Introduction
What defence can a defendant make when a breach of contract is claimed? There is a rule of defence as a formal objection to a claim called “exceptio non adimpleti contractus“, which is defined as an exception in a contract action involving mutual duties or obligation, to the effect that the plaintiff may not sue if the plaintiff’s own obligations have not been performed.1

This rule has two important conditions:

  • The exception may only be effective when it is submitted as a formal objection in court proceedings. It may not be effective or might be considered as not having legal value when it is submitted out of court, even though the prospective claimant may reconsider its intended claim after becoming aware of the prospective defendant’s argument.
  • The exception is only valid within the scope of contractual obligations – that is, when related to a breach of contract. Thus, this exception may be used for breach of contract claims, but not for claims that an unlawful act has taken place or claims unrelated to contractual obligations.

Case law

How should the courts rule in relation to this exception? There is various jurisprudence on this subject matter.

In the past, the Supreme Court ruled that the defendant is entitled to defend themselves by explaining that the claimant has ignored their obligations, such that the defendant is free from their obligation to fulfill that obligation.2 Further, the Court held that this exception does not oblige the defendant to file a counterclaim.

More than 70 years later, the Court considered that the defendant and co-defendant were not responsible for their default if, in fact, the creditor had defaulted earlier.3 Further, the Court explained that this exception can be used by a defendant (ie, a party against which a claimant has made a claim due to the non-performance of the defendant’s obligations under an agreement) when it can state that the claimant has earlier not performed its obligations as set forth in the agreement.4 The Court considers:

in a reciprocal agreement each party is dependent on one another so that the party that has to perform his performance earlier but yet to perform it is violating the principle of good faith so that if there is a dispute, another party may submit “Exceptio Non Adimpleti Contractus”.

The principle of non adimpleti contractus derives from article 1478 of Indonesian Civil Code (ICC), which stipulates as follows: “The seller is not obligated to deliver the goods if the buyer has not paid the purchase price whereas the seller has not allowed the postponement of payment of the purchase price to him.”5

In relation to this provision, the Court has held that the seller may decline to perform its obligations to deliver goods if the buyer fails to pay. The Court further explained that the wording “not obligated” under article 1478 of the ICC means “the seller is permitted not to do his obligations, on condition that the buyer has not earlier performed his obligations according to what has been agreed”. The Court then related its explanation to the principle of justice, stating that the provision of article 1478 of ICC is intended to give justice to a party (the debtor) where another party (the creditor) has claimed that it has defaulted on its obligation. If the creditor itself has not performed its obligations, the party making the legal claim should not be permitted under the law to force the debtor to perform its obligation.6

Comment

From the various doctrines and jurisprudence, it is evident that this principle is valid and useful for a claim relating to a breach of contract. Further, even though not explicitly stipulated under the prevailing laws, this principle relates to two other principles – namely, good faith and justice. An agreement is binding on the parties and must be performed in good faith.7 Thus, if it is clear that a party must perform its obligation but has yet to perform it, and another party later fails to perform its obligation, the party that should have performed its obligation earlier (the claiming party) should not be able to ignore its obligation and point out the dereliction of obligation of the other party under the principle of good faith. Moreover, the claiming party should not be able to legally force the claimed party to fulfil its obligations while disregarding its own obligations. That would be a violation of the principle of justice.

In a straightforward reciprocal agreement stipulating who must do what at which time, the application of this exception may be straightforward. However, where there are different interpretations of a provision that regulates who must do what in an agreement, or when the performance of obligations is subject to various conditions or factors, it is not easy for judges to simply refer to this exception. In such a case, judges may merely decline the exception and focus on the merits of the case.

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

View Original Post

Sources

  1. Black’s Law Dictionary, ninth edition. See also:

    • Subekti, Hukum Perjanjian, Intermasa, 2005, page 57-8.
    • M Yahya Harahap, Hukum Acara Perdata, Sinar Grafika, 2007, page 461.

  2. No. 156 K/Sip/1955.
  3. No. 162/Pdt.G/2019/PN Jkt Tim
  4. No. 245/Pdt.G/2021/PN Cbi.
  5. Subekti, Hukum Perjanjian, Intermasa, 2005, page 58.
  6. No. 245/Pdt.G/2021/PN Cbi, page 35.
  7. Article 1338(3) of the ICC.