The Contract under Thai Commercial and Civil Code (C.C.C.) means a juristic act which creates, modifies, transfers, preserves or extinguishes rights between parties (could be two or more) which creates mutual legal obligations between them.
The Contract is subject of condition of validity:
1-The free and clear Consent of the parties; It is a compulsory condition to prevent the possibility of void of the contract. In other words, the declaration of intention shall be made without mistake on the essential element of the juristic act (Section 154 C.C.C. and following).
For example, after having expert advice, you buy in high price a Picasso but you find that the painting wasn’t from the well-known master, the mistake is an essential point of your consent, if you know at this point 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 void.
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 sui juris on the completion of twenty year olds. 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 can not engage themselves without Guardian’s consent for example (Section 153, 19 and 21 C.C.C.).A clear example is the sale of real estate. On the title deed , it may be written only the name of one of the spouses, but to sell or make any lien on it, the said spouse needs to obtain the written consent of the other one. Without it, the transaction will be considered as voidable (Supreme Court Judgment n. 6889/2540).
3-The Cause and object of contract; 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 (Section 150 and 151 C.C.C.). Sale and purchase of narcotics is void because the sale of narcotics is prohibited and even if you deliver the substance to your buyer and he never pays you, you can not claim the payment in Court.
However in case some term and condition of the contract go against the said the remainder is still enforceable (Section 173, 174 C.C.C.)
Even the object of contract does not go against the said, unfair term and condition shall be considered. In some areas, when a party is in a very weak situation, the law protects the weakness, and 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)
4-Compulsory forms; the law for some specific contracts oblige the parties to respect strict form conditions (Section 152 C.C.C) such as a vocable contract, written contract, registration at the due administration.
In group of contract, we can find different compulsory forms, your construction agreement don’t have special form, verbal agreement is enforceable, your land purchase or lease have to be in written, duly signed by parties and 2 witnesses and registered, but your loan to be able to concretize this project are only subject to writing and signing by the borrower, lender and witness signature are not required (Section 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 email (Section 26 Part 2), but some parts of juristic act are not included as family and inheritance contract (Decree 2556 concerning specific civil and commercial transactions). So, a last wills and testament made through email is considered as void.
If any of the conditions above is not respected, the contract can be declared void and considered as never existing for the parties and third parties, which consequently take some effect on a third party under the circumstance as if they were in good faith or not. Sometimes the void has effect only between parties themselves. In other cases, by the willingness of parties, the contract can survive. So the consequences can be huge.
1-Unclear term condition of the contract and interpretation of the intention of the parties. For example; the period of “rental agreement” is more than 3 years so the good legal term to be used shall be “lease” so the parties shall follow the law concerning the Lease and can not utilised the word “rental” to be out of the special compulsory form edited by the C.C.C.
However, in this example if the contract has not been registered to the land department and this case go to Court, after the Court considerate about the intention of the parties the court will consider about the form of the Contract and tenant/lessee will lose the case because the period of the lease/rental agreement is more than 3 years which need to be made in written and registered at the Land department. So these 2 compulsory conditions shall be also made and prevail to the conflict of “words” (Section 171 and 538 C.C.C).
2-Conflict of interest in case of Company and Director(s). Using Thai Company to provide benefits to the director, such as buying real estate under 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” At court, the best evidence is the writings. we recommend to read our previous article ‘Common mistake after signed the construction agreement‘ for more understanding.
Preparation, execution and termination of the contract are the three steps of life of the contract and each have to be seriously considered as important and subject to deep understanding whether it be private or administrative ones.
Our years of experience provide us the opportunity to live and see many unusual situations happen. So don’t hesitate to protect your interest by using not only our knowledge but benefit of our long experience.
Written by Frederic Retif
French Lawyer & Thai Legal advisor