that contracts are one of the most important legal institutions in economic transactions

in society.

According to positive law, an obligation originates from two things, namely an agreement

and from the law. Standard agreements, the development of trade or business that continues to

grow is also followed by a model agreement / contract that is simple, efficient, and able to

accommodate the interests of trade actors through standard agreements. Business actors or

sellers, business actors, especially producers and creditors have prepared standard clauses

which are set out in the form of certain agreements or contracts. Agreements or contracts are

basically made based on the principle of freedom of contract in positive law. Indonesian treaty

law adheres to an open principle, which means that it gives the widest possible freedom to the

community to enter into agreements containing anything that is commonly summarized in

Article 1338 paragraph (1) of the Civil Code, namely: "All agreements made legally shall

apply as laws for those who make them". The law of agreements gives the public the widest

possible freedom to enter into agreements containing anything as long as it does not violate

public order and decency. Although the freedom of the parties is essential, this freedom has its

limits. It is subject to various restrictions that surround it. First, the restriction of freedom

must not conflict with the law, with public order, decency, and modesty. Secondly, the status

of the contract itself, for example: a contract in international trade is nothing but a national

contract with a foreign element. This means that the contract is at least subject to and limited

by national law (of a particular country). The law is the rules that are compelling, which

determine human behavior in the community, which is made by official authorized bodies,

violation of these rules results in action, namely with certain laws. Third, binding restrictions

on the parties are agreements or trade customs previously entered into by the parties

concerned. The binding force of these prior agreements, although not in writing, is binding.

The essence of a contract is a set of enforceable promises implementation. While the source

of international trade law is the main and most important source, such as agreements or

contracts are laws for the parties who make them. Therefore, the agreement or contract is very

essential, the contract acts as a source of law that they need and first make an important

reference in exercising their rights and obligations in international trade.

In the perspective of positive law, the rapid development of trade is followed by the

"standard agreement" model. Business actors prepare standardized clauses in agreements and

their existence is accepted by the public. Standard agreements are accepted because: the

economic principle of efficiency in facing the demands of social development and is used as a

model agreement in developing countries and developed countries, applying a healthy

competitive system in serving consumers, entrepreneurs adhere to the principle of legal

relations on the basis of a standard agreement that is pleasant/beneficial for both parties, there

is a harmonious relationship between entrepreneurs and consumers, the conditions set by the

entrepreneur are written in full, announced given the opportunity to learn perfectly their rights

are listed, and the parties benefit and profit.

Background of Standard Agreement:

The background of the growth of standard agreements is due to socio-economic conditions.

Large companies and government companies cooperate in an organization, and for their

benefit, conditions are determined unilaterally. The opposite party (wederpartij) generally has

a weak position, both because of its position and because of its ignorance, and only accepts

what is offered. The use of the standard agreement has more or less shown a development that

is very harmful to the interests of the community, especially considering that the public is

unfamiliar with legal aspects in general, and especially in the legal aspects of the agreement.

In addition, according to F.A.J. Gras, standard agreements are found in modern societies that

use planning in organizing their lives. Modern society is no longer a collection of individuals,

but rather a collection of cooperative ties (organizations). The standard agreement is a

rationalization of the relationship The law that occurs in society is such, and is usually made

by corporate organizations in the hope that what is desired will be realized. This is his view

that explains the birth of standard agreements from the point of view of legal sociology.

Many legal experts consider standard clauses as invalid agreements, defective, and

contrary to the principle of freedom of contract. However, standard clauses are needed in the

business world because entrepreneurs will gain efficiency in spending costs and time, besides

that standard clauses apply in society because of custom. Therefore, the use of standard

clauses in various transactions and agreements is a polemic in the field of agreement law,

because the standard clause itself has advantages and disadvantages.

Definition, Characteristics, and Functions of a Standard Agreement

Definition of Standard Agreement:

Standard agreement is translated from the term known in Dutch, namely "standard contract"

or "standard voorwaarden". Overseas, there is no uniformity regarding the term used for

standard agreements. German literature uses the terms "allgemeine geschäftsbedingun",

"standard vertrag", "standaard konditionen". And English law calls it a "standard contract".

In connection with the mass and collective nature of standard agreements "Vera Bolger"

named it as "take it or leave it contract". This means that if the debtor agrees to one of the

terms, then the debtor may only accept or not accept it at all, the possibility of making

changes is completely absent. Furthermore, there are several opinions from experts regarding

the definition of a standard agreement, among others:

Treitel by definition, viz:

"The terms of many contracts are set out in printed standard forms which are used for all

contracts of the same kind, and are only varied so far as the circumstances of each contract

require".

Hondius with his definition, namely a standard agreement as a concept of a written agreement

that is compiled without discussing its contents and is usually set out in a number of different

forms.

Mariam Darus Badrulzaman with her definition, namely a standard agreement is an agreement

in which the terms of exoneration are standardized and set out in various forms.

Abdulkadir Muhammad defines a standard agreement as an agreement that becomes a

benchmark that is used as a benchmark or guideline for every consumer who enters into a

legal relationship with an entrepreneur. What is standardized or standardized includes models,

formulations, and sizes.

Asser Rutten with his definition, namely every person who signs an agreement is responsible

for its contents. The signature on the standard agreement form evokes the belief that the

signatory knows and intends the contents of the agreement form.

Sluitjer argues that a standard agreement is not an agreement, because the position of the

entrepreneur (who is dealing with consumers) is like a private legislator (legio particuliere

wetgever).

Pitlo with his short definition, namely that a standard agreement is a forced agreement.

From the definition of these experts, it can be concluded that a standard agreement is an

agreement that contains standardized clauses, and is printed in the form of a large number of

forms and is used for all agreements of the same form.

Characteristics of a Standard Agreement:

In accordance with the development of community needs, the characteristics of the standard

agreement follow and adjust to the development of community demands, which include the

following:

Form of written agreement

The form of the agreement includes the entire text of the agreement in Overall and

documentary evidence of agreements containing standard terms. The words or sentences of

the statement are made in an authentic deed or deed under hand.

Standardized agreement format

The format of the agreement includes the model, form, and size. This format is standardized

so that it cannot be replaced, changed, or made in another way because it has been printed.

The agreement model can be in the form of a complete agreement script template or a form

template attached to the text of the terms of the agreement, or an agreement proof document

containing standardized terms.

The terms of the agreement are determined by the employer

The terms of the agreement, which constitute a statement of will, are determined unilaterally

by the employer or the employer's organization. Because the terms of the agreement are

monopolized by the employer. Therefore, it tends to benefit the ruling party.

Consumers only accept or reject

If the consumer is willing to accept the terms of the agreement offered to him, then the

agreement is signed. The signing of the agreement indicates that the consumer is willing to

bear the burden of responsibility. If the consumer does not agree with the terms of the

agreement, he or she cannot negotiate the standardized terms.

Dispute resolution through deliberation or judicial bodies

In the terms of the agreement there is a standard clause regarding dispute resolution. If a

dispute arises in the future in the implementation of the agreement, then the settlement is

carried out through an arbitration body first or alternative dispute resolution before being

resolved in court.

Standard agreements always favor employers

Standard agreements are designed unilaterally by the employer, so that agreements made in

this way will always benefit the employer, especially in the following matters:

cost, time, and labor efficiency;

It is practical because there is already a printed script in the form of a form or blank ready to

be filled in and signed;

quick settlement as the consumer simply approves;

homogeneity of agreements made in large quantities;

assignment of responsibility.

Meanwhile, Mariam D. Badrulzaman explains that the characteristics of a standard

agreement are as follows:

a. The contents are determined unilaterally by the creditor whose position is relatively stronger

than the debtor;

b. The debtor has no say in the content of the agreement;

c. Driven by necessity, the debtor is forced to accept the agreement;

d. prepared in advance in bulk or individually.

Functions of a Standard Agreement:

Standard agreements play an important role in the modern world of business and commerce.

These agreements are usually formed by entrepreneurs to enter into various types of special

transactions. The content is set so that it can be used again in agreements regarding similar

products or services with other parties, without having to conduct prolonged negotiations on

terms that always arise. The intention is to save time, energy, and transaction costs, as well as

to be able to focus on more important specific matters. In addition, the establishment of

standard terms can provide several other benefits for entrepreneurs. Standard agreements can

facilitate the entrepreneur's relationship with a number of subscriptions and suppliers of raw

materials because they do not need to negotiate first every time they want to make a

transaction.

Development of Standard Agreement in Indonesia:

During its development for almost half a century, Indonesian treaty law has undergone

changes, among others as a result of the decisions of the legislative and executive bodies and

the influence of globalization. From these developments and in today's practice, agreements

are often made in the form of standard agreements (standard contracts), which limit the

principle of freedom of contract. The existence of this freedom is very much related to the

public interest so that standard agreements are regulated by law or at least supervised by the

government. On the development side of globalization in the business world, Indonesia,

which has a strategic position, both from a geographical aspect and a socio-economic aspect,

will sooner or later be affected by changes that occur in other countries. The changes that

occur can be in the form of a development in the business world.

The higher the consumptive level of Indonesian society, the more rapid the development

of the business world in Indonesia. Therefore, the need for transaction efficiency between

business actors and consumers is very necessary in facilitating business relations between the

two, both in the fields of goods and services. At present, a company (business actor) does not

just serve customers who number dozens or dozens in one day, but hundreds of customers it

must serve. Of course it becomes a problem for business actors if for each transaction carried

out each must make a separate agreement, so that for the efficiency and effectiveness of the

performance of these business actors, a standard agreement is made, but this agreement can

always be used in other agreements, as long as it is within the scope of the same agreement

object. The agreement contains standardized terms and is made unilaterally which is generally

carried out by the business actor, because the agreement contains standardized terms, the

agreement is known as a standard agreement or standard clause or in English known as a

standard contract.

Most business transactions today are conducted using standard clauses. In fact, the

widespread use of standard clauses prompted an American businessman named Slawson to

report that:

"Standard form contracts probably account for more than ninety percent of all the contracts

now made. Most persons have difficulty remembering the last time they contracted other than

by standard form."

Furthermore, the development of standard agreements in developing countries is

generally different from other countries because in developing countries, the majority of

which are former colonies, the growing nationalism becomes the basis for the development of

standard agreements. The realization of the will reflected in the standard agreement not only

pleases the entrepreneur, but also the nation's consumers.

The application of standard conditions is more colored by feelings of fate and

togetherness. In addition, the state protects its citizens, not only consumers, but also

entrepreneurs through legislation and judicial institutions. The application of such standard

terms is also followed in Indonesia. Standard contracts applied in Indonesia are based on the

principle of freedom of contract as stipulated in Article 1338 paragraph (1) of the Civil Code,

namely: "All agreements made legally shall apply as law to those who make them."

However, in practice in Indonesia itself, as the author has revealed in the previous

paragraph in making standard agreements, the entrepreneur is always in a stronger position

than the consumer, where the consumer is only faced with two choices, namely:

If the consumer needs the production or service offered to him, agree to the agreement with

the standard terms offered by the entrepreneur. In English it is expressed as "take it".

If the consumer does not agree with the standard terms offered, do not enter into an agreement

with the business actor concerned. In English it is expressed as "leave it".

This is a brief history of how standard clauses or standard agreements developed in

Indonesia as one of the developing countries that allows business actors to include standard

terms in every same agreement.

Regulation on Standard Agreement in Indonesia:

Regulations regarding standard agreements are contained in several statutory provisions in

Indonesia. The Civil Code as one of the sources of agreement law in Indonesia participates in

the regulation of this agreement, but the regulation is general, such as the conditions for the

validity of the agreement (Article 1320 of the Civil Code) where in this case the standard

agreement as one of the types of agreements must fulfill the conditions for the validity of the

agreement and the principle of freedom contract, which is one of the principles in the law of

agreements that must also be considered in the daily use of standard agreements.

Implementation of Standard Agreement in Indonesia:

The implementation of standard clauses is commonly found in the business world. Due to the

existence of standard clauses, the efficiency and effectiveness of business actors can be more

visible. Standard clauses are considered as a way to facilitate the relationship between

business actors and consumers in trade transactions.

In practice in Indonesia, there are four types of standard agreements. These agreements

include:

a. A unilateral standard agreement is an agreement whose contents are determined by a party

with a strong position in the agreement. The strong party in this case is the creditor who

usually has a strong position compared to the debtor. Both parties are usually bound in

organizations, for example in collective labor agreements.

b. The standard agreement stipulated by the government is a standard agreement that has the

object of land rights. In the agrarian sector, for example, the forms of agreements as stipulated

in the Decree of the Minister of Home Affairs dated August 6, 1977 No. 104/Dja/1977 can be

seen, in the form of, among others, sale and purchase deeds, model 1156727, mortgage deeds

model 1045055, and so on.

c. Standard agreements determined in the notary or advocate environment, there are agreements

whose concepts have been provided from the beginning to fulfill requests from members of

the public who ask for help from the notary or advocate concerned, which in Dutch literature

is commonly referred to as the "contract model".

d. Reciprocal standard agreement, is a standard agreement whose contents are determined by

both parties, for example a standard agreement whose parties consist of the employer

(creditor) and the other party laborers (debtor). Both parties are usually bound in an

organization, for example in a collective labor agreement.

Of the four types of standard agreements above, the most commonly encountered is a

unilateral standard agreement, this kind of agreement is commonly found in agreements,

for example:

employment agreement (collective labor agreement);

banking (general banking requirements);

development (administrative uniform requirements for the execution of work);

retail trade;

services sector;

right of lease (erfpacht);

trade and commerce;

port company;

lease;

lease purchase;

Mortgage;

granting credit;

agriculture;

brokerage business;

notarial and other legal practices;

public companies;

rental of press affairs;

transport companies (general conditions of transport, general conditions of Dutch

expeditions);

publishing;

insurance matters.

Parties to a Standard Agreement:

As stated above, there are many types of standard agreements that live and develop in society.

Each type of standard agreement has different parties. For example, in a standard agreement

in the field of insurance, the parties are the insurer and the insured. The insurer is the party

that has prepared the substance of the standard agreement, while the insured party only needs

to sign the agreement.

So, the conclusion that the author can convey is that the parties who play a role in

determining the standard agreement are the parties to the agreement strong economy. It is

these economically strong parties who draft the clauses.

Binding Force of a Standard Agreement:

In a standard agreement, the clauses have been determined by one of the parties, such as in

bank loan agreements, insurance policies, and others. The issue now is whether with the

existence of these various clauses, the agreement has binding force. There are several

opinions on the basis of the binding force of the standard agreement, among others:

The first opinion is Zeylemeker's doctrine of the conquest of the will. He argues that:

"People are willing, because people feel subjugated to a secure, expertly conceived and

unilateral arrangement, or because people cannot do otherwise than submit, but people are

willing and people know that people are willing."

The second opinion from Hondius states that the construction put forward by Zeylemeker can

indeed be used as a basis for binding, but only on condition that it is complemented by

reasons of trust. This implies that the signatory only has value within the framework of the

conversation, the signing is not only binding if he wants to be, but also to the extent that he

has created trust on the part of the other participants in a way that can be taken into account,

that he wants to be bound.

The next view is expressed by Sluitjer and Mariam Darus Badrulzaman, namely they see the

standard agreement as not an agreement because it contradicts Article 1320 of the Civil Code.

Sluitjer said:

"A standard agreement is not an agreement, because the position of the entrepreneur in the

agreement is like a private legislator (legio particuliere wetgever). The conditions set by the

employer in the agreement are laws and not agreements."

This view sees the standard agreement from the aspect of making the substance of the

contract. The substance of the contract is made by the entrepreneur unilaterally. As such,

Sluitjer argues that the substance of the contract is not a contract, but a private law that

applies to the debtor.

Meanwhile, Mariam Darus Badrulzaman argues:

"The difference in the position of the parties when a standard agreement is made does not

provide an opportunity for the debtor to conduct 'real bargaining' with the entrepreneur

(creditor). Debtors do not have the power to express their will and freedom in determining the

contents of the agreement. Therefore, the standard agreement does not fulfill the elements

desired by Article 1320 of the Civil Code in conjunction with Article 1338 of the Civil Code."

This view also examines the aspect of freedom of the parties. Because this view says that the

debtor must accept the contract if he agrees to it, otherwise he is considered to have disagreed.

Thus, the freedom of contract contained in Article 1338 of the Civil Code has no meaning for

the debtor because the debtor's rights are limited by the creditor. From the opinions above, the

author agrees that standard agreements are binding as agreements in general, except that there

are exceptions to agreements or clauses that contain transfer of responsibility. The author

considers that a standard agreement is one of several types of agreements that we know, but

indeed this agreement has its own characteristics, namely the clauses in the agreement are

made or prepared by one party and the other party only needs to accept or reject the

agreement.

In Indonesia, the provisions regarding this contract are regulated in the Civil Code. In

international trade, especially regarding international trade contracts, the provisions of

UNIDROIT (UNIDROIT Principle of International Commercial Contract) have been applied,

which is known as the Principles of International Commercial Contract in Indonesia.

UNIDROIT is a form of harmonization of international commercial contract law, this is

because international trade involves various legal systems in the world, including civil law

which is generally adopted by European countries mainland including Indonesia and the

common law adopted by Anglo-American, liberal and socialist countries.

The purpose of the UNIDROIT principles is to set out the general rules for international

commercial contracts. They apply where the parties have agreed that their contract is subject

to them and to the general principles of law, lex mercatoria. The UNIDROIT principles

provide a solution to the problem that arises when it is evident that it is not possible to use the

sources of law relevant to the applicable law of a country.

UNIDROIT:

Regarding contract principles, the preamble of the UNIDROIT PRINCIPLE (UP) states that:

a. The UP is designed as a set of general principles and rules for international trade contracts;

b. UP will apply where the parties have agreed that the contract will be governed by UP, in

whole or in part, will bind the parties if they expressly make a choice of UP law to govern

their contract;

c. UP can be applied when the parties have agreed that their contract will be subject to the

principles of common law or lex mercatoria.

The following outlines some of the principles of international trade contracts in

UNIDROIT 2004, namely:

Principle of Freedom of Contract

Article 1 paragraph (1) UP states that: "The parties are free to enter into a contract and to

determine its content".

Like the general rules of contract law in various legal systems in the world, UP also stems

from the freedom of the parties to make contracts, as the main principle underlying the entire

structure of contract law. However, in interpreting the notion of freedom of contract in the

context of international trade contracts, there are several aspects that need to be realized,

namely:

Freedom of contract as a basic principle in international trade. UP considers this principle to

be the most important principle in international trade and implies the recognition of the right

of international business actors to decide freely on: to whom they will offer their goods or

services; from whom they will obtain the supply of goods and/or services; and what terms to

impose for each transaction they make.

The application of the principle of freedom of contract in sectors of trade that are exempt

from market competition. For example, the national regulation stipulates that in order to

increase the competitiveness of domestic national insurance companies, any insurance

activities in export-import activities must use national/domestic insurance companies. Thus,

this provision limits the freedom of the parties.

Limitation of the parties' freedom through the imposition of coercive legal rules. This

principle can be seen from Article 1.4.

Article 1.4 UP on the rules of compulsory law, provides: "Nothing in these principles shall

restrict the application of mandatory rules whether of national or supranational origin, which

are applicable in accordance with the relevant rules of private international law".

From the above article, it can be concluded that the rules of coercive law must be applied. In

determining which compelling rules should apply, the UP stipulates that this should be done

through the use of relevant rules of international civil law. A business contract drafter is

expected to keep in mind the compelling legal principles of all countries whose legal systems

are involved in the contract and prevent violations of the rules of compelling law as far as

possible during contract negotiation and drafting.

There are several principles in UP that are compelling, namely:

on good faith and fairness in transactions (Article 1.7 UP);

The provisions of Chapter 3 UP, particularly on substantive validity, go as far as the validity

of the contract in terms of the presence or absence of mistake and initial impossibility;

on pricing (Article 5.1.7 item 2);

on the payment of a sum of money for non-performance of an agreement (Article 7.4.13 item

2).

on the expiry date (Article 10.3 item 2).

about inconsistent behavior (Article 1.8).

release from liability clause (Article 7.1.6).

The UNIDROIT Principles aim to harmonize commercial contract law in countries willing to

apply them, so the material is focused on issues that are considered neutral. Thus, the scope

regulated by the UNIDROIT principles is freedom of contract. The rationale is that if this

freedom of contract is not regulated, distortions may occur, but conversely, if the regulation is

too strict, the meaning of freedom of contract itself will be lost. Therefore, UNIDROIT seeks

to accommodate various interests that are expected to provide solutions to the problem of

differences in legal systems and other economic interests.

Principles of Good Faith and Fair Dealing

Article 1.7 of the UP specifies that:

(1)

Each party must act in accordance with good faith and fair dealing in international trade.

(2)

The parties may not exclude or limit this duty.

The cornerstone of any commercial transaction is the principle of good faith and fair dealing.

Each party is obliged to uphold high principles of good faith and fair dealing in the entire

process of negotiating, making, executing, and concluding the contract. The use of the

principles of good faith and fair dealing in international trade in the context of UP should not

be linked to the measures/standards usually used in the domestic/national legal system. In

addition, the principle should be used with due regard to the specific conditions in

international trade, and the standards used in business practices in one sector are likely to

differ from those used in another sector.

Principle of Recognition of Customs and Practices Established by the Parties This principle is

found in Article 1.9 UP, namely:

(1)

The parties are bound by any usage to which they have agreed and by any practices which

they have established between themselves.

(2)

The parties are bound by a usage that is widely known to and regularly observed in

international trade by parties in the particular trade concerned except where the application

of such usage would be unreasonable.

Article 1.9 of the UP basically stipulates that, the parties themselves remain bound by existing

customs and trade practices, even if they agree to subject their contracts to the UP. In

paragraph 1, it is stipulated that they are bound by the customs agreed upon by the parties

themselves as well as to the patterns of behavior that have been established among themselves

to perform the contract. And in paragraph 2, it is stipulated that the parties are bound by the

customs commonly known to parties in the same trade as the transaction and contract entered

into by the parties concerned, meaning that it does not need to be expressly agreed upon.

Principles of Agreement through Offer and Acceptance

(Acceptance)

Article 2.1.1 UP stipulates: "A contract may be concluded either by the acceptance of and

offer or by conduct of the parties that is sufficient to show agreement".

Based on this understanding, it can be concluded that according to UP, a contract is formed

due to the existence of acceptance and on offer or because of the conduct of the parties which

is considered sufficient to prove the existence of an agreement between them. In principle, the

agreement is reached through offer and acceptance, the point is that the agreement occurs

because of the offer and acceptance and behavior that shows the agreement to be bound by the

contract.

The Principle of Prohibition of Negotiating in Bad Faith

This is regulated in Article 2.1.15 paragraphs (1) and (2).

(2) UP. The legal principles applicable to the negotiation process are: freedom of negotiation,

liability for bad faith negotiation and liability for bad faith termination of negotiations.

Liability for bad faith negotiations is limited to the harm caused to the other party. The injured

party may seek a refund of the costs incurred in the negotiations and compensation for the lost

opportunity to contract with a third person (this principle is called prejudgment interest or

negative interest). However, there is no obligation to replace the profits that would have been

made from the void contract.

Principle of Obligation to Maintain Confidentiality

In principle, in a contract there are confidential matters that must be maintained by the parties

so that they are not used to the detriment of the other party, this is regulated in Article 2.1.6

UP, namely: "Where information is given as confidential by one party in the course of

negotiations, the other party is under a duty not to disclose that information or use it

improperly for its own purposes, whether or not a contract is subsequently concluded. Where

appropriate, the remedy for breach of that duty may include compensation based on the

benefit received by the other party".

The parties are not obliged to keep secrets. However, there is information that is confidential

in nature that needs to be kept secret and there may be damages that must be recovered. In the

absence of an agreed obligation, the parties to the negotiation are essentially not obliged to

enforce it that the information they exchange is confidential.

Principle of Weak Party Protection from Standard Terms:

Article 2.1.19 through Article 2.1.22 contain provisions on standard terms. Article 2.1.19 UP

stipulates:

(1)

Where one party or both parties use standard terms in concluding a contract, the general

rules on formation apply, subject to Articles 2.1.20-2.1.22.

(2)

Standard terms are provisions which are prepared in advance for general and repeated use

by one party and actually used without negotiations with the other party.

Pursuant to Article 2.1.19 paragraph 2, standard terms are contract terms that have been

prepared in advance by one party for general / mass and repeated use, and are in fact used

without negotiation with the other party. In general, UP's general provisions on contract

formation apply to standard contracts. That is, standard terms offered by one party will bind

the other party through acceptance.

Based on Article 2.1.20 paragraphs (1) and (2) of UP, it can be concluded that in principle a

party who accepts a standard requirement made by another party, will be bound by that

requirement regardless of whether or not he/she knows/understands the consequences of

enforcing that requirement. Regardless of the party's acceptance of all standard requirements

proposed by the other party, the party is not bound by certain requirements which because of

their content, language, or manner of formulation are of such a nature that it could not have

foreseen the existence of such requirements.

Article 2.1.21 UP stipulates that in the event of a dispute between standard terms and non-

standard terms (terms agreed by the parties through negotiations between the parties), the

non-standard terms shall prevail. Furthermore, Article 2.1.22 UP stipulates that in the event

that the parties reach an agreement on the terms of the agreement, except for standard terms

that differ from each other, then the contract is deemed to continue to be formed on the basis

of agreed terms and standard terms that are the same in content.

Principle of Contract Validity:

Chapter 3 of UP contains principles relating to contracts. Different from the system

recognized in Book III of the Civil Code, what is meant by validity in UP is only the validity

of the contract in terms of the process of forming an agreement between the parties. The Civil

Code stipulates that the validity of a contract is determined by the existence of an agreement

between the parties, the requirements regarding the legal capacity of the parties, the existence

of a certain thing and a lawful cause. Meanwhile, the UP starts from the assumption that the

agreement has been formed, it is just that certain situations cause defects in the agreement, for

example, the existence of errors, coercion, and fraud, which are also regulated in the Civil

Code.

Article 3.1 states that the UNIDROIT principles do not regulate the invalidity of contracts

arising from the lack of legal capacity or legal authority of the contracting parties, because

the contract is considered contrary to decency (immorality) or contrary to the law and against

the law. From Article

3.1 it can be implicitly concluded that issues concerning the legal capacity/authority of the

parties as well as the morality and legality of a contract subject to UP must also be governed

by the rules of national law established through the civil law approach of international law.

Principle of Contract Revocability if it Contains Major Differences:

Article 3.10 paragraph (1) UP states that basically one party can reject a contract or one of the

conditions in it at the time the contract is formed, if without any legitimate justification the

contract or requirement gives an excessive advantage to the other party. This definition of

excessive advantage must have existed at the time the contract was formed. In determining

whether there is excessive advantage, there are several factors that must be considered,

including:

The fact that the other party has taken unfair advantage of the first party's dependency,

economic urgency or pressing needs, or of the backwardness, ignorance, inexperience or lack

of bargaining power of the first party.

The nature and purpose of contracts.

Other factors that fall under business ethics that apply in a particular field of business.

Furthermore, Article 3.10 paragraph (2) opens up the possibility that a party who is entitled to

refuse performance of a contract by reason of a threat may apply to the court to have the

contract or a particular clause of the contract adjusted so that it conforms to fair and

reasonable standards of contract. Thus, the court can order the adjustment of the contract or

the terms therein to fair and reasonable standards of trade.

Contra Proferentem Principle in the Interpretation of Standard Contracts

Set out in Article 4.6 UP which states, that: "If contract terms supplied by one party are

unclear, an interpretation against that party is preferred". Based on this principle, if the

terms of a contract submitted by one party are considered unclear, the interpretation against

that party should be preferred. However, the application of this principle must be made on a

case-by-case basis, bearing in mind that the less likely it is for the parties to negotiate the

meaning of a standard clause, the stronger the justification for interpreting that clause in a

manner contrary to the drafting party's intent.

The UNIDROIT international contract principles are a source of international contract

law created as an effort to create a harmonization of laws and rules in international trade so

that differences between one legal system and another do not become an obstacle for parties

in conducting international trade transactions.

The effort to create a unified and harmonized legal system as the purpose of the

UNIDROIT convention has been realized in the principles of international contracts and has

been ratified in Indonesia. However, in international reality, business people tend to find it

difficult to adjust their choice of law. The choice of law of business people is more likely to

use rules of law rather than national law in the practice of drafting commercial contracts as

the governing law of the contracts they make. This is because international civil law often has

difficulties in its application so that parties are free to choose UNIDROIT principles as the

basis for dispute resolution.

The dilemma of choosing a legal system for the parties is generally related to cross-border

aspects. For example, the choice of law faced by parties of different nationalities (Indonesian

and foreign parties) as stated by Erman Radjagukguk that for agreements that have

transnational aspects, the issue of choice of law becomes important. Not all foreign parties

feel "comfortable" that their agreements, although concerning Indonesia, are regulated and

interpreted according to Indonesian law. The choice of foreign law for a treaty concerning

Indonesia is valid and binding. The issue for treaty drafting is whether such a choice is

practical and effective. Based on the degree of binding force, national law is the primary

source of law over other sources, although it is not absolute because in certain cases one or

the other source of law can be the primary choice of law for the parties in drafting a contract.

However, it is appropriate if between the two legal systems can adjust each other as agreed by

the parties concerned.

International Contract Principles in UNIDROIT:

UNIDROIT is an independent intergovernmental organization. UNCITRAL was originally

formed in 1926 as an auxiliary body to the League of Nations (LBB). When the LBB

dissolved, UNIDROIT was re-established in 1940 based on a multilateral agreement, namely

the UNIDROIT Statute. UNIDROIT is domiciled in the city of Rome and its main purpose is

to protect the rights of individuals and organizations. The purpose of UNIDROIT is to

conduct studies to harmonize and coordinate private law, especially commercial (trade) law

among countries or among a group of countries. Membership of UNIDROIT is limited to

countries that submit themselves to the UNIDROIT Statute. These countries come from 5

continents and represent a variety of different legal, economic, political and cultural systems.

The background to the establishment of UNIDROIT was to research ways to harmonize and

coordinate civil law in the countries and associations of the world and to prepare for the

gradual acceptance by the various countries of uniform civil law rules.

On September 2, 2008 Indonesia ratified the UNIDROIT Statute with Presidential

Regulation (Perpres) Number 59 of 2008 concerning Ratification of the Statute of the

International Institute for the Unification of Private Law. International contract law

materialized in lex mercantoria (customary trade law) is intended to harmonize the various

legal systems that exist in the world. Indonesia has also ratified the provisions of UNIDROIT

international customs into Indonesian national law, this can be seen in Presidential Regulation

Number 59 of 2008 concerning the Ratification of the Statute of the International Institute for

the Unification of Private Law, which means that Indonesia is subject to the substance

contained in UNIDROIT. Contract law principles used in UNIDROIT, namely:

Principle of Freedom of Contract

The will of the parties can be expressed in various ways, both oral and written and binds the

parties with all its legal consequences. The first principle, freedom of contract, is contained in

Article 1.1 of the UNIDROIT principles. This article affirms the parties' freedom to contract,

including the freedom to determine what they agree to. This article states: "The parties are

free to enter into a contract and to determine its content". The principle of freedom is

embodied in 5 (five) forms of legal principles, namely:

freedom to determine the content of the contract;

freedom to determine the form of the contract;

contract is binding as law;

mandatory rules as an exception; and

The international nature and purpose of the UNIDROIT principles should be considered in the

interpretation of contracts.

"A modern merchant law would be much smaller than current contract law, would truncate

broad judicial searches for parties' true intentions when interpreting their agreements, and

would accord parties much more freedom to write efficacious contracts then now exists."

(Alan Schwartz and Robert E. Scott, Vol. 113, 2003: 541). The contractual principles in

UNIDROIT follow modern law, so that in UNIDROIT contracting parties can more

efficiently interpret the purpose of their agreement.

Principles of Legal Recognition of Trade Customs

The second principle, the binding force of customary practices, is also known as openness to

custom. Recognition of customary practice is based on the consideration that not only is

customary practice factually binding, but also because it evolves over time. This principle is

contained in Article 1.8 of the UNIDROIT principles. According to this article, parties are

bound not only by the trade customs that have prevailed between them and the trade customs

to which they have agreed, but also by "a usage which they have widely known to and

regularly observed in international trade by parties in the particular trade concerned, except

where the application of such a usage would be unreasonable".

Principles of Good Faith and Fair Dealing

There are three elements of the principle of good faith and fair dealing, namely:

Good faith and fair dealing as the basic principles underlying the contract;

The principles of good faith and fair dealing in UPICCs are emphasized in international trade

practices;

the principles of good faith and fair dealing are compelling.

Good faith, is a principle that actually reflects the European legal color of UNIDROIT. This

principle is contained in Article 1.7 which states: "(E)ach party must act in accordance with

good faith and fair dealing in international trade". The main objective of this principle as The

goal of UNIDROIT is to achieve a state of fairness in international trade transactions.

Force Majeure Principle

The important principle of force majeure (also sometimes called force majeure) is contained

in Article 7.1.7 of the UNIDROIT Principles. This Article reads as follows:

(1)

Non-performance by a party is excused if that party proves that the non-performance was due

to an impediment beyond its control and that it could not reasonably be expected to have

taken the impediment into account at the time of the conclusion of the contract or to have

avoided or overcome it or its consequences.

(2)

When the impediment is only temporary, the excuse shall have effect forsuch period as is

reasonable having regard to the effect of the impediment on the performance of the contract.

(3)

The party who fails to perform must give notice to the other party of the impediment and its

effect on its ability to perform. If the notice is not received by the other party within a

reasonable time after the party who fails to perform knew or ought to have known of the

impediment, it is liable for damages resulting from such non-receipt.

(4)

Nothing in this article prevents a party from exercising a right to terminate the contract or to

withhold performance or request interest on money due.

The wording of the article is a common formulation, including in our national law. The

formulation is:

a) an event that causes force majeure is an event that is beyond his ability;

b) The existence of such an event obliges the party experiencing it to notify the other party of the

occurrence of force majeure.

Application of UNIDROIT Principles in Indonesia:

In general, the UNIDROIT contract principles are basically similar to the principles of

contract law applicable in Indonesia, both in the purpose of their formation and in the

principles of their regulation. The purpose is the same, namely that the two principles are

different The territoriality was created as an effort to facilitate the parties in the transaction so

that differences in the system are no longer used as an obstacle to create harmonization. Such

harmonization will be realized when the UNIDROIT contract principles and the principles of

contract law applicable in Indonesia are able to encourage the implementation of the main

objectives of all existing points.

The real difference that cannot be eliminated is the territorial aspect where the application

of UNIDROIT contract principles is primarily targeted at international territories, while the

principles of Indonesian contract law are within the territory of Indonesia so that they only

apply nationally. However, this does not mean that national principles absolutely cannot be

used for international transactions, rather the principles accumulated as national law are the

root of the formation of international contracts. Because international contracts emerge as

national laws that are given foreign elements, namely different nationalities, domiciles, choice

of law, places of dispute resolution, signing of contracts, objects, languages, and currencies

used are all attached by foreign elements, causing differences in the system between

international contracts and contract provisions in Indonesia. However, the two have the same

fundamental principles.

From the regulatory aspect, the UNIDROIT principles and the principles of Indonesian

contract law have many similarities, among others:

Principle of Consensualism

In the UNIDROIT contract, the agreement of the parties is an absolute thing for the formation

of a contract even though it is not made formally (in writing). Likewise, in the principles of

contract law in Indonesia, the consensus of the parties contained in Article 1320 of the Civil

Code regarding the validity of an agreement, one of which is the agreement of the parties, is

the most important thing even though it is not done in writing because the provisions of the

article do not mention the obligation of the parties to put their agreement in writing. The

formality of writing is only needed as a means of proof in the event of a dispute that requires

proof of a reason for dispute.

The existence of the principle of freedom of contract

In essence, it gives the parties the opportunity to determine what they agree to, both with

regard to the form and content of the contract itself. This principle of freedom of contract is

based on the theory of will and the theory of statement as is also appropriate to apply to the

principle of consensualism. Because without the will and statement, there will be no

consensus between the parties, so that if there is no agreement, the binding power of a

contract will not apply.

The Principle of Good Faith

In essence, it aims to create justice for the parties in the transaction. This principle is the main

basis for the parties to enter into a contract, in accordance with the theory of trust as the

binding force of a contract because starting with good faith, it will foster mutual trust so that

the contract can be realized properly. Each party must uphold this principle in the entire

course of the contract, starting from the negotiation process, making, implementation, to the

end of the contract.

Principle of Legal Certainty

The existence of the principle of legal certainty provides protection for the parties from the

bad faith of the parties concerned or third parties. Contracts that have been agreed are

considered binding, like laws for the makers and cannot be changed without the consent of the

parties who make them.

The consequence of the implementation of all the above principles will ultimately lead to

a theory of gevaarzetting which is essentially a final consequence that must be accepted by

the existence as a result of the implementation of a contractual will. The profits or losses

incurred must be the responsibility of the parties concerned. Violation of the agreement that

has been made between the parties will cause losses that must be borne by the party who gets

the loss without claims to the other party. Choice of law is used since the negotiation process,

at this stage it can no longer be used because at this stage it is the stage of achieving the

results of all contracts that have been mutually agreed between the parties.

Actually, legal practitioners (in this case advocates) have made efforts to harmonize the

principles of international contracts referring to UNIDROIT with national treaty law, starting

by conducting legal knowledge training on the principles of international contracts in 2013.

This is a good start to increase understanding of international contract principles and improve

legal skills development.

Renewal of contract law in Indonesia, particularly Book III on Engagements is a must in

order to support and improve the implementation of international trade and business

transactions. The principles in UNIDROIT ratified in Indonesia aim to harmonize and unify

international contracts, and these principles must be applied in every international contract.

Contract law reform is carried out as a harmonization effort in the context of international

contract law to bridge differences in legal systems that hinder the implementation of

international trade and business transactions. The existence of different rules in each country

will hamper the implementation of international business transactions that require speed and

certainty.

The adjustment of national contract law in the context of international contracts should be

seen as a demand as well as a necessity. The demand in the sense of updating contract law is a

necessity of the globalization era so that Indonesia can continue to exist in international trade

activities and business transactions. The need in the sense of updating contract law/agreement

basically aims to create legal certainty to protect national interests. With legal certainty,

increased trade and international business transactions can be carried out optimally and will

certainly provide benefits for the state and the private sector. The principles of UNIDROIT or

UPPICs should be a reference that is taken into consideration in the preparation of national

contract law (Civil Code Bill) to replace the Burgerlijk Wetboek (BW), especially Book III on

Obligations and more specifically the provisions contained in Chapter II on Obligations

arising from contracts or agreements.

In addition, harmonization of national and international contract law can be realized with

the efforts of legal practitioners themselves. For example, by increasing the existence of

training in international contract law knowledge, especially those that refer to the UNIDROIT

principles and further socializing the UNIDROIT international contract principles to legal

practitioners, especially those directly related to the implementation of treaty law. This is

deemed necessary because of the growing times due to globalization so that legal practitioners

themselves must always keep abreast of existing developments, which refer to the

UNIDROIT principles in order to better understand the general principles that develop and

improve their respective legal skills.

Civil Code:

In the Civil Code, the conditions for the validity of an agreement (contract) are regulated in

Book III. Article 1320 of the Civil Code states that four conditions are required for the

validity of agreements, namely:

a. agreed by those who bind themselves,

b. capable of entering into an agreement,

c. a certain thing,

d. a lawful cause.

The first two conditions are called subjective conditions, because these two conditions

concern the subject of the agreement, if this condition is not met the agreement can be

requested for cancellation. While the last two conditions are called objective conditions,

because they concern the object of the agreement, if this condition is not fulfilled, the

agreement is null and void, which can be considered that this agreement never existed.

In terms of the validity of this agreement, Asser distinguishes the parts of the agreement,

namely the core part (wezenlijk oordeel) and the non-core part (non wezenlijk oordeel). The

core part is called essentialia, the non-core part consists of naturalia and exidentialia.

Essentialia: this part is a characteristic that must be present in the agreement, a characteristic

that determines or causes the agreement to be created (constructieve oordeel). Such as the

agreement between the parties and the object of the agreement. Naturalia: this part is an innate

nature (natuur) of the agreement so that tacitly inherent to the agreement, such as

guaranteeing that there are no defects in the object sold (vrijwaring). Aksidentialia: this part is

an inherent characteristic of the agreement in the event that it is expressly agreed by the

parties, such as provisions regarding the domicile of the parties.

Capable according to the Civil Code is capable of making an agreement, unless the law

states that the person is incapable, such as immature people and people who are under

guardianship. The law also determines that objects used for the public interest cannot be the

object of an agreement.

Another condition for the validity of an agreement is the existence of a lawful cause. The

law does not provide a definition of causa. What is meant by causa is not a causal

relationship, but the content or purpose of the agreement. Through this requirement, in

practice, the judge can supervise the agreement. The judge can assess whether this agreement

does not conflict with the law, public order, and decency.

The principle of pacta sunt survanda is also adopted in the Civil Code, namely in Article

1338 paragraph (1), "All agreements made legally shall apply as laws for those who make

them". Munir Fuady said that, a contract made legally by the parties binds the parties in full

according to the contents of the contract. This term is known as "my word is my bonds". If a

party to the contract does not comply with the contract it has made, the law provides

compensation or even forced execution of the contract.

Article 1338 paragraph (2) states, "An agreement cannot be revoked other than with the

agreement of both parties, or for reasons that the law states are sufficient for that". Here it

can be interpreted that the parties cannot cancel the contract unilaterally, the contract that has

been made can be canceled if the parties agree to it or there are reasons from the law that the

contract that has been made can be canceled.

Article 1338 paragraph (3) states, "An agreement shall be executed in good faith". The

Civil Code regulates that a contract must be executed in good faith by the parties and it is not

permissible to enter into a contract in bad faith so as to cause harm to one of the parties.

The Civil Code also recognizes the principle or principle of custom. This is regulated in

Article 1339 and Article 1337 of the Civil Code. Broadly speaking, these two articles stipulate

that the contract made is not only binding on the parties in terms of its contents, but the

prevailing custom, either where the contract is made or where the contract is carried out must

also be considered.

When viewed from the principle of protection of weak parties from standard terms as

stipulated in Article 2.1.19 to Article 2.1.22 UP, basically the standard terms offered by one

party will bind the other party through acceptance. Based on Article 2.1.20 paragraphs (1) and

(2) UP, it can be concluded that in principle, the party who accepts the standard terms made

by the other party will be bound by the terms regardless of whether he knows/understands or

not the consequences of the enforcement of the terms. Regardless of the party's acceptance of

all standard requirements proposed by the other party, the party is not bound by certain

requirements which because of their content, language, or manner of formulation are of such a

nature that it could not have foreseen the existence of such requirements.

Article 2.1.21 UP stipulates that in the event of a dispute between standard terms and non-

standard terms (terms agreed upon by the parties through negotiations between the parties),

the non-standard terms shall prevail. Furthermore, Article 2.1.22 UP stipulates that in the

event that the parties reach an agreement on the terms of the agreement, except regarding

standard terms that differ from each other, the contract is deemed to continue to be formed on

the basis of agreed terms and standard terms that are the same in content.

ECN 736_ASU_ASSIGNMENT_2024_WEEK 3_STANDARDIZED AGREEMENTS IN INTERNATIONAL TRADE TRANSACTIONS

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