Overview of Contracts under the Civil & Commercial Code of Thailand

In this article we shall examine several key aspects of contracts as provided under the Thai Civil & Commercial Code (the Code or CCC). We shall cover various issues such as offer and acceptance, the effect of contract, earnest and rescission of contract.

Offer & Acceptance of a Contract under the CCC

To begin with, we shall begin with key principles relating to the offer and acceptance of a contract. The CCC provides that if a party makes an offer to make a contract in which a set period for acceptance is specified, then the offeror cannot withdraw their offer within such period. Furthermore, if a party (offeror) makes an offer to contract with another party at a distance (i.e. not face to face and not over the phone) and such offer does not specify a period for acceptance by the offeree then the offeror cannot withdraw their offer within the time in which notice of acceptance might reasonably be expected. The Code also stipulates that if an offeror makes an offer to contract with another person who is in their presence or via the phone and the period of acceptance of such offer is not specified then it must be accepted only there and then rather than at a later time.

An offer ceases to be binding if the offeree informs the offeror that they refuse to accept such offer or if an offer is not accepted within the due time as detailed in the above paragraph. However, if the notice of acceptance arrives with the offeror late but it is apparent that the method of sending should ordinarily have resulted in the notice arriving in time, then the offeror (unless they have already done so) should without delay inform the other party (offeree) of the late arrival of the notice to accept the offer. If the offeror fails to inform the offeree of the delayed arrival then the CCC provides that the notice of acceptance of the offer is deemed to have arrived within time. It should also be noted that if an acceptance of offer arrives late then it is deemed to be a new offer. Moreover, if an acceptance of offer goes beyond acceptance and includes extra modifications or additions to the original offer then the Code stipulates that this is not acceptance of offer but rather a refusal coupled with a new offer.

Subject to the above, if the parties are negotiating a contract at a distance then the contract shall come into existence at the time that the offeree’s notice of acceptance reaches the offeror. However the CCC also gives more flexibility regarding acceptance by providing that if the offeror expresses an intention whereby no notice of acceptance is necessary then the contract can still come into effect upon the occurrence of the fact which is to be considered as a declaration of intention to accept.

Obligations under Reciprocal Contracts

Unless the contract provides otherwise, a party to a reciprocal agreement1 can refuse to perform their contractual obligations until the other party performs their obligations under the contract; however this right to not comply does not apply if the other party’s contractual obligations are not due to be performed.

Exoneration from Fraud or Gross Negligence

If the contract provides (in advance) that the debtor shall be exonerated from their own fraud or gross negligence then such provision in the agreement shall be void.

Earnest

Earnest in law means something of value given by a buyer to a seller to bind a bargain, such as a portion of the purchase price in the form of money. The CCC provides that if something is given as earnest upon entering into a contract then it is deemed as proof of the conclusion of the contract. Moreover, earnest serves another purpose in that it serves as a security that the contract shall be performed. Unless the contract between the parties provides otherwise, the earnest shall be:

      a. Returned or treated as part payment upon performance of the contract;
      b. Forfeited if the party giving the earnest fails to perform their obligations under the contract, or if their performance becomes impossible due to circumstances for which he/she is responsible or if the rescission of the contract is due to his/her fault.
      c. Returned to the party who gave it if the party who received the earnest fails to perform their obligations under the contract or if their performance becomes impossible due to circumstances for which he/she is responsible.

Stipulated Penalties in Contracts

According to the CCC, if a debtor in a contract promises a creditor that they will pay a sum of money as a penalty should they fail to perform (or properly perform) their obligations under a contract then such money shall be forfeited to the creditor if the debtor is in default of their obligations. Moreover, if the debtor has promised to pay a penalty to the creditor if they should fail to perform their contractual obligation then the creditor is entitled to demand the forfeited penalty in lieu of the debtor’s performance of their contractual obligations. If the creditor exercises this right to demand the forfeited payment then they are barred from also claiming performance from the debtor.

However, if the debtor has promised the creditor that they will pay a penalty if the contractual obligations are not performed in a proper manner (such as according to a fixed time), then the creditor can demand the debtor pay the penalty (as the minimum amount of damage) in addition to performance but if the creditor accepts performance from the debtor he/she may only demand the penalty if upon acceptance he/she reserves the right to do so. In the writer’s opinion such reservation by the creditor should be made in writing and communicated to the debtor so there is evidence of this.

When setting penalties in a contract, the parties should be mindful of the fact that the Code gives the Thai Courts the power to reduce them to a reasonable level if it determines that a penalty is disproportionately high. In deciding if a penalty is excessively high, the Court must take into account every legitimate interest of the creditor and not just his/her property interest. It is also worth noting that if the debtor has already paid a penalty then they are legally barred from making a claim to the Court requesting a reduction in the amount by arguing that the penalty is disproportionately high.

Rescission of Contract

Rescission is terminating a legal agreement without the terminating party being held to be in breach. If one party has exercised the right of rescission, then each party is bound to restore the other to their former condition; but the rights of third persons cannot be impaired as a result of rescission. In relation to money which is to be repaid due to rescission, interest is to be paid on it counting from the time when it was received. However, for services rendered and for allowing the use of a thing, following rescission the restitution to the relevant party shall be made by paying the value or otherwise the paying of a counter payment in money if it is stipulated in the contract. It should also be noted that the exercise of the right of rescission does not affect a claim for damages.

Following rescission of a contract and the parties putting each other back into their former condition, the CCC provides that a party may refuse to perform its obligation until the other party performs or tenders performance of their obligation. However, this does not apply, if the other party’s obligation is not yet due.

How to Rescind a Contract

The Code provides that if one of the parties to a contract has the right to rescind the contract by the provision of law or according to the terms of the contract then such rescission must be made by a declaration of intention to rescind being given to the other party/parties of the contract. Once such declaration is given it cannot later be revoked. The writer recommends that if a declaration of intention to rescind is to be given then it be given in writing and it sent in a manner where there is proof of sending and receipt (such as by registered post) so there is evidence of the rescission being given.

If the contract does not specify the period of time by which a party may exercise the right of rescission then the other party can fix a reasonable time period and notify the other party having the right to rescind to declare within such period whether they will rescind the contract or not. If the party with the right to rescind the contract then fails to notify the other party of its declaration to rescind within such time period then their right to rescind the contract is extinguished.

The writer would like to point out that the term ‘reasonable time period’ is subjective and shall depend on the facts of the case and what is objectively reasonable in such circumstances.

Rescission due to Contractual Performance Issues

If one party does not perform their obligation under a contract then the other party may fix a reasonable period and notify such non-performing party to perform within that period. If it then transpires that the non-performing party still fails to perform their obligation within that period, then the other party may rescind the contract by giving a declaration of intention to rescind the agreement.

If performance by a debtor under a contract becomes wholly or partly impossible due to a cause attributable to the debtor, then the creditor may rescind the contract.

Rescission in Multi-Party Contracts

If in a contract there are several parties on one side or the other side, then the right of rescission may be exercised only by all parties on the one side and can only be exercised against all parties on the other side. If the right of rescission is extinguished in respect of one of those entitled persons/parties then it is also extinguished for all of the other parties on that same side.


1 A reciprocal contract is a contract in which the parties enter into agreements mutually, or reciprocally thus making the obligation of one party correlative to the obligation of the other. In a reciprocal contract, each party promises to perform an action by which the party turns into an obligor to that party’s promise and an obligee on the other’s promise.

Should you require any legal support relating to contract drafting or review for compliance with Thai law then please contact us at:
Dharmniti Law Office Co., Ltd.
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