First and foremost, it is necessary to understand that an agreement (or contract) or a sale and purchase binding obligation is a form of an agreement or named obligation (benoemde contract) which is regulated in Book III 5th Chapter of the Indonesian Civil Code (Burgerlijk Wetboek – “ICC” ) and also in the 1st Chapter (general provision). There are two natures of a sale and purchase agreement, which are consensual nature and real agreement nature (riil). Article 1457 of the ICC defines a sale and purchase as follows:
“a sale and purchase shall be an agreement, whereas a party binds himself to hand over an object, and the other party to pay the agreed price.”
Consensual nature means that there is an agreement or consensus between the parties regarding the object and the price (Article 1457 ICC). The sale and purchase agreement is real in nature, which according to the article 1459 ICC, means that the sale and purchase agreement should be performed by a handover (levering) by the seller after the buyer pays the price because in order for a sale and purchase to be completely performed there should be a handover (levering), in which the buyer shall be the owner of the paid object (Article 1459 ICC). The article 1459 ICC states:
The ownership of the purchased object shall not be transferred to the buyer, as long as the handover of the object is not yet performed in accordance with the articles 612, 613 and 616.
Based on the description of the sale and purchase according to the Article 1457 ICC, there exists an obligation on each of the parties, that is:
- The buyer’s obligation to pay the agreed price;
- The seller’s obligation to hand over the object to the buyer.
In a case that we handled, a question arises whether a Purchase Order from a buyer is considered an agreement? In a literal sense, Purchase Order means “an order to purchase.” In general, a purchase order consists of the name of the buyer, shipping address, billing address, date of shipping, phone number, email address, product name, amount of the goods, payment method, shipping method, booking number, terms and condition of the transaction.
In the context of contract law, a Purchase Order is a form of an offering to book/purchase with the object and its price will be provided further (according to article 1457 ICC). This phase is a negotiation phase in the making of an agreement. If the buyer’s Purchase Order is accepted and agreed by the seller then the seller shall sign (accepts) the Purchase Order, then it shall constitute an agreement or sale and purchase binding obligation between the seller and the buyer which is consensual in nature. This is consistent with the Decision of the Supreme Court of the Republic of Indonesia Number 1506 K/Pdt/2002 which states:
“A Purchase Order signed by the parties who bind themselves shall constitute an agreement and shall be considered as law and binds the parties”
In conclusion, a Purchase Order shall be considered as an agreement or sale and purchase binding obligation for the parties (buyer and seller) in accordance with article 1338 of ICC in conjunction with article 1457 of ICC.
In relation to this issue, the question is: whether an offer by the buyer through a purchase order gives rise to a right and obligation to the parties? In our opinion, a Purchase Order is a form of offering from the buyer to the seller. It is a process of negotiation that will result in the creation of a sale and purchase transaction. According to article 1313 ICC in conjunction with article 1320 ICC and in conjunction with article 1338 ICC, then an offer will create a binding agreement and thus give rise to right and obligation for the parties after the seller accepts it. Then, what is the legal obligation which arises from the Purchase Order which was accepted by the buyer and seller? Referring to article1457 ICC in conjunction with Article 1459 ICC, then the obligation of the buyer is to make a payment, while for the seller is to hand over the object if the buyer has paid the price. Further, if the obligation of each party has been completely fulfilled, then the legal relation is considered finished or terminated.
Whether the acceptance of a purchase order will cause the seller to be bound always to accept or agree on the future purchase order? In our opinion, without the main agreement that regulates the matters, then the acceptance of a certain Purchase Order does not automatically cause the seller to always agree or accept any future Purchase Order given by the buyer. Each Purchase Order shall be deemed independent with one and another since the price and the amount might be different in each transaction.
In the condition that there is no sale and purchase agreement, the buyer (Agus) sends a purchase order to the buyer (Budi). The question: is a legal relationship between the buyer and the seller already created? Legally, as long as the seller does not accept the Purchase Order sent by the buyer (Agus), then the legal relationship between Agus and Budi as the seller is not yet created. In case that the seller (Budi) is not given his acceptance, the buyer (Agus) cannot assume that the seller (Budi) silently accepts it. Then what if Agus as the buyer sues Budi as the seller with the reason that Budi refuses to deliver the good as stated in the Purchase Order sent by Agus? In our opinion,such a claim is unreasonable and groundless because there is no binding obligation or legal relation between the buyer and the seller.
Further, if the Purchase Order is accepted by the seller (Budi) and the good is delivered, but the buyer (Agus) haven’t made payment to the ordered good, is the buyer (Agus) has the right to sue the seller (Budi) if the case is that the seller (Budi) is late in delivering the good? Article 1478 ICC states:
“the seller is not under an obligation to hand over the good if the buyer has not paid the price, while the seller does not give permission for any delay of payment to the seller”
In conclusion, if the buyer intends to hold the seller liable for the delivery of the goods, the buyer should first pay the price. By making a payment, the buyer shall have a good reason to sue the seller if the seller is late in delivering the goods.
Hope it is useful,
FREDRIK J. PINAKUNARY LAW OFFICES