Termination of contract aims to bring both parties back to the state before the contract was entered into. If a party has received something from another party, either money or goods, then the money or goods must be returned as a result of the termination of contract. One-sided termination of a contract can be interpreted as the unwillingness of one of the parties to fulfill the obligation that has been agreed by both parties in the contract.
It is known that a valid contract, in the sense of fulfilling the legal requirements desired under the law, and therefore the contract should be applicable as a law for the parties who made it and agreed upon it, as stipulated in Article 1338 (1) of the Indonesian Civil Code (“ICC”). Requirements of a valid contract as mentioned above are explained in Article 1320 of ICC, namely:
- there must be consent of the individuals who are bound thereby;
- there must be capacity to conclude a contract;
- there must be a specific subject;
- there must be an admissible cause.”
Whereas Article 1338 (2) of ICC states that:
“They (contracts) cannot be revoked otherwise than by mutual agreement, or pursuant to reasons which are legally declared to be sufficient.”
Based on Article 1338 paragraph (2) of ICC, it is clear that contract cannot be terminated unilaterally, because if the contract is terminated unilaterally, it means that the contract is not binding between the people who made it. If seen from Articles 1266 and 1267 of ICC, it is clearly stipulated about the termination conditions if one party does not fulfill its obligations. The termination must be requested to the court, this is intended so that no parties can terminate a contract unilaterally on the grounds that the other parties does not carry out their obligations (breach of contract).
There are several legal theories related to termination of contract unilaterally, namely repudiation of the contract. Repudiation is a statement regarding the unwillingness or inability to carry out a contract that was previously agreed upon, in which the statement was given before the time to execute the contract. Repudiation in that sense is called anticipatory repudiation which different from ordinary repudiation, which is a termination that is stated when it has entered into a contract period.
Indonesian legal expert Munir Fuady in his book “Contract Law: From a Business Law Perspective” said that the juridical consequence of repudiation of a contract is that it can delay or even free the other party from the responsibility to carry out the obligation of the contract; and on the other hand gives the right to the injured party to be able to immediately claim compensation, even though the party conducting the repudiation is not due to carry out its obligations under the contract.
Furthermore, Munir Fuady added that the act of repudiation of a contract could be conducted in two ways:
1) Firm repudiation
Namely the party who conducted repudiation stated his intention explicitly that he did not want to perform his obligations under the contract.
2) Inclusive repudiation
In addition to being explicit, repudiation can also be done inclusively. The point is from the existing facts can be concluded that one of the parties will not carry out their obligations under the contract.
The main criterion for inclusive repudiation is that the party conducting the repudiation shows an action or purpose logically and clearly that he will not carry out his obligations.
A book entitled “The Law Of Contract Seventh Edition” explained that “ Repudiation in the present sense occurs where a party intimates by words or conduct that he does not intend to honor his obligation when they fall due in the future.” The following is the opinion of Lord Blackburn quoted from the book “The Law of Contract Seventh Edition”:
“Where there is contract to be performed in the future, if one of the parties has said to the other in effect if you go on and perform your side of the contract. I will not perform mine, that in effect, amounts to saying “I will not perform the contract”. In that case the other party may say, you have given me distinct notice that you will not perform the contract. I will not wait until you have broken it, but will treat you as having put an end to the contract, and if necessary I will sue you for damages, but at all events I will not go on with the contract”
Repudiation may be either explicit or implicit. An example of the former type is afforded by Hochster v Derla Tour, where the defendant agreed in April to employ the plaintiff as his courier during a foreign tour commencing on June 1st. On May 11th he wrote that he had changed his mind and therefore would not require a courier. The plaintiff sued for damages before June 1st and succeeded.
Repudiation is implicit when the reasonable can be concluded from the defendant’s conduct that he no longer intends to perform his obligation under the contract. Thus. if a man agree to sell and deliver specific goods on a future day, and he sells and delivers the goods to other person, he is immediately threatened will be sued by the person with whom he first have contract with. Also, if A gives a house to C which he had previously agreed to give to B, A will be taken to have repudiated the contract. Another example of a case like this is Frost v Knight when the defendant, having agreed to marry the plaintiff upon the death of his father, broke off the engagement during the latter’s lifetime. The plaintiff immediately sued for damages and was successful. This particular situation can no longer recur, since actions for breach of promise of marriage have now been abolished, but the principles laid down in Frost v Knight are still of general application.
The result, then, of repudiation, whether explicit or implicit, is that the innocent party acquires an immediate cause of action. But he does not have to immediately make a claim and can remain silent while waiting until the day of implementation of the contract and then file a lawsuit because of a breach of contract.
Hope it’s useful,
FREDRIK J. PINAKUNARY LAW OFFICES