LEGAL PRINCIPLES IN INTERNATIONAL CONTRACTS

Introduction

Today's globalization is marked by the increasing development of needs in every

sector of the world community's life. This happens especially in the field of technology,

which causes closer relations between existing countries. The closer the relationship of the

country, the situation arises where there is an interdependent relationship between the parties,

this is the countries that are the subject of international law. The relationship of

interdependence is indirectly formed as a result of efforts to increase national economic

growth in each country through international trade.

The development of international trade today has a wide range of positive and

negative impacts in all aspects of the life of the world community. These developments

include the making of international contracts. International trade transactions are contained

and covered in international contracts. This is in accordance with the development (law) of

international contracts, which more or less depends on the development of international trade

transactions and the laws that govern them. If you want to do international trade, the contract

is an important part of international transactions because it relates to the rules of law that

apply in each country.

Contracts in international trade are an important part of international transactions,

therefore naturally legislation relating to trade has long been a concern. The diversity of

national regulations in each country provides a separate need for a universal and international

regulation. The existence of different rules in each country will hamper the implementation

of international business transactions that require speed and certainty (Huala Adolf, 2008: 29)

The diversity of national regulations in each country provides a need for universal and

international regulations. The establishment of an international convention basically aims to

create a harmonization of laws or rules in international trade. There are several agreements

related to international contracts, including the convention on international sale and purchase,

namely the United Nations Convention on Contracts for the International Sale of Goods

(CISG Convention 1980) and the convention on the principles of international contracts,

namely the Principles of International Commercial Contracts in The International Institute

for the Unification of Private.

The word "contract" is known as a leasing activity carried out by two parties (tenant

and renter) of an object within a certain period of time burdened by conditions determined by

agreement between the two parties. However, in a broader sense, the word "contract" is also

defined as an "agreement" as stated by Subekti that an agreement is an event in which one

person promises to another or in which two people promise each other to carry out something

(Subekti, 2005: 1). So a contract can be understood as a relationship between two interests

that bind both parties. In other words, a contract can be said to be a "promise" which must be

kept by the parties concerned.

International trade activities and business transactions are carried out by the parties

based on an agreement as outlined in an international contract. International contracts have

an important position as the most important reference for the parties in the implementation of

an agreed matter, even to the determination of how the settlement will be taken if in the

future the implementation of the contract cannot be realized as it should. Contracts dominate

so many parts of our social life, without realizing we have made and carried out dozens or

even hundreds of contracts every day.

In the broadest sense, a contract is an agreement that defines the relationship between

two or more parties. For example, two people taking marriage vows are entering into a

marriage contract, a person having a child enters into a contract to care for and provide for

the child, a person choosing food at the market enters into a contract to buy a certain amount

of food at the market. Meanwhile, a commercial contract is in its simplest sense, is an

agreement made by two or more parties to conduct a business transaction.

In terms of the nature and scope of the binding law, contracts can be in the form of

national contracts and international contracts. A national contract is none other than a

contract made by two individuals (legal subjects) within the territory of a country in which

there is no foreign element. Meanwhile, an international contract is a contract in which there

is or was a foreign element (Huala Adolf, 2008: 1). The foreign element in this case is the

existence of a legal system linkage from (the country of) one of the parties involved in the

contract activity as the choice of law agreed between the two.

Theoretically, foreign elements can be an indicator that a contract is a national

contract, namely:



Nationality is different;



Different legal domiciles of the parties;



The law chosen is foreign law, including the rules or principles of international

contracts to which the contract relates;



Settlement of contract disputes takes place abroad;



The contract was signed overseas;



The contract object is overseas;



The language used in the contract is a foreign language;



The use of foreign currency in the contract (Huala Adolf, 2008: 4)

Of the many foreign elements, the most basic foreign element is different nationality.

This difference in nationality or citizenship is a fact that raises the consequence that in an

international contract two different legal systems are possible so that the field of international

contract law is indeed a matter that is not easy. In general, in international contract law there

are two fundamental principles of international contract law consisting of: 1) the principle of

sovereignty/supremacy of national law; and 2) The basic principle of freedom of the contract

or the party's autonomy. This reflects that national law plays a role is very important in the

formation of international contracts and cannot be contested. The binding force of national

law is absolute and its position is as the most favored law.

To find the basis of international contract regulation, we can review the sources of

international contract law itself classified into 7 (seven) legal forms as follows:



National law (including a country's laws and regulations either directly or indirectly

related to the contract);



Contract documents;



Customs in the field of international trade related to contracts;



General legal principles of contract;



Court decision;



Doctrine;



International agreements (regarding contracts). (Huala Adolf, 2008: 69)

Of the above legal sources, the most important legal source in international contracts

is the "international agreement" consisting of the Contracts for the International Sale of

Goods (CISG) and the UNIDROIT Principle of International Contracts in 1994, hereinafter

referred to as the UNIDROIT principle. According to Taryana Soenandar, CISG applies to

contracts for the sale and purchase of goods where the parties have places of business in

different countries. The scope of buying and selling goods is limited to commercial purposes,

not for personal purposes or government interests. The CISG does not apply to the sale and

purchase of goods for personal use, family use, or household needs, unless at the time of

concluding the contract the seller is unaware of the use of the goods. The CISG also does not

apply to sale and purchase by auction, execution by certain authorities, sale and purchase of

shares, investment securities, securities or money, ships, hovercraft, aircraft, and electricity.

Meanwhile, Unidroit principles are general principles for international commercial contracts

that can be applied into national legal rules, or used by contract makers to regulate

international commercial transactions as a choice of law (Taryana Soenandar, 2002: 34-35).

These 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. (Huala Adolf, 2008: 88).

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 United States. 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 the 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 with different nationalities

(United States and foreign parties) as stated by Erman Radjagukguk that for agreements that

have trans-national aspects, the issue of choice of law becomes important. Not all foreign

parties feel "comfortable" that their agreements, although concerning United States, are

regulated and interpreted according to United States law. The choice of foreign law for a

treaty involving United States is valid and binding. The problem for treaty drafting is

whether such a choice is practical and effective (Erman Radjagukguk, 2002: 8).

If based on the degree of binding force, national law is the main source of law than

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

law can be the main choice of law for the parties in drafting a contract, but it is appropriate. If

between the two legal systems can adjust each other as agreed by the parties concerned.

International Contract Principles in UNIDROI

UNIDROIT is an independent intergovernmental organization. UNCITRAL was

originally formed in 1926 as a supplementary 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

has the main purpose of its formation is to conduct studies to harmonize and coordinate

private law, especially commercial law (trade) between countries or between groups of

countries.

UNIDROIT membership is limited to those countries that subject themselves to the

UNIDROIT Statute. These countries come from 5 continents and represent different legal,

economic, political and cultural systems. The background to the establishment of UNIDROIT

was to examine 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 United States 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. United States has also ratified the provisions of

UNIDROIT international customs into United States 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 United States is

subject to the substance of the UNIDROIT provisions contained in the UNIDROIT. The

principles ofcontract law used in UNIDROIT are:



The 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 legal consequences (Suharnoko, 2004: 3-4). The first principle,

freedom of contract, is contained in Article 1. 1 UNIDROIT Principles. This article

emphasizes the freedom of the parties to make contracts, including the freedom to determine

what they agree to. This article states: "The parties are free ti enter into a contract and to

determine its content. " (Huala Adolf, 2008: 89). The principle of freedom is realized in 5

(five) forms of legal principles, namely:



Freedom to determine the content of the contract;



Freedom to determine the form of the contract;



Contracts are binding as law;



Mandatory rules as an exception;



The international nature and purpose of the UNIDROIT principles that must be

considered in the interpretation of contracts (Taryana Soenandar, 2006: 37)



Principle of legal recognition of trade customs

The second principle, the principle of the binding force of customary practices, is also

known as openness to custom. Recognition of customary practice is based on the

consideration that custom is not only factually binding but also because it evolves over time.

This principle is contained in Article 1. 8 UNIDROIT principles. According to this article,

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

trade customs they have agreed upon, 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." (Huala Adolf, 2008:

90). " (Huala Adolf, 2008: 90).



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 (Taryana Soenandar,

2006: 42).

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 envisioned by UNIDROIT is the achievement of a fair situation in

international trade transactions (Huala Adolf, 2008: 90-91).

Application of UNIDROIT Principles in United States

In general, the principles of the UNIDROIT contract basically have similarities with

the principles of contract law applicable in United States both in the purpose of its formation

and in the principles of its regulation. The same purpose is that the two territorially different

principles were created as an effort to facilitate the parties in the transaction so that the

difference in systems is no longer used as an obstacle to create harmonization. Such

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

principles of contract law applicable in United States are able to encourage the

implementation of the main objectives of all existing points.

The obvious difference that cannot be eliminated is the territorial aspect where the

application of the UNIDROIT contract principles is primarily targeted international territory

while the principles of United States contract law are within the territory of United States so

that they only apply nationally. However, this does not mean that national principles

absolutely cannot be used for international transactions, precisely the principles that

accumulate as national law are the roots 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 so as

to create differences in the system between international contracts and contract provisions in

United States. However, both have the same fundamental principles.

From the regulatory aspect, there are many similarities between the UNIDROIT

principles and the principles of United States contract law:



The existence of the 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 United States, the consensus of the parties contained in Article

1320 concerning 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 then the binding force 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 (J. Satrio,

1995: 195-210). 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 demands 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 international contract principles referring to UNIDROIT with national treaty law, starting

with conducting knowledge training law on international contract principles back in 2013.

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

legal skills development. (Dewa Wiguna, www.antarabali.com/berita/39158/peradi-latih-

advokat-pahami-kontrak-internasional, accessed April 2, 2014).

Conclusions

Based on the discussion as described above, the following conclusions can be drawn.

The renewal of contract/agreement law in United States, especially Book III on Engagement,

is a must in order to support and improve the implementation of international trade and

business transactions. The principles in UNIDROIT ratified in United States 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 United States 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 have become a reference that be taken into

consideration in the preparation of national contract law (KUHPerd Bill) to replace BW,

especially the Third Book 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 referring to the UNIDROIT

principle and further socializing the UNIDROIT international contract principle to legal

practitioners who are mainly 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 that refer to the

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

improve their respective legal skills.