S. W. Wilwaraarachchi LLM (Colombo), Attorney-at-Law
Tumultuous times are generally fraught with novel challenges which, unless addressed rationally, can lead to further chaos. Covid-19 pandemic which is eerily tightening its fatal grip in Sri Lanka, as has already been done in many parts over the globe, has a propensity to cause mayhem in almost every aspect of civil life. Economy is one such aspect most vulnerable to be inflicted upon serious repercussions by this menace. People should be extra vigilant not only of their physical health, but also of the wellbeing of their contractual affiliations. Hence, it is worth having some insight into the applicability of longstanding legal principles in striking a compromise between the parties to a contract in these trying times.
Harnessing the anatomy of contracts to overcome setbacks of Covid-19.
Apart from the inability to engage in livelihood, logistical constraints are the largest contributor to the financial setbacks experienced by the masses and the entrepreneurs alike as a result of the measures adopted by the government in curbing the pandemic. Nationwide curfew has resulted in virtual limbo as far as financial activities are concerned. Formation and performance of contracts are no exception. This article addresses the formation of a contract amidst prevalent constraints while another article published in this portal deals with the performance of a contract in the said context.
- Mutual Consent
have long been recognized in every jurisprudence as the salient ingredients of contracts/agreements.
A contract has been defined as an agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law. Similarly, an agreement has been defined as a mutual understanding between two or more persons about their relative rights and duties, regarding past or future performances; a manifestation of mutual assent by two or more persons.
The said definitions principally contain the above stated ingredients such as offer, acceptance, legality, mutual consent, etc. Hence, it is obvious that a contract/agreement is formed the moment these elements are present between parties with a mutual understanding. Hence, a contract/agreement, as opposed to the general perception, can be entered into between the parties without the physical presence (meeting) of each other provided the above elements exist. As such, despite the constraints brought about by Covid-19, a number of communication technology phenomena which marked their advent recently facilitating inter personal communication can be resorted to without any reservation by contracting parties with communication history can be used as prima facie evidence of the existence of contract/agreement. Nevertheless, in view of dispelling the unfounded notion commonly harboured among contracting parties that contracts/agreements must necessarily be in writing, the distinction between ‘formation’ and ‘formulation’ of a contract is drawn as follows.
Formation & Formulation of a contract.
There’s a common misconception that ‘formation’ and ‘formulation’ of a contract are the same. However, there is a stark distinction between these two terms. Formation of a contract/agreement deals with the constitution of a contract/agreement between parties with the presence of the said ingredients whereas the formulation of a contract/agreement deals with the execution of such contract/agreement in a corporeal format as a document. Accordingly, formation of a contract takes place much prior to the formulation and/or execution of a contract.
Validity of a contract devoid of formulation and/or execution of the same.
It was discussed above that formation and formulation of a contract are two different aspects. As such they can exist independently. In other words, a contract can exist without being formulated and/or executed as a document. Oral contracts/agreements are a classic example in the regard. Likewise, a validity of a contract/agreement cannot be challenged solely based on the fact that it has not been documented upon being executed.
Formulation and/or execution of a contract.
Prevention of Frauds Ordinance and the Notaries Ordinance are the two major statues pertaining to the execution of contracts in Sri Lanka. These statutes provide, inter alia, guidelines on lawful execution of contracts/agreements.
A.Prevention of Frauds Ordinance.
Section 02 of the Prevention of Frauds Ordinance states,
“No sale, purchase, transfer, assignment, or mortgage of land or other immovable property, and no promise, bargain, contract or agreement for effecting any such object, or for establishing any security, interest, or encumbrance affecting land or other immovable property (other than a lease at will, or for any period not exceeding one month ) , nor any contract or agreement for the future sale or purchase of any land or other immovable property, and no notice, given under the provisions of the Thesawalamei pre emption Ordinance, of an intention or proposal to sell any undivided share or interest in land held in joint or common ownership, shall be of force or unveil in law unless the same shall be in writing and signed by the party making the same, or by some person lawfully authorized by him or her in the presence of licensed notary public and two or more witnesses present at the same time, and unless the execution of such writing, deed or instrument be duly attested by such notary and witnesses.”
Accordingly, in terms of section 2 of the Prevention of Frauds Ordinance, any contract or agreement in respect of sale, purchase, transfer, assignment or mortgage of land or other immovable property will have no force in law unless in writing duly attested by a licensed notary public. All the said circumstances which warrant notarial execution only relate to the transfer of property rights of immovable property. This is purely due to the fact that immovable properties have two types of rights based on ownership and possession. This strict requirement safeguards the respective right of parties which can thus be construed precisely.
Section 31(12) of the Notaries Ordinance sets out that,
“He (Notary) shall not authenticate or attest any deed or instrument unless the person executing the same and the witnesses shall have signed the same in his presence and in the presence of one another, and unless he shall have signed the same in the presence of the executants and the attesting witness”.
Nevertheless, Section 33 of the Notaries Ordinance states that,
“No Instrument shall be deemed to be invalid by reason only of the failure of any notary to observe any provision of any rule set out in section 31 in respect of any matter or form.”
Hence, although Section 31 of the Notaries Ordinance sets out requirements that should be adhered to by a notary in the execution of a deed or contract, Section 33 of the Ordinance states that the failure on the part of the notary to fulfill any such requirement stated in Section 31 of the Ordinance does not render a deed or contract legally invalid. Therefore, it can be asserted that the statutes containing provisions relating to the execution of contracts in Sri Lanka, except for those affecting property rights of lands or other immovable property as set out in Section 02 of the Prevention of Frauds Ordinance, do not render any contract/agreement lawfully invalid merely due to its nonexecution as a document. This is attributable to the long standing universally accepted legal principle of implied and/or oral contracts.
 Black’s Law Dictionary, 9th Edition.