Get to Know: Standard Clauses in Standard Agreement

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What is Standard Clauses?

The Contemporary Law Dictionary defines standard clauses as any rules or conditions that have been prepared and pre-determined unilaterally by business actors, which are made into a binding document or agreement and must be fulfilled by the consumers. Law Number 8 of 1999 concerning Consumer Protection defines Standard Clauses as rules or provisions and conditions that have been prepared and stipulated unilaterally by business actors, which are made into a document and/or agreement that is binding and must be fulfilled by the consumers.

Standard clauses lead to what is called Standard Agreement, a written agreement where the terms and conditions are put forward by one party while the other party only has the option to reject or accept. Therefore, a standard agreement is sometimes referred as “take it or leave it” contract, which contains standard clauses regarding the content, the form, also the method of manufacture used to offer a company’s product or service to consumers, which applies uniformly to all consumers. These contracts are usually made in the banking sector, especially in terms of bank loans.

Therefore, standard clauses come with characteristics as follows:

  • Standard clauses are prepared and made by the dominant party;
  • Consumers are not involved at all in determining the standard clauses in the agreement;
  • Agreements are made in written form and apply uniformly to all consumers;
  • Consumers are forced to accept the contents of the agreement because they are driven by the factor of need.

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Standard Clauses Function

Standard clauses commonly apply to B2C contracts or Business to Consumer contracts. The existence of standard clauses can help reduce the transaction costs and shorten the time required since no costs, time and also negotiations between parties are required. In this case, parties with a weak position i.e., consumers tend to only accept and sign the contract because they have little or no ability to add, subtract or even change the contents of the contract. As a result, business actors can benefit more from the use of standard clauses as they can potentially trick the consumers.

Standard clauses usually regulate the cooperative relationship between the parties and some important points such as dispute resolution methods, payment issues, insurance claims, and compensation issues. Standard clauses are widely used by business actors because of their many benefits, and the business actors themselves can determine the contents of the agreement.

Standard Clauses in Indonesian Law

Book III of the Civil Code concerning Agreements has provided space for parties involved in the agreement to form and determine the contents to be included in the agreement. However, several issues often happen, one of which is the existence of a standard agreement that contains standard clauses. Law Number 8 of 1999 concerning Consumer Protection states that:

“Standard Clauses are any rules or provisions and conditions that have been prepared and pre-determined unilaterally by business actors, and which are made into a binding document and/or agreement and must be fulfilled by the consumers.”

It can be concluded that there are obligations that must be carried out by one party regarding the standard clauses in terms of fulfilling the contents of the agreement. Principally, every contract is required to accomodate the exchange of a valid consideration, which can be almost anything ranging from products, services, fees, etc. Each party to the contract will have various rights and obligations in connection with this exchange of consideration. If any of the parties to the contract fails to carry out their contractual obligations in accordance with the contractual terms, that party is usually deemed to have committed a breach of contract.

While in an agreement both parties agree after they are satisfied with the bargaining process regarding the rights and obligations assigned to them, in standard agreement the substance, namely the standard clauses, has been determined unilaterally by the party with a stronger or dominant position. In the Civil Law Code, there are general principles of civil law, one of which is the Principle of Freedom of Contract, or termed “Contractvrijheid / Partiutonomie”, which means legal subjects are given the freedom to enter into contracts/agreements and determine the contents, terms and conditions based on the agreement of both parties.

However, in practice, standard agreements which contain standard clauses often cause controversy. This is because there are two different views regarding the existence of this kind of agreement. Some people think that a standard agreement violates the Principle of Freedom of Contract as in standard agreements the consumers are only given freedom in terms of making agreements, and with whom to make the agreements, but they are not given the freedom to determine the contents (rights and obligations) of the standard agreement because the contents have already been pre-determined unilaterally by the business actors. However, some other people consider that a standard agreement does not violate the Principle of Freedom of Contract on the grounds that consumers have been given the freedom to reject or accept the agreement that is offered to them. Furthermore, Indonesian Law has regulated the provisions regarding Standard Agreements in the Explanation of Article 22 paragraph (1) /POJK.07/2013 concerning Consumer Protection in the Financial Services Sector, which reads:

“A standard agreement as referred to in this paragraph is a written agreement that is determined unilaterally by the financial services business actors and contains standard clauses on the content, form, or way of manufacturing, and is used to offer products and/or services to consumers in a mass manner”

POJK.07/2013 on Consumer Protection in the Financial Services further explains:

“Financial Services Business Actors must fulfill the balance, fairness, and equity in making agreements with Consumers.”

Based on the above articles, standard agreements must be made in accordance with the principle of balance, fairness and equity in making agreements with consumers and must not include standard clauses that are prohibited in the Consumer Protection Law as described below.


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The Substance of Standard Clauses

Provisions contained in standard clauses are regulated in Chapter V Article 18 of Law Number 8 concerning Consumer Protection, which intends to place consumers in an equal position with business actors based on the Principle of Freedom of Contract. This regulation includes the provisions in the sales transaction activities of goods and/or services in standard clauses. Article 18 Law Number 8 of 1999 concerning Consumer Protection also regulates prohibitions in standard clauses, as follows:

  1. Transfer of responsibilities of business actors; and/or
  2. Rejection of the return of goods/money that has been paid; and/or
  3. Consumers are subject to new rules, changes, and derivatives; and/or
  4. Power to carry out unilateral actions against goods resulting from installment; and/or
  5. Reduction of the benefits/wealth of consumers; and/or
  6. Regarding consumer proof.


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