Authentication of contracts by attorney and liability of attorney for potential damage related thereto

Attorney authentication is applicable only to contracts on transfer of immovables, therefore, contracts on establishment or termination of easement, pledge, etc. are excluded from the attorney authentication, even if such contracts relate to rights directly connected with the immovables. The applicable legislation does not, however, exclude so-called “composite contracts” (cases when two separable contracts are part of one legal instrument) from the authentication, i.e. a contract on transfer of immovables combined with other contract (e.g. a Contract on establishment of easement) is not excluded from attorney authentication. In such a case, pursuant to Section 42 of the Act No. 162/1995 Coll. on Cadastre of Immovables and on Registration of Proprietary and other Rights with the Cadastre of Immovables (the Act on Cadastre), as amended (hereinafter referred to as the “Act on Cadastre”), notarization of signature of the party burdened with an easement is not required, even though such contract may not, as such, be authenticated by an attorney. On the other hand, a contract included in a composite contract must directly relate with the transfer of the immovables, shall be concluded between the same contractual parties and shall relate to the same immovables.

Pursuant to the Act on Advocacy authentication of contract means (i) drafting of a particular contract on transfer of immovable, (ii) ascertaining of the identity of the contractual parties and/or their representatives, (iii) legal evaluation whether the contract is in conflict with law, evades the law or contradicts good manners, and (iv) legal evaluation whether conclusion of the contract may lead to damage. In case of contract on transfer of immovables for repayment, an attorney shall inform the parties on payment conditions agreed in the contract and shall include declaration of the parties that they have been informed on the payment conditions agreed in the contract. The authentication is verified by attaching an authentication clause.

(i) Drafting of contract on transfer of immovables.

Pursuant to the Act on Advocacy draftingof contract is an act of legal service and an attorney is authorized to draft a contract without being obliged to subsequently authenticate it. It should be noted that, pursuant to the Act on Cadastre, in such a case the transferor´s signature on the contract on transfer of immovables has to be notarized. On the other hand, the above stated does not apply if the contract is authenticated by an attorney. Accordingly, no notarial verification of the transferor´s signature is required on power of attorney granted by the transferor to the attorney for the purposes of authentication of the contract (which eventually forms attachment of the petition for registration of ownership in the Cadastre of Immovables). However, provided that the transferor concludes the authenticated contract through a representative, the transferor´s signature on the power of attorney has to be notarized.

The attorney may perform the authentication only in person, therefore, he/she may not authenticate a deed that he/she has not drafted, a blank deed, or a deed written in other than Slovak or Czech language without translation by a court-sworn translator into Slovak attached thereto. If the attorney performs such an authentication in contrary to the above obligation, he/she shall be disciplinarily liable for such misdemeanor[1]. The obligation to submit official translation does not apply when the attorney speaks the language in which the deed is drafted. Assessment of the level of the attorney´s command of particular foreign language is subject to judgment and responsibility of each attorney.

(ii) Ascertaining of identity of the contractual parties and/or their representatives.

One of the basic obligations of the attorney regarding authentication of contract is to ascertain identity of the contractual parties and/or their representatives. In case that the attorney does not know the contractual parties (their representatives), he/she is obliged to ascertain their identity by means of valid identity card, otherwise their identity has to be proved by two witnesses. The attorney should verify the identity of the contractual party through at least two official documents[2]. In case that even upon application of the procedure an attorney still has doubts about identity of the parties, he/she is obliged to perform further verification (e.g. through other witnesses or documentary evidence or he/she shall request for a statement of respective municipality). If the attorney fails to verify the actual identity of the party/parties and/or their representatives, he/she is entitled to refuse to perform the authentication. If the attorney does not refuse to perform the authentication, he/she cannot be exempted from liability for any damage incurred as a result of misuse of identity (please, see below).

(iii) Legal evaluation whether the contract is in conflict with law, evades the law, or contradicts good manners.

Another obligation of the attorney is to legally evaluate the contract from the above mentioned three perspectives. It is a professional evaluation of the contract and compliance thereof with law and moral good manners. When evaluating good manners the attorney shall take into account the applicable legislation, internal rules of the Slovak Bar Association and applicable judicature[3].

(iv) Legal evaluation whether conclusion of the contract may lead to damage.

This attorney´s obligation in connection with the authentication of contracts is considered the most controversial. Not even the Explanatory Memorandum to the amendment of the Act on Advocacy defines manners or views on basis of which the attorney should evaluate whether otherwise valid contract is not in contrary to law or good manners and capable of causing damage. The legislator does not even stipulate on whose part the attorney is obliged to evaluate a risk of damage, as only one of the parties is attorney´s client. The above obligation can be considered as a preventive obligation of the attorney who is obliged to evaluate the contract with due professional care.

In case of contracts on transfer of immovables for repayment the attorney is obliged prior to authentication, inter alia, to acquaint the parties with payment conditions agreed in the contract and to incorporate into the contract declaration of the parties on prior acquaintance with the payment conditions. Another important obligation of the attorney is to inform the parties on both insurance coverage and insurance company in which the attorney is insured against liability for damage relating to authentication of contracts.

LIABILITY OF AN ATTORNEY FOR DAMAGE

With respect to the above, an attorney may be subject to several types of liability for damage:

1. Liability for failure to ascertain identity of the contractual parties and/or their representatives.

As already mentioned above, the attorney is obliged to use all statutory means to ascertain and verify identity of the contractual parties and/or their representatives. In case that even upon due ascertaining and verification of identity of the contractual parties the attorney still has doubts, then he/she is entitled to refuse to perform the authentication. Under the Act on Advocacy the above liability for damage is construed as objective liability with only one liberation ground. In other words, the attorney shall be liable for damage caused as a consequence of identity misuse regardless of both his/her culpability and the fact that he/she has performed all actions required by law in order to verify identity of the contractual parties and/or their representatives. The attorney shall be exempt from liability only in case that he/she proves that the aggrieved party had knowledge about the circumstance that caused the damage. The above clearly implicates that the burden of proof is borne by the attorney.

2. Liability for breach of obligation to act with professional care.

Pursuant to the Act on Advocacy an attorney is liable for damage caused to the client in connection with performance of advocacy. The attorney´s liability for damage includes also damage caused by his/her attorney trainee or other employees. In case that the attorney performs advocacy as shareholder of a company, the liability for damage only pertains to this company. The above liability of the attorney applies only vis-à-vis client.

3. General liability for damage.

As already mentioned in paragraph 2 above, the attorney shall be liable for damage caused while performing advocacy only vis-à-vis his/her client. In case that the damage caused in relation to breach of the attorney´s obligations shall be incurred by other party to the contract, i.e. the party that is not the attorney´s client, we are of the view that the attorney shall be liable for such damage only under Section 420 of the Civil Code. The said provision governs so-called “general liability for damage” caused as a result of breach of any legal obligation. The liability under Section 420 is considered subjective liability from which the liable person may be exempted in case he/she proves that the damage has not been caused by him/her.

ADVANTAGES OF AUTHENTICATION FOR THE CLIENT

Despite the fact that client may opt for authentication of contract on transfer of immovables by an attorney, there is still an option to authorize the attorney only to draft the contract without authenticating it, in which case signature of the transferor has to be notarized. On the other hand, some of the advantages in favor of the client in case he/she decides for authentication of contract by an attorney, should be mentioned

1. the client is secure that the contract is without any legal defects;
2. the client is secure that the immovables in question are an eligible subject of transfer;
3. a potential risk of fraud on the part of the other party to the contract is minimized;
4. the attorney is subject to objective liability for possible identity misuse in connection with conclusion of the contract;
5. the attorney is subject to liability for damage vis-à-vis the client for breach of legal obligations while performing advocacy;
6. the attorney is obligatorily insured against damage caused while performing advocacy;
7. shorter period for proceedings before the Cadastre Administration Office applies - instead of 30 days the Cadastre Administration Office is obliged to decide within 20 days as of delivery of the petition for registration of ownership in the Cadastre of Immovables. Compared to “ordinary” proceedings the Cadastre Administration Office evaluates only procedural terms required for approval of the registration and compliance of the authenticated contract with respective Cadastral Database. Evaluation of the contract is not performed.

APPLICATION OF AUTHENTICATION OF CONTRACTS BY ATTORNEY IN PRACTISE

Despite the fact that this legal institute has been introduced with the purpose of speeding up the proceedings before the Cadastre Administration Office and diminishing legal uncertainty of the contractual parties, this institute is applied rather rarely. We are of the opinion that the reason for this can be found in the legal regulation of this institute itself. Pursuant to the applicable legislation an attorney is obliged, provided that he/she agrees to perform authentication, to take a significant amount of responsibility, based on which, in the event of identity misuse, the attorney will not be able to exempt himself/herself, even if the attorney has performed all acts required by law with professional care. In other words, the attorney is exposed to risk of liability for damage even though he/she has not neglected any statutory duty. As already mentioned above, the Act on Advocacy includes also a confusing formulation pursuant to which the attorney is obliged to assess whether damage may be caused by conclusion of the contract subject to authentication. Given the vague formulation of law, the attorney exposes himself/herself to liability for potential damage incurred in connection with the authenticated contract, as particularly there are not any rules in relation to which contractual party is supposed to assess a risk of damage, or criteria on a basis of which a risk of damage is to assessed stipulated, etc.

In relation to attorney´s liability for the authenticated contracts, we are of the view that de lege ferenda it is necessary to define and implement clear requirements pertaining to activities of an attorney when authenticating contracts in order to avoid doubts whether all statutory obligations required for attorney´s exemption from possible liability have been fulfilled. A more frequent use of the authentication of contracts in practice will undoubtedly result from such change of law.

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[1] Article 16 of the Resolution of the Board of Directors of Slovak Bar Association No. 3/13/2009 (hereinafter referred to as the “Resolution on Authentication”)
[2] Article 12 (1) of the Resolution on Authentication.
[3] Article 3 (2) of the Resolution on Authentication.