Definition of Contract Law, Legal Terms, and Legal Principles

Definition of Contract Law – In establishing a work or business agreement, a contract agreement is definitely needed for the work or business being carried out in order to establish an agreement that has been agreed upon by both parties.

Being a business owner is not easy and there are many things to think about in developing a business. One of the factors that impede or even thwart business operations is the absence of an agreement in a business transaction. For example, in buying and selling transactions with sellers, the seller defaults on the delivery of goods, causing delays in your business.

For this reason, as a solution to overcoming obstacles that apply in a job or business that is being carried out by workers and business people, the important role of business contracts that are in accordance with applicable legal regulations is very much needed in the continuity of a job or business that is being carried out. Therefore, this discussion will also try to discuss further about the understanding of contract law that applies and how to apply it in a business that Readers can learn.

You can see further discussion regarding contract law below!

Definition of Contract Law

A contract or agreement is an agreement between two or more people on certain matters that they have agreed upon. General provisions regarding contracts are regulated in the Indonesian Civil Code.

Ricardo Simanjuntak explained that the agreement is part of the understanding of the agreement, meaning that the agreement is also an agreement, although the agreement is not necessarily an agreement. Agreements that have binding legal consequences are equated with agreements.

An agreement without legal consequences is not a contract. The basis for determining whether a contract has binding legal consequences or is only a contract with moral consequences arises from the basic will of the contracting parties.

Agreement law includes the general understanding of legal principles governing legal relations between two or more parties based on a valid agreement. Indonesian contract law continues to use the provisions of the Dutch colonial government as contained in Book III of the Civil Code.

Book III of the Civil Code adheres to an open system, meaning that the parties are free to enter into an agreement with anyone, determine the terms, validity and form of the agreement both in writing and orally. In addition, it has the right to conclude civil and non-civil contracts. This is also in accordance with Article 1338 paragraph (1) of the Criminal Code, which states: “Everyone who legally enters into a contract is governed by the law of those who enter into it.”

Hearing the word contract, at first glance we immediately think that it is a written agreement. In other words, agreement is considered in the narrow sense of agreement. In a broad sense, a contract is an agreement that regulates the relationship between two or more parties.

Two people who vow to marry each other enter into a marriage contract; A person who chooses food in the market enters into a contract to buy a certain quantity of that food. The contract is nothing but the contract itself (a binding contract of course).

In Indonesian contract law, which still uses legal references from the former Dutch colonial government, the contract, namely Burgerlijk Wetboek (BW) is called overeenkomst, which in Indonesian means contract.

One of the reasons why many contracts are not always equated with contracts is because contracts according to Article 1313 KUH do not contain the word “written contract”. The concept of agreement in article 1313 of the Criminal Code only mentions an act in which one or more people bind themselves to one or more people.

Terms of Legal Contract Law

In order to be considered legally valid, there are 4 conditions that must be met as stipulated in Article 1320 of the Indonesian Civil Code, namely:

  • Agreement of the parties
  • The capacity of the parties
  • From certain things that can be determined clearly
  • Legal Reasons.

The contract agreement implies that the will of the parties making the agreement is consistent, so that there can be no coercion, domination and fraud (dwang, dwaling, bedrog) in the implementation of the agreement.

Legal competence as one of the requirements for the validity of an agreement presupposes that the parties to the agreement must be mature, physically fit and legally capable.

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According to Article 1330 BW juncto Article 47 of Law Number 1 of 1974, a person is considered an adult, that is. he is 18 years old or married. If a person who is not of legal age wishes to enter into an agreement, he or his legal guardian may represent it. Meanwhile, people who are declared mentally healthy are not subject to guardianship according to Article 1330 and Article 433 BW.

Persons with intellectual disabilities can be represented by their supervisor or guardian. Conversely, a person who is not prohibited by law means that person is not bankrupt in the sense of Article 1330 BW of the Bankruptcy Law. There are special matters related to the subject of the contract, which means that the subject of the contract must be clear, distinct and measurable in nature and amount, permitted by law and within the limits of the parties.

Legal reasons mean that the contract in question must be made in good faith. According to Article 1335 BW, a contract made without reason is ineffective.

In this case the reason is the purpose of the contract. The agreement of the parties and the jurisdiction of the parties is a condition for the validity of a subjective agreement. If it is not fulfilled, the contract can be canceled, that is, as long as the parties do not terminate the contract, then the contract is valid. Certain things and halal reasons are a legal requirement for a substantive contract. If it is not fulfilled, the contract is cancelled, that is, it is considered that there was never a contract from the beginning.

In fact, many contracts do not meet the legal requirements of contracts in general, for example, contractual elements are carried out in a way that is different from the wishes of the parties to the contract.

At that time contracts were made which contained only the will of the other party. Such an agreement is called a standard agreement.

Principles of Engagement Law (Principles of Contracting)

According to theory in the science of civil law, it is known that there are 9 (nine) principles of engagement rules which are reflected in the articles contained in the Civil Code, including:

1. The principle of freedom of contract

Article 1338 paragraph (1) of the Civil Code states that:

“All legally formed agreements become laws for those who make them.”

This principle is a principle that places freedom on the parties to make:

  • Creating or not creating an agreement;
  • Enter into an agreement using anyone;
  • Choose the contents of the agreement, its implementation & terms;
  • Choose the form of the agreement whether written or oral.

But the freedom referred to in the Civil Code also cannot be interpreted that contracts can be freely formed without regard to the provisions of the applicable rules. Freedom in contracting is also permanent, it is obligatory to fulfill the legal conditions of the agreement so that it can be implemented.

2. The principle of consensualism (consensualism)

Article 1320 paragraph (1) of the Civil Code has determined that one of the conditions for the validity of an agreement is the existence of a convention between the 2 parties.

3. Principle of Binding Strength (pacta sunt servanda)

This principle also refers to Article 1338 paragraph (1) of the Civil Code, where the parties will be bound to use the agreement that has been made like a law.

4. The principle of good faith

This principle has been stated in Article 1338 paragraph (3) of the Civil Code which reads:

“The agreement must be implemented in good faith.”

So that it can be concluded that, when creating the contract, the parties must also carry out the contents of the contract using good faith and intentions.

5. The Principle of Balance

This principle stipulates the existence of an equal or balanced bargaining position when creating an agreement on both parties.

6. Principle of Compliance

This principle is reflected according to Article 1339 of the Civil Code, namely:

“An agreement is not only binding for things that are expressly stated in it, but also for everything that, based on the nature of the agreement, is required by (1) propriety, (2) norms, (3) law.”

This means that the contract must also pay attention to decency and fairness for the parties.

7. Principle of Legal Certainty

This principle is a reflection of Article 1338 paragraph (2) of the Civil Code which states that parties to the agreement may not cancel the agreement unilaterally.

8. The Principle of Personality

This principle determines that a person who will carry out and or create a contract is only for the benefit of the individual. This is written in Article 1315 of the Civil Code & Article 1340 of the Civil Code which confirms that

“In general, a person cannot enter into an agreement or agreement other than for himself.”

The essence of this stipulation is clear that in order to enter into an agreement, the said person is obliged to fulfill his own interests.

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9. The Principle of Habit

This means that the agreement must follow the norms that are commonly carried out, in accordance with the contents of Article 1347 BW which reads that things that based on the agreed norms are believed to be tacitly included in the agreement, even though they are not expressly stated. This is a manifestation according to the natural elements of the agreement.

Important points that you should pay attention to in the employment contract

There are several important points in the employment contract that you need to understand, including:

1. There are emission rights and THR

In the workplace, every company should offer its employee benefits. Thus, the obligations of each company must be managed in accordance with the policy.

2. Termination and Termination Policy

Then you should know that the letter contains the company’s cancellation and cancellation policy. So that later when you want to quit and there is a problem that causes layoffs, you don’t get confused in your steps.

3. There is employment status

In addition, you should know that you have a clear employment status every time you work. It could be a contract employee who has worked for the company for a long time, or a permanent employee.

4. How many hours of work and holidays are there

You need to understand this point so that it is clear when you work and when you take time off. Usually the work contract includes overtime or not. For holidays there are usually reservations for pick-up or when urgent.

Work Contract Format

From here you also need to understand the form of the employment contract. Then there is also an example of a work contract that can be your vision. This is also equated with the fact that employers must know the form of a written work agreement, namely:

  • Include common understanding and agreement
  • Each party has rights and obligations
  • Determine the scope of work
  • There is a description of working hours
  • It has clear benefits and salary
  • State the procedure if you want to quit or be fired
  • Enter the force majeure agreement
  • If there is a dispute, a solution can be found
  • There are signatures and stamps of both parties


You may often hear the term default value, but do not know exactly what the default value means. The term Default is often also referred to as default or default in payment. According to the Civil Code, there are four forms of default, namely:

  • Failing to perform a contract or perform as promised;
  • Not perfect in fulfilling its obligations, meaning that the party fulfills its obligations but does not comply with what was promised;
  • Late in fulfilling its obligations; And
  • Do things that are prohibited by the contract.

Then what is the solution if one party is negligent? Parties whose rights have been violated can give warnings to defaulters, in this case the warning is known as a warning letter or subpoena, which will be explained below.


As soon as you understand the contract, the legal contract conditions and the principles of contract conclusion apply. Now is the time for you to understand what happens if the other party fails to fulfill the contract? Before taking this matter to court, you can resolve it with a subpoena or subpoena.

In civil law, annulment is found in Article 1238 of the Civil Code and Article 1243 of the Civil Code. Article 1238 of the Civil Code states:

“The debtor is negligent, if he has been declared negligent by means of a warrant or by a similar deed, or for the sake of his own engagement, that is, if this stipulates, that the debtor must be considered negligent with the lapse of the allotted time.”

In addition, Article 1243 of the Criminal Code stipulates that a lawsuit for breach of contract can be filed if the defaulter is warned that he has neglected his obligations or neglected them but continues to neglect his obligations. This warning is better known as a challenge. In addition, the number of summons issued is not strictly regulated, but depends on the party issuing the summons.

Form and Content of Summons

The form of assignment to the negligent is not clearly regulated. However, in general, the contents of the subpoena include:

  • What is sought (obligations of the party in default);
  • The legal basis for the application (the main agreement regarding the obligations of the parties); And
  • The time during which the negligent party fulfills its obligations.


This is a brief discussion of the definition of contract law. The discussion this time does not only discuss the definition of contract law, but also discusses further how the legal requirements in a contract, the legal principles, how to apply them, the format of the contract, and solutions if a contract is in default or is injured in the contract.

Understanding the meaning of contract law gives us additional knowledge about the various laws that apply in a contract and how the procedure for a contract along with the legal terms and legal principles that apply in making a contract by an employee or business person in agreeing on a contract made between the two parties to make a mutual agreement.