A contract forms the foundation of both private and business transactions by providing a formalised legal agreement. For a contract to be valid under Myanmar law, it must meet several essential conditions: consideration, offer, acceptance, and mutual intent to be legally bound. These elements create binding contracts that protect the interests of the parties involved.
Contract under Myanmar Law
As per Section 2(h) of the Myanmar Contract Act, a contract is defined as "an agreement enforceable by law," involving the exchange of products, services, cash, or promises. A contract is formed when one party extends an offer, and the other party accepts it. Both parties must intend to create a legally binding relationship for the contract to be enforceable. This intent is crucial, as it confirms that both sides are serious about respecting the agreement's terms.
Steps for the Formation of a Contract in Myanmar
A legally binding contract is formed through several key steps. By following these actions, you ensure that the agreement is clear, voluntary, and compliant with Myanmar law:
Step 1: Proposal or Offer
Under Section 2(a) of the Contract Act, a proposal refers to the willingness of one party to do or abstain from doing something with the aim of obtaining assent from the other party. The offer must be clear and specific, making it evident that acceptance would create a legally binding agreement.
Step 2: Acceptance
Section 7 of the Contract Act stipulates that, for a proposal to be converted into a promise, the acceptance must be absolute and unqualified. This means that acceptance must strictly conform to the terms of the offer. Any modification or deviation from those terms constitutes a counteroffer, rather than a valid acceptance. Additionally, the acceptance must be communicated to the proposer; a contract is only formed once the proposer is made aware of this acceptance.
This principle is illustrated in Hardandass v. Rani Mohori Bibi, where there was an apparent offer for the sale of property made via telegraph. However, the absence of an unconditional acceptance meant that no binding contract was formed.
Step 3: Consideration
Section 2(d) of the Contract Act defines consideration as something of value given in exchange for a promise, making it a fundamental element of a valid contract. Each party must provide consideration, which may take the form of an act, forbearance, or a promise. In essence, consideration is what each party gives or gives up in return for the other's promise.
Importantly, the law requires that consideration be sufficient, but not necessarily adequate. This means that while the consideration must have some legal value, it does not need to be proportionate or fair in economic terms.
This principle was examined in Kalimuthu v. Maung Tha Din, where the court affirmed that consideration need not be equal to the value of the promise. The judgment emphasized that insisting on proportionate consideration would introduce excessive uncertainty into contract law and hinder the formation of valid agreements. The ruling reinforces the legal position that flexibility in the value of consideration is essential for the smooth functioning of contractual relationships, particularly in commercial contexts.
Step 4: Intention to Create Legal Relations
For an agreement to be enforceable as a contract, the parties must intend to create legal relations. In commercial or business contexts, this intention is generally presumed. However, in social or domestic arrangements, the opposite presumption applies—there is typically no intention to create legal obligations unless clearly stated.
A key case illustrating this principle is Balfour v. Balfour, where the court held that an agreement between a husband and wife concerning maintenance payments did not constitute a legally binding contract. The absence of intention to create legal relations meant that the agreement was not enforceable.
Step 5: Legal Capacity
Under Section 11 of the Contract Act, parties entering into a contract must be of legal age, of sound mind, and not disqualified from contracting by any law. Legal capacity ensures that the individuals involved are capable of understanding the nature and consequences of the agreement.
When agents act on behalf of principals, they must also have the authority to bind the principal legally.
The case of Mohori Bibee v. Dharmodas Ghose underscores this requirement. The court ruled that a contract entered into with a minor is void ab initio (from the outset), as minors lack the legal capacity to contract.
Step 6: Legality of the Contract
Section 23 of the Contract Act provides that the consideration and the object of an agreement must be lawful. Any agreement with an unlawful purpose or consideration, such as one that is illegal, fraudulent, or opposed to public policy, is void and unenforceable.
In Maung Thein Bros v. Burma Produce Trading Co., the court affirmed that while parties are generally free to contract, this freedom is limited by the requirement of legality. The case highlighted that there is a presumption in favour of legality, meaning courts will, where possible, interpret contractual terms in a manner that upholds their validity. However, this presumption cannot save a contract if its object or consideration is clearly unlawful.
Step 7: Mutual Consent
Section 13 of the Contract Act defines consent as when two or more persons agree upon the same thing in the same sense, commonly referred to as consensus ad idem or a "meeting of the minds." For a contract to be valid and enforceable, both parties must enter into the agreement voluntarily and with a clear understanding of its terms.
Consent must be free and not obtained through coercion, fraud, misrepresentation, undue influence, or mistake. If any of these vitiating factors are present, the consent is not genuine, and the contract may be rendered void or voidable depending on the circumstances.
Requirements for Witnesses and Notarisation
The formalities for executing contracts in Myanmar vary depending on the type of agreement. While not all contracts are required to be witnessed or notarised, specific rules apply to certain categories of agreements.
For example, under Section 16 of the Deed Registration Law of 2018, mortgage deeds must be witnessed by two witnesses. Additionally, if a contract is required to be registered under the Deed Registration Law, particularly when submitted to a government office, it must also be notarised to ensure its legal validity.
This requirement extends to jurisdiction agreements, such as those in which parties agree to submit to the jurisdiction of the courts in Myanmar. In such cases, notarisation is essential to confirm the enforceability of the agreement.
Conversely, employment contracts do not require notarisation. Instead, they must be translated into the Myanmar language and submitted to the relevant township labour office for registration.
Although not legally mandatory for all contracts, having a contract witnessed is considered good practice in Myanmar. It enhances the document’s credibility and evidentiary value, potentially strengthening its enforceability in legal proceedings.
Stamp Duty in Contracts
Stamp duty is a form of tax imposed on legal documents to validate and formalise various transactions. In Myanmar, the imposition and administration of stamp duty are governed by the Stamp Act of 1899. It applies to a wide range of instruments, including property conveyances, share transfers, bonds, and lease agreements.
Key Stamp Duty Rates in Myanmar:
- Transfer or Sale of Immovable Property:
A 2% stamp duty is levied based on the market value of the property. An additional 2% is imposed if the property is located within Nay Pyi Taw, Yangon, or Mandalay, bringing the total to 4% in those areas. - Share Transfers:
Subject to a 0.1% stamp duty, calculated based on the value of the shares being transferred. - Bonds:
Attract a 0.5% duty, applied to the secured amount stated in the bond. - Lease Agreements:
- Leases between one and three years: 0.5% of the annual rent.
- Leases exceeding three years: 2% of the average annual rent.
- Additionally, a 2% duty is applicable on lease premiums.
Stamp duty must be paid to ensure the legal enforceability of these documents. Failure to affix the proper stamp may result in penalties and render the document inadmissible in legal proceedings.
Requirement for Affixing Company Seal
Under Section 29 of the Myanmar Companies Law, the use of a company seal is optional. However, if a company chooses to adopt and use a seal, any document or contract executed under seal must be witnessed and signed by one of the following combinations:
- The sole director, or
- Two directors, or
- One director and the company secretary.
This ensures that documents bearing the company seal are properly authorised and executed in accordance with the company’s governance structure.
In addition, any changes to the company’s constitution or the composition of its board of directors must be reported to the Directorate of Investment and Company Administration (DICA) within 28 days of the change. Timely notification helps maintain the company’s legal compliance and transparency in line with Myanmar law.
These requirements collectively serve to protect the legal validity and integrity of a company's operations by ensuring that both internal governance changes and the use of formal seals are properly documented and disclosed.
How We Can Assist
At Law Hero, we provide end-to-end legal support to ensure that your contracts in Myanmar are legally sound, compliant, and enforceable. Whether you are a local business, foreign investor, or individual, our team of legal professionals is equipped to guide you through every stage of the contract process.
Our Services Include:
- Contract Drafting & Review
We draft, review, and revise a wide range of commercial contracts, ensuring clarity, legal compliance, and protection of your interests. - Advisory on Contract Formation Requirements
We provide expert guidance on all elements of valid contract formation under Myanmar law, including offer, acceptance, consideration, and legal capacity. - Notarisation Support
We advise on when notarisation is required and coordinate with licensed notaries and relevant authorities to ensure your documents meet legal standards. - Stamp Duty Compliance
We assess applicable stamp duty for your agreements and assist in proper payment and documentation to avoid penalties or legal challenges.
Our goal is to provide practical, reliable, and legally compliant solutions that give you peace of mind in your business and legal transactions in Myanmar.
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