This article makes the law easier, it guides you all essential information you need to know Contract law when making one whether a contract in Phuket or somewhere else in Thailand, also gives you an idea of what to think about when making one. The step-by-step below are the conditions of validity of contract under the Thailand law, they are applicable to all types of Contract in Thailand, the article containing;
- Introducing to 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 creates both parties rights and obligation. To be valid contract not only the parties agree on the essential terms, specific performance, warranties and assignment, force majeure and contract remedies for instance, but importantly also contracts in Thailand subject to the contract validity, illegality of the subject matter, fraud in the inducement and lack of legal capacity for instance.
The contract occurs when an offer is accepted. However, the questions between when the contract occurs and is the contract legally enforceable or not, is the different questions of law. In addition, nowadays the contract law deal with electronic data which influenced from international model law. All electronic transactions must be take into account when making one.
In order to understand how to make one in Thai law. Firstly, all Contracts and Agreement whether in Phuket or somewhere else in Thailand are under the Commercial and Civil Code of Thailand (CCC).
The contract means a juristic act which creates, modifies, transfers, preserves or extinguishes rights between parties (could be two or more). It creates mutual legal obligations between them.
Step 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 must make without mistake on the essential element of the juristic act (Section 154 CCC and following).
For example, after having expert advice, you buy in high price a Picasso but you find that the painting wasn’t from a 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 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 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 CCC).
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 voidable (Supreme Court Judgment n. 6889/2540).
Step 3: Objective Must not 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 (Section 150 and 151 CCC). Sale and Purchase of narcotics is void because the sale of narcotics is prohibited. 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 CCC).
Even the object of the contract does not go against the said. 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, 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).
Step 4: Use 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. Contract of Sale is a good example to understand the compulsory forms of contract.
In a group of contracts, we can find different compulsory forms. Your construction agreement doesn’t have a special form, verbal agreement is enforceable. Your land purchase or lease has to be in writing, duly signed by parties and 2 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 (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 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 is not respected. The contract can be declared void and considered as never existing for the parties and third parties. It consequently takes 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.
Step 5: Prevent the Common Mistakes;
A number of mistakes when Making a Contract in Thailand but most common mistakes which effecting on negative status of contract for example are;
1: Unclear Term and Condition and Interpretation of the Parties
For example; the period of “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 can not utilise the word “rental” to be out of the special compulsory form edited by the CCC.
However, in this example if the contract has not been registered to the land department and this case goes to Court. After the Court considers the intention of the parties the court will consider the form of the Contract and the tenant/lessee will lose the case. Because the period of the lease/rental agreement is more than 3 years which need to be 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 CCC).
You may also be interested in how to make the provision in the Contract. We have examples for Sale and Purchase Contract for both Land and Condo.
2: Conflict of interest in Case of Company 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 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 of life of the contract. Each has 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 if you have any question about Thailand law contract or you 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 interest by using not only our knowledge but the benefit of our long experience, We Can Help.