This article makes the law easier; it guides you through all the essential information you need to know about contract law when making one. Also gives you an idea of what to think about when making one. All steps below are the conditions of validity of a contract under Thai law; they apply to all types of contracts in Phuket and the whole Thailand. The article contains the following:
- Introducing contract legal basic
- Consent of the parties!
- The capacity of the parties!
- Object of the contract
- Compulsory forms!
- Common mistakes;
Contract law deals with promises, which create both parties’ rights and obligations. To be a valid contract, not only must the parties agree on the essential terms, specific performance, warranties and assignment, force majeure, and contract remedies for instance, but also subject to the validity of the contract, the illegality of the subject matter, fraud in the inducement, and a lack of legal capacity, for instance.
A contract occurs when an offer is accepted. However, the questions of when the contract occurs and whether the contract is legally enforceable or not are different questions of law. In addition, nowadays contract law deals with electronic data, which is influenced by international model law. All electronic transactions must be taken into account when making one.
In order to understand how to make one under Thai law. Firstly, all contracts and agreements, whether in Thailand, are under the Commercial and Civil Code of Thailand (CCC). Also, a specific law in relevant to the subject of the contract but to avoid complicate ready, we decided to mentioned here.
The term “contract means a juristic act that creates, modifies, transfers, preserves, or extinguishes rights between parties (which could be two or more). It creates mutual legal obligations between them (Section 149 CCC).
Step 1: The free and clear consent of the parties
It is a mandatory condition to prevent the possibility of voiding the contract. In other words, the declaration of intention must be made without mistakes on the essential elements of the juristic act (Section 154 CCC and following).
For example, after getting expert advice, you buy a Picasso at a high price, but you find that the painting wasn’t from a well-known master. The mistake is an essential part of your consent. If you knew at this point that you hadn’t bought the painting at this high price, In this example, the mistake concerning the essential element allows us to consider that the contract is possibly void.
Step 2: The legal capacity
Firstly, everyone thinks about the minimum age required by law to be able to contract alone. In Thai law, a person becomes a sui juris at the age of twenty to be able to contract alone. In Thai law, a person becomes a sui juris at the age of twenty. In general, to make a contract with a minor, he must obtain the consent of his legal representative.
Age is not the sole element; the adults under protection also cannot engage themselves without their guardian’s consent, for example (Sections 153, 19, and 21 CCC).
A clear example is the sale of real estate. On the title deed, only the name of one of the spouses may be written. But to sell or make any lien on it. The said spouse needs to obtain the written consent of the other. Without it, the transaction will be considered void (Supreme Court Judgement n. 6889/2540).
Step 3: Objective must not be prohibited by the law
It shall not go against public order or good Thai morals. Or be impossible to execute. Or prohibited by law. The cause is the reason why the parties engage themselves, and the object is the matter of the contract (Sections 150 and 151 CCC). The sale and purchase of narcotics are void because the sale of narcotics is prohibited. Even if you deliver the substance to your buyer and he never pays you, you cannot claim the payment in court.
However, in the event that some terms and conditions of the contract go against them, the remainder is still enforceable (Sections 173, 174 CCC).
Even the object of the contract does not go against it. Unfair terms and conditions will also be considered. In some areas, when a party is in a very weak situation, the law protects the weakness, even if the party understood the content of the contract in full. The part that is too unfair can be void and unused (Unfair Terms and Conditions Act, B.E. 2540).
Step 4: Use compulsory forms
The law for some specific contracts obliges the parties to respect strict form conditions (Section 152 C.C.C.). Such as a vocable contract, a written contract, or registration at the due administration. Contract of Sale is a good example to understand the compulsory forms of contract.
In a group of contracts, we can find different mandatory forms. Your construction agreement doesn’t have a special form; a verbal agreement is enforceable. Your land purchase or lease has to be in writing, duly signed by the parties and two witnesses, and registered.
But your loan to be able to concretize this project is only subject to writing and signing by the borrower. The lender and witness signatures are not required (Sections 456, 538, 589, and 653 C.C.C.).
Since 2001, the Electronic Transaction Act B.E. 2554 has applied to permit the virtual signature as an email (Section 26 Part 2). But some parts of juristic acts are not included as family and inheritance contracts (Decree 2556 concerning specific civil and commercial transactions). So, a last will and testament made through email is void.
If any of the conditions above are not respected. The contract can be declared void and considered to have never existed for the parties and third parties. It consequently has some effect on a third party under the circumstances, as if they were in good faith or not. Sometimes the void affects only the parties themselves. In other cases, depending on the willingness of the parties, the contract can survive. So the consequences can be huge.
Step 5: Prevent the common mistakes;
There are several mistakes when making a contract in Thailand, but the most common mistakes that affect the negative status of the contract, for example, are:
1: Unclear terms and conditions and interpretation of the parties
For example, the period of the “rental agreement” is more than 3 years. So the good legal term to use is “lease”. The parties shall follow the law concerning the lease and cannot use the word “rental” outside of the special compulsory form edited by the CCC.
However, in this example, if the contract has not been registered with the land department and this case goes to court after the court considers the intention of the parties, it will consider the form of the contract, and the tenant or lessor will lose the case. Because the period of the lease or rental agreement is more than 3 years, it needs to be written and registered at the Land Department. So these two compulsory conditions shall also be made and prevail in the conflict of “words” (Sections 171 and 538 CCC).
You may also be interested in how to make the provision in the contract. We have examples of sale and purchase contracts for both Land and Condo.
2: Conflict of interest in the case of company director(s)
Using a Thai company to provide benefits to the director. Such as buying real estate under the company name and renting it for the sole use of the director by declaring this advantage lower than the market value (Section 74 C.C.C.).
3: Amended terms and conditions without evidence
As the old dictum states, “Words fly away, writings remain.” In court, the best evidence is the written word. We recommend reading our previous article, ‘Common mistake after signing the construction agreement’ for more understanding.
Preparation, execution, and termination of the contract are the three steps in the life of the contract. Each has to be seriously considered as important and subject to deep understanding, whether it be private or administrative.
Our years of experience provide us with the opportunity to live and see many unusual situations happen. So if you have any questions about Thailand’s law on contracts or are looking for a contract lawyer to assist you in making a contract in Phuket or wherever in Thailand, don’t hesitate to protect your interests by using not only our knowledge but also the benefit of our long experience. We can help.