A contract serves as the foundation for both private and business transactions by giving parties a formalised legal agreement. A contract must meet several essential conditions in order to be deemed valid, including consideration, offer, acceptance, and mutual desire to be legally obligated. These components provide binding contracts that safeguard the parties' interests.

Contract under Myanmar Law

A contract is defined as "an agreement enforceable by law" in Section 2(h) of the Myanmar Contract Act. Exchanges of products, services, cash, or promises of any of these are involved. A contract is created when one party extends an offer and it is accepted by the other party. Both parties to a contract must want to form a legally binding agreement for it to be enforceable. This goal is essential because it emphasises how serious the commitment is and how the agreement is expected to be respected by the law. Contracts are essential to both personal and business transactions because they guarantee that each party will carry out their end of the bargain.

Steps for the Formation of a Contract in Myanmar

A legally binding contract is formed by a number of essential steps. By doing these actions, you may be sure that the agreement is understandable, voluntary, and compliant with Myanmar law. The following are the steps to follow:

Step 1: Proposal or Offer

Section 2(a) of the Act defines a proposal as a willingness expressed by one person to another to do or abstain from doing something with the intent to obtain assent. The offer needs to be sufficiently explicit to the recipient to make it obvious that accepting it would result in a legally binding agreement. The proposal should make clear the terms and indicate that, should it be approved, it intends to be bound by them.

Step 2: Acceptance

Section 7 of the Contract Act states that acceptance must be absolute and unqualified to convert a proposal into a promise. Acceptance must adhere strictly to the offeror's terms. Any modification of the terms amounts to a counteroffer rather than an acceptance. The proposer must be informed of the acceptance. Only after the proposer is aware of the acceptance does the contract come into existence. This can be seen in the case of Hardandass v Rani Mohori Bibi , where while there was communication resembling a proposal via telegraph for the sale of property, the absence of an unconditional acceptance prevented the formation of a contract.

Step 3: Consideration

Section 2(d) of the Contract Act describes consideration as something of value given in exchange for a promise, making it essential to the contract. Each party must provide something of value, which can be an act, forbearance, or a promise. Consideration is what each party gives up to the other as part of the agreement. The consideration must be sufficient but need not be adequate. This means while the value does not have to be fair, it must be something of legal value. The question of whether consideration under contract law is adequate was discussed by the court in Kalimuthu v. Maung Tha Din . The decision highlighted that consideration need not be commensurate with the value of the promise that the law upholds. The court emphasized that requiring proportionate consideration would cause excessive ambiguity in contract law and would make it more difficult for successful agreements to be formed. This ruling preserves the flexibility necessary for the smooth operation of business by making it clear that there need not be equal consideration to the promise made.

Step 4: Intention to Create Legal Relations

The goal of the parties must be to create an association that the law will regard as a contract. Within business environments, this is frequently assumed. In social or domestic agreements, on the other hand, it is typically presumed that no intention to establish legal connections exists unless explicitly declared. An instance is the case of Balfour v. Balfour , where it was held that there was no intention to create legal relations in the agreement between a husband and wife regarding maintenance payments while they were living apart, thus no enforceable contract existed.

Step 5: Legal Capacity

Section 11 of the Contract Act specifies that parties must be of sound mind, of legal age, and not disqualified by law to contract. When agents are involved, they need to be able to legally bind the principal to the terms of the agreement. In Mohori Bibee v Dharmodas Ghose , the court addressed the issue of legal capacity, ruling that contracts with minors are void.

Step 6: Legality of the Contract

Section 23 requires that the consideration and purpose of a contract must be lawful and not opposed to public policy. In the case of Maung Thein Bros v Burma Produce Trading Co. , the court emphasised that the foundational principle of freedom of contract carries with it a presumption of legality. This presumption implies that courts will endeavor, as far as possible, to interpret contracts as lawful.

Step 7: Mutual Consent

Section 13 of the Contract Act defines consent as the parties’ agreement on the same thing in the same sense. Each party to the agreement must have done so voluntarily and without coercion, fraud, deception, undue influence, or error. There must be a "meeting of the minds" (consensus ad idem) understanding the terms of a contract in order for it to be enforceable.

Requirements for Witnesses and Notarisation

The procedures for carrying out contracts in Myanmar differ based on the type of agreement. Contracts may not always need to be witnessed or notarised, but there are rules that apply to certain kinds of contracts. For instance, two witnesses are required to witness mortgage deeds in accordance with Section 16 of the Deed Registration Law of 2018. In addition, a contract must be notarised in order to guarantee its legitimacy if it has to be registered under the Deed Registration Law with any government office. This also applies to agreements between parties to submit to the jurisdiction of the courts in Myanmar; in order to confirm the enforceability of such agreements, they need to be notarised. On the other hand, employment contracts do not need to be notarised; instead, they just need to be translated into Myanmar and filed with the appropriate township labour office. Witnessing contracts is seen as good practice in Myanmar, even though it is not required for all transactions. This adds legitimacy and legal standing to the document.

Stamp Duty in Contracts

Stamp duty is a tax levied on various legal documents to validate transactions, typically required for property, financial, and contractual agreements. In Myanmar, stamp duty is governed by the Stamp Act, and it applies to multiple types of instruments, including property conveyances, share transfers, bonds, and lease agreements. For instance, a 2% stamp duty is imposed on the transfer or sale of immovable property, with an additional 2% for properties located in Nay Pyi Taw, Yangon, and Mandalay, calculated based on the property's market value. Share transfers incur a duty of 0.1% on the share value, while bonds have a 0.5% duty on the secured amount. Leases also attract stamp duty, with a 0.5% duty on the annual rent for leases between one and three years and a 2% duty on the average annual rent for leases exceeding three years. Additionally, a 2% duty applies to lease premiums.

Requirement for Affixing Company Seal

The use of a company seal is optional for companies in Myanmar. The Section 29 of the Myanmar Companies Law provides that, if a company opts to use one, documents or contracts must be witnessed and sealed by:

1. the sole director, or
2. two directors, or
3. a director and the company secretary.

Furthermore, any modifications to the constitution of the business or the composition of its board of directors are contractually specific and must be properly reported with the Directorate of Investment and Company Administration (DICA) within a period of 28 days. By ensuring that any significant changes are duly acknowledged and documented, these requirements uphold the operational and governance framework of the company's legal integrity as stipulated by Myanmar law.

Law Hero provides expert legal assistance in contract formation, ensuring that all agreements meet legal requirements in Myanmar. We offer services such as drafting and reviewing commercial contracts, as well as advising on specific Myanmar laws related to witnesses, notarisation, and corporate seal usage. Our guidance ensures that your contracts are legally binding, compliant, and enforceable in Myanmar.