Deceit in the formation of an agreement is a reason to cancel it. This relates to the subjective condition of an agreement's validity, which relates to the presence or absence of legitimate consent.

Article 1328 of the Indonesian Civil Code (ICC) stipulates:

A fraud is a reason to for the cancellation of an agreement if the deceit used by one of the parties is clear and real in such a way that the other party would not have made the agreement if the deceit was not occurred.

Subsequently, the second sentence of the same article stipulates, "A fraud is not suspected, but must be proven."

This provision specifically deals with the cancellation of an agreement. Thus, under article 1328 of the ICC, the appropriate claim would be one that cancels an agreement. Nevertheless, in practice, many claims have been filed based on unlawful acts, not as a cancellation claim. On the unlawful act claims, the attitude of judges is different since some admit the claim, and some decline it.

In his book, Hukum Perjanjian, Professor Subekti said:

The judge will not accept a claim for cancellation if there has been a 'good admission' from the injured party, since a person who has well admitted either a flaw or an act that is damaging him, can be considered to have relinquished his right to claim for a cancellation.

Subekti's view is essentially the same as what is regulated under article 1456 of the ICC, namely:

The claim to declare cancellation is terminated, if . . . the person who can bring forth the existence of . . . fraud, has explicitly or implicitly upheld his obligation . . . after he has known about the existence of . . . fraud.

Both Subekti's view and article 1456 of the ICC were taken into consideration in examining several fraud cases in the formation of an agreement.

Consideration of decision No. 241/PDT.G/2016/PN Smn, which the Supreme Court decision No. 2936 K/Pdt/2018 upheld, states:

Considering, that which was upheld by a local examination conducted by the Panel of Judges who saw the facts on the site, that the parties have clearly delivered and possessed the object agreed under the agreement, . . . which shows that the Claimant and the Defendant have agreed to an agreement to exchange, therefore the Panel of Judges [considers that there has been] non-existence of any element of error or fraud

On another legal case, the judge considered that if the addendums of an existing agreement that has been made previously have been executed, it cannot be claimed that an "existing agreement" was made based on deceit. The judge, under decision No. 6/Pdt/2017/PT SMG, considered, "if there is a legal defect (defective will) in a Working Capital Loan Agreement . . . then the Claimant surely will not have executed several addendums related to that Working Capital Loan Agreement".

Fraud is considered an element of a defective will in the formation of an agreement. Since this is one of the subjective requirements in the validity of an agreement, it risks the agreement being cancelled, rather than being considered null and void. Under the article 1453 of ICC, in addition to obtaining declaration that the agreement (previously made based on a deceit) is terminated, it is also possible to demand for compensation (eg, cost, loss and interest) when there is a reason for it.

For further information on this topic please contact Eddy Leks at Leks & Co by email ([email protected]). The Leks & Co website can be accessed at www.lekslawyer.com.