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T HE C IVIL C ODE
OF G EORGIA

Contains legislative amend ments through May 31, 2001

Translated by IRIS Georgia May 2001
1

Translated with financial support of the United States Agency
for International Development (USAID) through IRIS Center at the University of Maryland

This publication is free for distribution.
No part of this publication may be used fo r any commercial purpose.

Copyright © 2001 by IRIS Georgia

Translated by IRIS Georgia May 2001
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Foreword

Adoption of a civil code is a milestone in legal histor y of any country, but in the case of Georgia this
enactment was of crucial importance. Escape of the country from dismal legacy of totalitarian state is
only possible through legislative establishment an d enhancement of democratic institutions.
Private property, freedom of contract and associ ation, freedom of choice of residence and doing
business are among the values that have actually entered our lives only after putting the Code into
operation.

Four years have passed since the Civil Code took effect. It was created during 1992 and 1997 as a
result
of the collaborative efforts of Georgian and foreign legal experts (especially – German colleagues). The
Code has incorporated the best ideas developed in civil law. Therefore, it is no accident that the experts
rate the Georgian Civil Code, along with the new N etherlands Civil Code, as one of the most refined
and modern statutes.

Historically, the Georgian law has been part of the continental European family of law. Thus,
predictably enough, the drafters of the Code relied on the long-lasting experience of codification of
civil law in continental Europe. Many of the mode rn concepts of common law, however, have also
been reflected in this principal document of civil society.

The Civil Code of Georgia consists of five books. Book One – general part, is a set of common rules
that govern the entire Private Law and strengthen its underlying institutions, such as the doctrine of
subjects of law, doctrine of transactions, exercise of rights, periods of time, limitations (prescription).
Book Two – Law of Things (Property Law) – regulates possession, ownership, property rights,
measures for securing a claim (security interest, mo rtgage), rules of acquiring and loss of ownership.
Book Three, Law of Obligations, given its signific ance and magnitude, is the heart of the civil law
system, through which the freedom of contract is exer cised. The fourth book regulates family relations,
and the fifth book governs the law of inheritance.

To put it briefly, the Civil Code regulates all the key issues from a pe
rson’s birth until his death (and,
often, post-mortem issues as well). So, the utmost importance of this statute is self-evident.

The Civil Code of Georgia has already been translated and published in Russian and German. Sadly, the
Georgian language belongs to the group of languages that are used by only a small part of the world’s
population. Therefore, translation of the Georgian la ws into the world’s leading languages is vitally
important for Georgia’s effective involvement in the process of globalization.

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Besides, such translations are necessary to enable our
foreign friends to precisely understand their rights
and duties in the local legal environment.

The present translation of the Civil Code is a sign ificant step towards popularization of the Georgian
law. Mr. Irakli Gabriadze and others in the tran slation/editorial team have demonstrated great
dedication, diligence and devotion in preparing this publication.

The difficulties in legal translation are well-known. This is an extreme
ly complex and time-consuming
task, no matter in what language the source text is written and whatever the target language. And the
task is further complicated when a law of one legal system is presented to the readers used to different
usage of legal vocabulary in another legal system . Oftentimes, some seemingly analogous legal terms
have different meanings, and an unfamiliar reader ma y easily be confused. Therefore, translation of a
statute requires a very careful and qualified translator . I am glad to note that in preparing the present
translation a great deal of legal research was done and the original text was thoroughly examined with
respect to its substance, not merely producing th e literal equivalents of the Georgian phrases.

In my opinion, this English translation of the Ci vil Code is the most important of all others. The
English language is rightfully considered to be th e global language of this century. Translation of the
Civil Code into this language practically means that it is now made available to many of our foreign
friends.

Finally, no foreword to this publication would be complete without mention of the organizations most
responsible for making it a reality. I would like to thank the USAID whose support made this work
possible and helped the AMEX International and IR IS succeed in this remarkable accomplishment.

I believe that the readers will greet this publication with much interest.
Lado Chanturia
Professor
Chairman of the Supreme Court of Georgia

Tbilisi
June 2001

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Acknowledgments

The IRIS Center at the University of Maryland would like to thank all of our partners that made this
translation possible. Lado Chanturia, Chief Justi ce of the Supreme Court, graciously made himself
available throughout this project and, without his cooperation and support, it would not have been
possible. Irakli Gabriadze acted as both translator and editor, and his work has been received with
nothing but high praise. Also, our partner AMEX International contracted Baker and Botts, LLP to
provide an editorial team headed by Theodore J onas. Mr. Jonas’ understanding of the Georgian
language, combined with his knowledge of both Ge orgian and American law made their contribution
invaluable. The staff of IRIS/Georgia, as with all of its undertakings, made a difficult task both possible
and of the highest quality. Last and most importantly, we must thank the United State Agency for
International Development who provided both fund ing and unwavering support for this project.

Robyn Jordan
Chief of Party
IRIS Center at the University of Maryland
Tbilisi, Georgia
June 2001

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TABLE OF CONTENTS

BOOK ONE, General Provisions of the Civil Code General Provisions, §§ 1-10
TITLE ONE, Persons
Chapter 1, Natural Persons, §§ 11- 23
Chapter 2, Legal Persons I. General Provisions, §§ 24-30
II. Norms Common to Unions and Foundations, §§ 31-39
III. Special Norms on Unions, §§ 40- 45
IV. Special Norms on Foundations, §§ 46- 49
TITLE TWO, Transactions
Chapter 1, General Norms, §§ 50- 62
Chapter 2, Legal Capacity as a Condit ion for Validity of Transactions, §§ 63-67
Chapter 3, Form of Transaction, §§ 68-71
Chapter 4, Voidable Transactions I. Transactions Made by Mistake, §§ 72-80
II. Transactions Made by Deceit, §§ 81-84
III. Transactions Made by Duress, §§ 85-89
Chapter 5, Conditiona l Transactions, §§ 90-98
Chapter 6, Consent in Transactions, §§ 99-102
Chapter 7, Agency in Transactions, §§ 103-114
TITLE THREE, Exercise of Rights , §§ 115-120
TITLE FOUR, Periods of Time
Chapter 1, Computation of Periods of Time, §§ 121-127
Chapter 2, Prescription [Sta tute of Limitations], §§ 128-146

BOOK TWO, Law of Things (Property)
TITLE ONE, Property , §§ 147-154
TITLE TWO, Possession , §§ 155-169
TITLE THREE, Ownership
Chapter 1, Content of Ownership, §§ 170-173
Chapter 2, Law of Neigh boring Tenements, §§ 174-182
Chapter 3, Acquiring and Loss of Ownership
I. Acquiring Ownership of Immovable Things, §§ 183-185
II. Acquiring Ownership of Movable Things, §§ 186-197
III. Acquiring Ownership of Rights and Claims, §§ 198-207
Chapter 4, Apartment Ownership in Multi-apartment Buildings [Condominiums] I. General Provisions, §§ 208-214
II. Relations among Apartment Owners, §§ 215-232
Chapter 5, Limited Use of Property Belonging to Another Person
I. Right to Build (Hereditary Building Right), §§ 233-241
II. Usufruct, §§ 242-246
III. Servitude, §§ 247-253
Chapter 6, Title to Property as Security for a Claim
I. Security Interest, §§ 254-285
II. Mortgage, §§ 286-310
TITLE FOUR, Public Register , §§ 311-315

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BOOK THREE, Law of Obligations
GENERAL PART
General Provisions on Obligations, §§ 316-318
TITLE ONE, Contract Law, Part One
Chapter 1, General Provisions, §§ 319-326
Chapter 2, Entering in to a Contract, §§ 327-341
Chapter 3, Standard Co ntract Terms, §§ 342-348
Chapter 4, Contract for the Be nefit of a Third Person, §§ 349-351
Chapter 5, Avoidance of a Contract, §§ 352-360
TITLE TWO, Performa nce of Obligations
Chapter 1, General Provisions, §§ 361-382
Chapter 2, Performance of Monetary Obligations, §§ 383-389
Chapter 3, Creditor [Ob ligee] in Default, §§ 390-393
TITLE THREE, Breach of Obligation
Chapter 1, General Provisions, §§ 394-399
Chapter 2, Obligor exceeding the ti me period for performance, §§ 400-404
Chapter 3, Breach of Oblig ation During the term of a Bilateral Contract, §§ 405-407
TITLE FOUR, Duty to Compensate Damages, §§ 408-415
TITLE FIVE, Additional Measures for S ecuring a Claim [Additional Remedies], § 416
Chapter 1, Penalty, §§ 417-420
Chapter 2, Earnest Money, §§ 421-423
Chapter 3, Debtor’s Guarantee, §§ 424-426
TITLE SIX, Termination of Obligations
Chapter 1, Termination of an Obligation by Performance, §§ 427-433
Chapter 2, Termination of an Obligation by Deposit, §§ 434-441
Chapter 3, Termination of an Obligati on by Setoff of Counterclaims, §§ 442-447
Chapter 4, Termination of an Oblig ation by Forgiveness of Debt, §§ 448-451
Chapter 5, Other Grounds for Term ination of an Obligation, §§ 452-454
TITLE SEVEN, Multiple Obligees or Obli gors with Respect to an Obligation
Chapter 1, Joint Obligees, §§ 455-462
Chapter 2, Joint Obligors, §§ 463-476

SPECIAL PART
TITLE ONE, Contract Law, Part Two
Chapter 1, Sale. Exchange
I. General Provisions, §§ 477-504
II. Installment Sale, §§ 505-508
III. Redemption, §§ 509-515
IV. Preferential Right of Purchase, §§ 516-520
V. Exchange [Barter], §§ 521-523
Chapter 2, Gift, §§ 524-530
Chapter 3, Rental, §§ 531-575
Chapter 4, Finance Lease, §§ 576-580
Chapter 5, Lease, §§ 581-591
Chapter 6, Lease of Agricultural Land, §§ 592-606
Chapter 7, Franchise, §§ 607-614
Chapter 8, [Gratuitous] Lending, §§ 615-622
Chapter 9, Loan, §§ 623-628
Chapter 10, Contract for Work [by Independent Contractor], §§ 629-656
Chapter 11, Tourist Services, §§ 657-667
Chapter 12, Carriage
I. Contract of Carriage, §§ 668-685
II. Liability of the Carrier, §§ 686-697
III. Claim and Lawsuit, §§ 698-700
IV. Carriage by Connecting Carriers, §§ 701-708
Chapter 13, Mandate, §§ 709-723
Chapter 14, Entrustment of Property, §§ 724-729
Chapter 15, Freight Forwarding, §§ 730-743

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Chapter 16, Brokerage
I. General Provisions, §§ 744-748
II. Brokerage in the Case of Apartment Rentals, §§ 749-750
III. Loan Brokerage, §§ 751-754
Chapter 17, Public Promise of Reward. Competition, §§ 755-762
Chapter 18, Bailment, §§ 763-779
Chapter 19, Warehouse Bailment, §§ 780-798
Chapter 20, Insurance
I. General Provisions, §§ 799-814
II. Insurance Premium, §§ 815-819
III. Insurance against Damages a. Content of the Contract, §§ 820-835
b. Insurance for the Benefi t of Another Person, §§ 836-838
c. Civil Liability Insurance, §§ 839-843
IV. Life Insurance, §§ 844-853
V. Accident Insurance, §§ 854-858
Chapter 21, Banking
I. Settlement Account, §§ 859-866
II. Bank Credit, §§ 867-873
III. Deposit Account, §§ 874-875
IV. Documentary Letter of Credit. Coll ection of Commercial Documents, §§ 876-878
V. Banker’s Guarantee, §§ 879-890
Chapter 22, Suretyship, §§ 891-905
Chapter 23, Current Account, §§ 906-910
Chapter 24, Obligations Arising out of Securities Transactions
I. Obligations Arising out of Bear er Securities Transactions, §§ 911-921
II. Obligations Arising out of Negotiable Securities, §§ 922-927
III. Personal Securities, §§ 928-929
Chapter 25, Joint Activity (Partnership), §§ 930-940
Chapter 26, Lifetime Annuity, §§ 941-950
Chapter 27, Gambling . Wagering, §§ 951-952

TITLE TWO, Statutory Obligations
Chapter 1, Rights in Common, §§ 953-968
Chapter 2, Management [Per formance] of the Affairs of Another without Mandate, §§ 969-975
Chapter 3, Unjust Enrichment, §§ 976-991
TITLE THREE, Delictual Obligations [Torts] Chapter 1, General Provisions, §§ 992-1008
Chapter 2, Products Liability, §§ 1009-1016

BOOK FOUR, Intellectual Property Law
TITLE ONE, Copyright Law , [Revised] §1017; §§ 1018-1099 – Repealed
TITLE TWO, Industrial Property , §§ 1100-1105

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BOOK FIVE, Family Law
TITLE ONE, Marriage
Chapter 1, Procedure and Preconditions of Solemnization of Marriage, §§ 1106-1121
Chapter 2, Termination of Marriage, §§ 1122-1139
Chapter 3, Voidness of Marriage, §§ 1140-1150
Chapter 4, Marital Rights and Duties
I. General Provisions, §§ 1151-1153
II. Personal Rights, §§ 1154-1157
III. Property Rights and Duties Prescribed by Law, §§ 1158-1171
IV. Contractual Property Relations of the Spouses, §§ 1172-1181
Chapter 5, Duty of Reciprocal Support of the Spouses, §§ 1182-1186
TITLE TWO, Relations among Parents, Children and Other Relatives
Chapter 1, Establishing the Parent age of Children [Filiation], §§ 1187-1196
Chapter 2, Rights and Duties of the Parents with respect to Children, §§ 1197-1211
Chapter 3, Duties of Support of Parents and Children, §§ 1212-1222
Chapter 4, Support Duties of other Family Members, §§ 1223-1231
Chapter 5, Procedures of Payment and En forcement of Payment of Support, §§ 1232-1238
Chapter 6, Adoption, §§ 1239-1274
TITLE THREE, Guardianship and Curatorship
Chapter 1, General provisions, §§ 1275-1286
Chapter 2, Rights and Duties of a Guardian and a Curator, §§ 1287-1305

BOOK SIX, Law of Inheritance
Chapter 1, General Provisions, §§ 1306-1335
Chapter 2, Inheritance by Law [Intestate Inheritance], §§ 1336-1343
Chapter 3, Testamentary Succession, §§ 1344-1356
Chapter 4, Form of a Will, §§ 1357-1369
Chapter 5, Designation of the Heir of an Heir, § 1370
Chapter 6, Forced Portion [Legitime], §§ 1371-1382
Chapter 7, Testamentary Obligation (Legacy), §§ 1383-1397
Chapter 8, Amendment or Revocation of a Will, §§ 1398-1409
Chapter 9, Execution of a Will (S ettlement of the Estate), §§ 1410-1420
Chapter 10, Acceptance and Renu nciation of Inheritance, §§ 1421-1451
Chapter 11, Distribution of Estate, §§ 1452-1483
Chapter 12, Satisfaction of Creditors by the Heirs, §§ 1484-1494
Chapter 13, Preservation of the Estate, §§ 1495-1498
Chapter 14, Title Deed on Inheritance, §§ 1499-1503

Transitional and Final Prov isions of the Civil Code, §§ 1504-1520

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BOOK ONE
GENERAL PROVISIONS OF THE CIVIL CODE
GENERAL PROVISIONS

Article 1. Concept. Scope of Application
This Code regulates property, family and personal rela tions of a private nature, based on the equality of
persons.

Article 2. Civil Legislation
1. The Civil Code, other acts of private law, an d interpretations thereof, shall conform to the
Constitution of Georgia.
2. If legal norms of the same rank are in conflict, th e special and the most recent law shall be applied.
If general norms provided in this Code are in conf lict with special norms, then the special norms shall
be applied.
3. Sub-legislative normative acts shall be applied to regulate civil relations only if they complement the
norms of law. If such acts contravene the law, the law shall prevail.
4. Customary norms shall be applied only if they do not contravene universally recognized principles
of justice and morality, or the public order.

Article 3. Entry of a Civil Law into Force
1. A law and sub-legislative normative acts shall take effect only after their publication in an official
organ for general familiarization ac cording to the established rule.
2. Ignorance or misunderstanding of the law shall not be an excuse for not applying the law or for
release from the liability stipulated by the law.
3. A law loses force if this is literally pronounced by a new law, or if a former law contravenes a new
law, or if a new law encompasses the relation regulated by a former law, or if the relation regulated by a
former law no longer exists.
4. A law of a general nature shall not repeal a special law unless such repeal was the direct intention of
the legislator.
5. Repeal of a law that repealed a former law shall not reinstate the former law.

Article 4. Denial of Justice in Civil Proceedings Not Allowed
1. A court may not refuse to administer justice in civ il cases, even if no legal norm exists or the legal
norm is vague.
2. A court may not refuse to apply a law on the ground s that in its opinion a norm of the law is unjust
or immoral.

Article 5. Analogy of Law and Justice
1. The legal norm regulating the most similar relation [to the one under consideration] shall apply to
regulate a relation not literally pres cribed by law (analogy of law).
2. In the event that it is impossible to use an analog y of law, then the relation shall be regulated on the
grounds of the general principles of justice, as well as in accordance with requirements of fairness, good
faith and morality (analogy of justice).
3. Norms regulating special relations (norms on exceptions) may not be applied by analogy.

Article 6. Retroactive Force of Laws
Laws and sub-legislative normative acts shall not be retroactive except when literally so pronounced by
law. A law may not be retroactive if it is prejudicial to or disadvantages a person.

Article 7. Objects of Private Law
An object of private legal relations may be a material or non-material good, of property or non-
property value, which has not been excluded from [commercial] circulation by law.

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Article 8. Subjects of Private Law
1.
Any natural or legal person may be a subject of pr ivate law relations. This rule applies to both
entrepreneurial and non-entrepreneurial persons of Georgia and of other countries.
2. Private law relations between state bodies and le gal persons of public law, on the one hand, and
other persons on the other hand, shall likewise be regu lated by civil laws unless these relations, in the
interests of the state or the public, are to be regulated by public law.
3. Participants in a legal relationship shall be bound to exercise their rights and duties in good faith.

Article 9. Purpose of Civil Laws
Civil laws ensure the freedom of civil circulation [activity] on the territory of Georgia, unless the
exercise of such freedom hinders the rights of third persons.
Article 10. Independence of Civi l Rights from Political Rights. Imperative Norms of Civil Law
1. The exercise of civil rights shall not depend upon political rights regulated by the Constitution or by
other laws of public law.
2. Participants in a civil relation may exercise any action not prohibited by law, including any action
not directly foreseen by law.
3. Imperative norms of civil laws protect the fr eedom of others from the abuse of rights.
1 Actions
that contravene these norms shall be null and void except when the law explicitly defines other effects.
Individual interventions [in civil relations] through administrative acts shall be prohibited, unless these
acts are applied on the grounds of a specific law.
TITLE ONE PERSONS
CHAPTER ONE
NATURAL PERSONS

Article 11. Capacity to Have Rights [Passive Capacity] 1. The capacity for right of a natural person – the abi lity to have civil rights and bear duties – shall
arise from the moment of the person’s birth.
2. The right to inherit shall arise upon conception; the exercise of this right shall depend upon birth.
3. The capacity for right of a natural person shall be terminated by his death. The moment of death
shall be the moment at which the brain ceases functioning.
4. A natural person may not be deprived of his capacity for right.

Article 12. Legal Capacity [Capacity to Act] 1. The ability of a natural person to acquire and exercise his civil rights
and duties in full by his will
and action (legal capacity) shall arise upon the attainment of the age of majority.
2. A person of the age of majority – an adult – is one who has attained the age of eighteen years.
3. A person who has entered into marriage before attainment of the age of eighteen yea
rs shall be
deemed to have legal capacity.
4. A minor under the age of seven years (an infant) shall be deemed to be
a person without legal
capacity [a legally incapable person].
5. A person shall also be deemed to be a person withou t legal capacity when so declared by a court by
reason of his mental retardation or mental illness. A statutory representative (guardian) shall exercise
the rights of such a person.
6. In the event of recuperation or significant improvem ent in the health of an incapacitated person, a
court shall declare him to have legal capacity.

1 In other words, imperative norms, by constraining an actor from abusing his rights, protect the freedom of other
persons.

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Article 13. Limitation of Legal
Capacity by Agreement Not Allowed
Limitation of legal capacity shall be allowed only in instances prescribed by law. In no case may the
legal capacity of a person be limited by agreement [or by a transaction].

Article 14. Limited Legal Capacity
1. A minor from the age of seven to eighteen ye ars is a person with limited legal capacity.
2. An adult over whom a court has established a curatorship shall also be deemed to be a person with
limited legal capacity. A person of limited legal capa city and a minor are equal in their legal capacities.
3. Limitation of legal capacity ceases when the grou nds for limitation of the legal capacity of the
person no longer exist.

Article 15. Consent by Statutory Representa tive in Case of Limited Legal Capacity
A valid declaration of intent by a person with limited legal capacity is subject to the consent of his
statutory representative, except when the person of lim ited legal capacity would acquire a benefit from
the transaction.

Article 16. Limitation of Legal Capacity by Reason of Use of Alcohol or Narcotic Drugs
1. A court may establish curatorship over an adult who abuses alcohol or narcotic drugs and thereby
puts his family in material hardship. He shall be entitled to conduct transactions to dispose of property,
or to dispose of wages, pension or other income, only with the consent of his curator, except in the
case of petty domestic transactions [whi ch he may do without such consent].
2. Restoration of legal capacity in full sha ll cause removal of the curatorship.

Article 17. Right to a Name
1. Every natural person has the right to a name that includes a given name and a surname.
2. Change of name is allowed. Change of name shall require the application of the person stating the
grounds for change, to be considered by the appropriate body according to the established rule.
3. A change of name shall not be an excuse for ei ther termination or alteration of the rights and
obligations acquired under the former name. The pe rson shall be bound to undertake all necessary
actions to notify his creditors and debtors of the change of his name.

Article 18. Personal Non-Property Rights
1. A person whose right to a name is contested, or wh ose interests are impaired through unauthorized
use of his name, shall be entitled to demand that the wrongdoer cease or refrain from such action.
2. A person is entitled to demand in court the retraction of information that defames his honor,
dignity, privacy, personal inviolability or business reputation unless the person who has disseminated
such information can prove that it corresponds to the tr ue state of affairs. The same rule applies to the
incomplete dissemination of facts, if such disse mination defames the honor, dignity or business
reputation of a person.
3. If information defaming the honor, dignity, business reputation or private life of a person has been
disseminated in the mass media, then it must be re tracted in the same media. If such information is
contained in a document issued by an organization, then this document must be corrected and the
concerned parties must be informed of the correction.
4. A person whose honor and dignity has been defamed by information dissemi
nated in the mass
media shall be entitled to disseminate information in answer to the defamation through the same media
of information.
5. A person may likewise exercise the rights described in paragraphs (1) and (2) of this Article when
his image (photograph, film, video etc.) has been di sseminated without his consent. The consent of the
person is not required when photo-taking (video recording etc.) is in connection with his public
notoriety, the office he holds, the requirements of just ice or law enforcement, scientific, educational or
cultural purposes, or when the photo-taking (video recording etc.) has occurred in public
circumstances, or when the person has received remuneration for posing.

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6.
The protection of the good [i.e. human values such as honor, dignity and privacy] re
ferred to in this
article shall be exercised regardless of the culpabili ty of the wrongdoer. And if the violation has been
caused by culpable action, a person may claim damages (compensation for harm). Damages may be
claimed in the form of the profit that accrued to th e wrongdoer. In the case of culpable violation, the
injured person may also claim compensation for non- property (moral) damage. Moral damages may be
recovered independently from the recovery of property damages.

Article 19. Protection of Personal Rights after Death
The rights referred to in Article 18 may also be exer cised by a person who, although not the bearer of
the name or the right to personal dignity himsel f, nevertheless has an interest [in it] deserving
protection. He may exercise the right to demand such protection of the name and dignity [of the
person] which determines the essence of the person and continues to exist as well after death. It shall
not be allowed to claim compensation for proper ty damage for defamation of the name, honor, dignity
or business reputation of a person after his death.

Article 20. Place of Residence
1. The place where a natural person chooses his ordinary dwelling is deemed
to be the place of
residence of the person. The person may have several places of residence
.
2. The place of residence of parents having parental ri ghts is deemed to be the place of residence of a
minor, and the place of residence of a guardian is deemed to be the place of residence of the ward.
3. The place of residence of a person is not cancelled if he leaves this place under compulsion, or for
performance of a state duty for a certain period of time.

Article 21. Person Declared to be Missing
1. A court, on the petition of an interested person, ma y declare a natural person to be missing if his
whereabouts are unknown and he has not appeared at his own place of residence for two years. Upon
the entry into force of the court’s decision, the le gal heirs of the missing person shall obtain the power
to administer the property of the missing person as property held in trust, including the receipt of
profits [benefits] from it. From this property, maintenance shall be paid to the missing person’s
dependents and debts shall be paid off.
2. If the missing person reappears, or if his wher eabouts become known, the court decision on the
administration of his property shall be vacated. He shall not be entitled to demand compensation for
the benefits received by proper management [of his property during his absence].

Article 22. Declaration of Death of a Person
1. A person may be declared dead by the ruling of a court, if for five years there has been no
information at his place of residence on his wh ereabouts, and likewise if he disappeared under
circumstances threatening his death, or if his death may be presumed because of some unfortunate
accident, and no information to the cont rary has been obtained for six months.
2. A member of the armed services
or other person who disappeared in connection with wartime
operations may be declared dead by a ruling of the court not earlier than two years after the day on
which war operations ended.
3. The day of entry into legal force of the court deci sion declaring the person dead shall be considered
to be the day of his death.
4. In the cases referred to in paragraphs (1) and (2) of this Article, a court may declare that the day of
a person’s death is the day of his presumed death.

Article 23. Effect of Reappearan ce of a Person Declared Dead
1. If a person who has been declared dead reappears, or if his whereabouts become known, the court
shall vacate its decision regarding the person’s death.
2. Regardless of the time of reappearance, the pers on shall be entitled to recover any remaining
property that has been gratuitously transferred to a nother person following the declaration of his death.

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3.
A person who has paid to acquire th e property of a person that was declared dead shall be bound to
return this property to him, if it is proved that at the time of acquisition of the property the acquirer
knew that the person declared dead was in fact alive.
4. If the property of the person declared dead was tr ansferred to the [state] treasury and subsequently
sold by it, then after revocation of the court decisi on declaring the person dead the proceeds of the sale
of his property by the treasury shall be returned to him.

CHAPTER TWO LEGAL PERSONS I. General Provisions

Article 24. Concept. Types
1. A legal person is an organized entity, created for the accomplishment of a certain object and having
its own property under its ownership, that is indepe ndently liable with its own property, acquires rights
and duties in its own name, makes transactions and can sue or be sued.
2. A legal person may be organized as a corpor ation, based on membership, dependent or
independent upon the status of its members, and engaged or not engaged in entrepreneurship.
3. Legal persons of public law participate in civil la w relations in the same manner as legal persons of
private law. The procedure of their creation, organi zation and functioning shall be regulated by law.
4. The state participates in civil law relations like a legal person of private law. In this respect th
e
powers of the state shall be exercised by its organs (ministries, state departments, etc.), such that they
do not constitute [individual] legal persons.

Article 25. Capacity for Right [Pa ssive Capacity] of a Legal Person
1. A legal person of public law is entitled to engage in an activity corres
ponding to the purposes
prescribed by law or provided for in its founding documents.
2. A legal person of private law (entrepreneurial or non- entrepreneurial) is entitled to engage in any
activity not prohibited by law, regardless of whether or not this activity is provided for in its charter.
3. A legal person may engage in certain kinds of activi ties, the list of which is determined by law, only
on the basis of a special permit [license]. The right of a legal person to engage in such activity shall arise
from the moment the license is received.
4. The capacity for right of a legal person shall aris e from the moment of its registration and shall
cease to exist from the moment that the co mpletion of its liquidation is registered.

Article 26. Name of a Non- entrepreneurial Legal Person
1. A non-entrepreneurial legal person shall have a name that includes the i
ndication of its
organizational-juridical form. The firm name of an en trepreneurial legal person shall be regulated by the
Law on Entrepreneurs.
2. A person who unlawfully uses the name of anot her legal person is bound to cease such use on
demand of the entitled person and to compen sate the damage caused by the unlawful use.
3. In the case of defamation of honor, dignity or b usiness reputation of a legal person, the rules of
Article 18 shall apply.

Article 27. Domicile of a Legal Person
1. The place where the administration of a legal person is situated shall be deemed to be the domicile
of the legal person. A legal person may ha ve only one domicile (legal address).
2. Any other residence of a legal person shall be deemed to be the domicile of its branch.

Article 28. Branch of a Legal Person
1. A branch of a legal person − a separate subdivision situated outside the domicile of the legal person
− represents and exercises the functions of the legal person in whole or in part.
2. A branch is not a legal person. It functions on the basis of an act [charter, legal document] affirmed
by the legal person.

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Article 29. Entrepreneuria
l (Commercial) Legal Persons
A legal person whose object is entrepreneurial (commercial) activity m
ust be created in accordance with
the Law on Entrepreneurs.

Article 30. Non-Entrepreneurial (Non-commercial) Legal Persons
1. A legal person whose objective is not entrepreneuria l activity may exist as a union (association) or
as a foundation. Entrepreneurial activity that is of an auxiliary nature
and serves to accomplish a
common goal does not alter the [fundamental] nature of a non-commercial legal person. The
distribution of profits resulting from such activi ty among members of a union or among contributors
to a foundation shall not be allowed.
2. A union is a legal person in which a number of persons set a common goal, and its existence is
independent from changes in its membership. At le ast five founding members shall be required to
constitute a union.
3. A foundation is a legal person in which one or more founders transfers a
special property to the
ownership of an independent subject having no me mbership, for the accomplishment of a useful,
common and public purpose.

II. Norms Common to Unions and Foundations

Article 31. Registration of a Union and a Foundation
1. A union shall be subject to registration by a court, and a foundation shall be subject to registration
by the Ministry of Justice.
2. The right to demand registration exists when the ch arter conforms to the provisions of law, and the
objectives of the legal person, filed for the registrati on, do not contravene the law, recognized moral
standards or constitutional-juridical principles of Georgia. In the case of a foundation the property shall
correspond to the objectives set.
3. An application and charter signed by all founde rs and all members of the governing board are
necessary for registration. The materials necessary fo r registration of a union shall be filed with the
court [having jurisdiction over] the location of the residence of the un
ion.
4. The court shall decide on the registration with in one month from the day of filing of the
application. If within this term no decision is made , the registration shall be deemed effective. The
same rule applies when the registration is to be carried out by the Ministry of Justice.
5. The court’s refusal to register [a union] must be grounded on cause and provide for the possibility
of appeal and the rule thereof. The appeal ag ainst the refusal may be filed with a court.

Article 32. The Charter of a Union and a Foundation
1. The organization and structure of a union and a foundation shall be regu
lated by a charter.
2. The charter shall include:
a. Objectives of the activity;
b. The name [of the organization];
c. The domicile (legal address);
d. The procedure for property liquidation and distribution;
e. The name, surname, date and place of birth, occupation and place of residence of each founder,
contributor and member of the governing board of the union or the founda
tion, procedure for
calling board meetings and making decisions at such meetings;
f. Authority [powers] of union members.
3. The charter may include other information as well, namely:
a. The functions of other bodies of management and control;
b. The competence of the [General] Meeting of the union members.
4. The charter of a foundation, in addition to the in formation referred to in paragraph (2) of this
article, shall include:
a. The minimum amount and type of contributions;

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b.
Instructions on use of the amount;
5. The charter shall be notarized.

Article 33. Registration Data
1. The registration document [record] of a union and a foundation shall include the following
information: name and domicile of the legal person, the object of its activity, the date of confirmation
of the charter, the identity of the founders, the identity of the members of the governing board, and
possible limitations on their representational authority.
2. Registration data shall be published.
3. Any person may examine the records in the register and demand its written extracts.

Article 34. Registration of Changes
The governing board shall immediately file changes [to the entity’s data] requiring registration with a
court (Ministry of Justice) in notarized form. These alterations shall be entered in the register and
published.

Article 35. State Supervision Over Activities of Union and Foundation
A court (the Ministry of Justice) shall revoke the re gistration of a union or a foundation [as the case
may be] if it has actually turned to entrepreneur ial activity or if accomplishment of the objectives
provided for in the charter has become impossible.

Article 36. Leadership and Representation
1. The right of leadership [direction] is vested in the members of the governing board and, in
individual cases, in special representatives, and this simultaneously becomes their duty.
2. Limits on the leadership shall be defined by th e charter in accordance with the objectives of a union
or a foundation.
3. The charter may provide that one person will exerci se all authority individually, or it may establish
joint direction by two or more persons.
4. The charter may provide whether the engaging in some activities requires the consent of other
controlling bodies [of the entity].

Article 37. Competence of the Governing Board in Re lations with Third Persons
1. The governing board represents a union or a foundation in its relations with third persons. The
charter shall regulate whether the persons given repres entational authority may act individually, jointly
between some of them, or jointly between all of them.
2. Representational authority may be limited by th e charter. These limitations shall have legal force
vis-à-vis third persons only if the limitations have b een recorded in the register, except where the third
persons knew of these limitations.
3. The charter may establish a special representati ve of a union or a foundation. The charter shall
regulate the limits of his representational authority and the form of representation, which shall also be
registered.

Article 38. Compensation for Damage
1. A union or a foundation shall be liable for da mages sustained by third persons as a result of
culpable action by a member of the governing board, or other agent [representative], in the cour
se of
performing his duties.
2. Persons authorized to represent the union or foundation shall conduct the entity’s affairs
conscientiously [in good faith]. If they fail to perfor m this duty, they shall be liable before the union or
the foundation for the damage caused thereby. The union or foundation may not refuse to demand
damages if necessary for the satisfaction of the claims of third persons.
3. A union or a foundation shall not be liable for the obligations of its m
embers. Likewise, the
members shall not be liable for the obligations of the union or the foun
dation.

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Article 39. Reorganization and Liquidation of Union and Foundation
1. Reorganization (merger, accession, division, spin
-off, transformation) of a union or a foundation
shall be carried out according to the procedure prescribed by law.
2. Liquidation of a union or a foundation occurs unde r the circumstances provided for in the charter;
as a result of accomplishment of the object of th e entity; or upon bankruptcy of the entity or
revocation of its registration.
3. During liquidation of the entity the current affair s shall be concluded; claims ascertained; remaining
property valued in monetary terms; the [claims of ] creditors satisfied; and the remaining property
distributed among entitled persons.
4. The persons entitled to the distribution of the property may be defined in the charter. [Otherwise] court or the Ministry of Justice [as the case may be] shall transfer the remaining property to one or
several unions or foundations that promote the same or similar objectives as those of the union or the
foundation being liquidated. If no such organizations ex ist, then a decision may be made on transfer of
the remaining property to [another] char itable organization or to the state.
5. Information on the liquidation of the entity shall be made public. The property may be distributed
one year after publication of the liquidation notice.
6. Liquidation is conducted by the governing board of the entity. In extraordinary circumstances, a
court (or the Ministry of Justice) may appoint other liquidators. The liquidators are liable in the same
manner as the members of the governing board.

III. Special Norms on Unions

Article 40. Governing Board
1. The Governing Board shall be elected by the [Gen eral] Meeting of the members for a term of four
years, unless otherwise provided for in the charter of the entity. After expiration of this term, the
powers of the Governing Board remain effective unt il the election of a new Board. The charter of the
union shall also establish rules regarding the remuneration of the membe
rs of the Governing Board.
2. Decisions on election of members to the Governing Board may be revoked a
t any time. The
charter may provide for significant grounds relate d to the revocation [of the authority of Board
members].
3. If the Governing Board has fewer than the mi nimum number of members required by the charter,
then the court may designate members from the same union [to occupy the vacant slots] during a
transitional period. In this case, the members of th e Board shall call a General Meeting of the members
of the union to make the final decision on Board membership.

Article 41. General Meeting of the Members of a Union
1. The General Meeting of the members is convened by the Governing Board at least once per year,
or when the union’s interests so require. A Genera l Meeting may be convened by the written request
of one-tenth of the members, which shall indicate the agenda of the meeting.
2. Each member shall be notified of the convenin g of the Meeting either in writing or by the
publication of a notice in the printed periodical of the union no later than two weeks before the
Meeting.
3. The Meeting of the members makes decisions on all matters outside the competence of the
Governing Board. A decision of the Meeting is va lid only when an entry with respect to that matter
appeared on the agenda included in the not ice at the time of calling the Meeting.
4. A decision of the Meeting is made by a majority of the votes of members present and a decision on
alteration of the charter by a majority two-thirds of such votes. A majority of four-fifths of the votes
of all members of the union shall be required to al ter the purpose of the union. Members who cannot
be present at the meeting may submit their votes in writing. Such members shall have equal status to
the members present at the meeting [i.e. for purposes of quorum and voting].

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Article 42. Commissions
The General Meeting of members may establish commissions in accordance with the charter, and
delegate to them the powers of the Meeting duri
ng periods between the Meetings, especially for
supervising the activities of the union. Only members of the union may be members of such
commissions.

Article 43. Advisory Bodies
In the process of carrying out the objectives of th e union, the General Meeting of the members may
establish special advisory boards, if so provided in the charter. A person who is not a member of the
union may be a member of such an advisory group.

Article 44. Union Membership
1. The Governing Board admits members to the union on the basis of written applications by
interested persons, or in other cases provided for in the charter.
2. Each member is entitled to wi thdraw from the union. The charter may provide for a certain period
of time for withdrawal, which period may not exceed one year. If a member seeks to leave the union
for a legitimate reason, then there is not a requirement for a period of time for withdrawal.
3. Membership may not be transferred to or inheri ted by other persons unless otherwise provided for
in the charter.
4. In such cases as may be provided for in the char ter, or if significant grounds exist, the General
Meeting of the members may expel a member from the union. The expelled member may file an
appeal against the decision to expel him with a court.
5. If a union serves a significant function in m eeting the vital social or other needs of a person
interested in joining, then such person is entitl ed to demand admission to the union, unless his
admission would contravene the fundamental principles of the union.

Article 45. Non-registered Un ion [Unincorporated Association]

1. Matters concerning the organization and structu re of a non-registered union [unincorporated
association] are defined by the mutual agreement of its members. A non-registered union shall not be
considered a legal person.
2. Membership fees or property acquired with such fees constitute the common property of the
union.
3. A non-registered union may be represented in court or in extrajudicial relations by its members, or
by persons so authorized.
4. The claims of creditors may be satisfied from the common property of the [non-registered] union.
In addition, persons who have acted on behalf of the union shall be liable as obligors [debtors] both
individually and jointly.
IV. Special Norms on Foundations

Article 46. Foundation for Recipients 2
The objective of a foundation, in addition to the obj ectives defined in paragraph (3) of Article 30, may
also be the support of certain persons or specifica lly defined groups of persons. All persons who are
entitled to receive a share from the property of th e foundation (recipients) may, subject to the consent
of all members of the Governing Board, dissolve the foundation or alter its objective, provided the
Ministry of Justice agrees as well.

2 The Georgian drafter coined the term destinaterebi (Cf. French destinataires ), which does not easily translate into
English. We have avoided “beneficiaries” because that term has broader applicability than the very specific class of
persons addressed here.

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Article 47. Obligation to Contribute to a Foundation
1. A founder (founders) shall assume liability, in
the form of a notarized document creating the
foundation, to contribute property to the foundation in the amount required to accomplish the purpose
of the foundation. If the property is inadequate, th e registration of the foundation shall be refused.
2. Refusal to transfer the [indicated] property to the foundation may occur at any time before
registration of the foundation. Within one month after registration, the property shall be transferred in
full; otherwise the registration shall become invalid.
3. The objectives of the foundation shall be finan ced from the income derived from its property,
unless otherwise provided for in the charter. If for a cer tain period of time this income is not sufficient,
then the activity of the foundation shall be reduced or suspended, and the income shall be added to the
property of the foundation.
4. A report on the condition [state] of the property of the foundation shall be prepared annually, in an
appropriate form.

Article 48. Supervisory Body
1. The charter may provide for establishment of a Supervisory Body (Board of Trustees), the
members of which are selected by the Founders of the foundation, for the purposes of appointing,
recalling, and supervising the Governing Board and sp ecial representatives. After the death of the
Founders, new members may be added to the composition of the Supervisory Body, by the Recipients
or within the limits defined in the charter (rule of “co-optation”).
2. In all other cases the Ministry of Justice ensures that the foundation is administered according to
the law and its charter. The Ministry of Justice may obtain information on the activity of the foundation
and examine its documentation.
3. The Supervisory Body (Board of Trustees) may suspend, declare invalid or demand revocation of
the decisions and undertakings of the Governing Bo ard if they contravene the law or the foundation’s
charter.
4. The Supervisory Body ensures that the appoint ment of the Governing Board and other bodies
conform to the charter. If the charter fails to regulate these relations, the Supervisory Body may issue
additional instructions.

Article 49. Alteration of the Object of a Foundation
If the purpose of the foundation cannot be accompli shed without Recipients, or if other grounds for
the liquidation of the foundation exist, then the Minist ry of Justice may, provided the charter does not
otherwise address this issue, demand the alterati on of the purpose of the foundation instead of
liquidation, or the Ministry may, preserving the sim ilarity with the initial purpose, carry out the merger
of the foundation with other foundations; and if any of the Founders is
alive, his consent thereto shall
be required.
TITLE TWO
TRANSACTIONS
CHAPTER ONE
GENERAL NORMS

Article 50. Concept
A transaction is a unilateral, bilateral or multilateral declaration of intent aimed at creating, changing or
terminating legal relations.

Article 51. Validity of Unil ateral Declaration of Intent
1. A declaration of intent that requires acceptance by the other party is considered effective [“real”] from the moment it reaches the other party.
2. A declaration of intent is not considered to be effective [or actual] if the other party rejects it in
advance or contemporaneously.

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3. The validity of the declaration of intent may re
main unaffected by the death of the party to the
transaction or by the loss of his legal capacity, if these events occurred after the declaration of intent.
3

Article 52. Interpretation of the Declaration of Intent
In interpreting the declaration of intent, the inten tion shall be ascertained as a result of reasonable
deliberation, and not only from the literal meaning of its wording.

Article 53. Non-existence of a Transactio n when its Content Cannot be Ascertained
A transaction shall not exist when its content cannot be ascertained from its form of expression or
from other circumstances.

Article 54. Unlawful and Immoral Transactions
A transaction, that violates rules and prohibitions determined by law, or that contravenes the public
order or principles of morality, is void.

Article 55. Voidness of a Transact ion by Reason of Abuse of Power
1. A transaction may be deemed void if the performance stipulated by the tr
ansaction is clearly
disproportionate to the consideration in exchange fo r this performance, and the transaction has been
made solely because one of the parties to the cont ract maliciously abused his market power or exploited
the hardship or inexperience (naivete) of the other party.
2. A transaction that has been made by the abuse of influence of one party over the other party, when
their relations are based on exceptional confidence, is void.

Article 56. Sham and Fraudulent Transactions
1. A transaction that has been made only for the sake of appearances, without the intent to create legal
consequences corresponding to its terms, is void (sham transaction).
2. If, by making a sham transaction, the parties in tended to conceal another transaction, then the rules
applicable to concealed transactions shall apply (fraudulent transaction).

Article 57. Voidness of a Transaction when the Declaration of Intent is not Serious
1. A declaration of intent that has been made not seriously (humorously), under the presumption that
the non-seriousness of the declaration would be recognized, is void.
2. A recipient of a declaration of intent shall be compensated for damages resulting from the fact that
he trusted the seriousness of the declaration, provid ed he did not know and could not have know of its
non-seriousness.

Article 58. Voidness of a Transaction For La ck of Legal Capacity or Mental Disorder
1. A declaration of intent is void when made by a minor (lacking legal capacity) or by a person who
has been declared legally incapable by a court.
2. A declaration of intent made during a loss of consciousness or temporary mental disorder may be
deemed void.
3. A declaration of intent made by a mentally ill person is void when the d
eclaration is inconsistent
with a correct perception of the reality of the situat ion, even if the court has not declared the person
legally incapable.

3 It appears that the “party to the transaction” referred to is the declarant, even though it is hardly likely that the
declarant could have declared his intent after death. Because a declaration of intent is valid only when it reaches the
target recipient, then it could not be valid if the target recipient died after the declaration but before the receipt.
Accordingly, a declaration of intent remains valid even if the declarant dies or becomes legally incapacitated after
making it.

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Article 59. Transaction Made
Without Observance of the Form
1. A transaction is void when it is made without observance of the form provided for by law or in the
contract, and, likewise, a transaction is void when made without permission, if permission is required
for the transaction.
2. If a voidable transaction is rescinded, then it is void from the moment of its execution. Rescission
is declared to the other party to the contract.
3. An interested person holds the right of rescission.

Article 60. Conversion of Transaction
If a void transaction satisfies the requirements esta blished for another transaction, then the latter
transaction shall be considered valid, provided th at the parties, upon detecting that the [first] transaction is void, wish it [the second transaction] to be valid.

Article 61. Significance of Confir mation when a Transaction is Void
1. An indisputably void (absolutely null) transaction is deemed void from the moment of its making.
2. If a person [who has made] an indisputably vo id transaction confirms it, then his action [in
confirming it] is considered as the making of the transaction anew.
3. If the person having the right to rescind confirms the transaction, he thereby loses the right to
rescind.
4. If the parties confirm an indisputably void b ilateral transaction, then they are bound, when in
doubt, to transfer to each other everything that wo uld have accrued to them if the transaction had been
valid initially.
5. The confirmation shall be valid only if the c ontract or the transaction does not contravene the
principles of morality and the requirements of public order.

Article 62. Voidness of a Part of a Transaction
Voidness of a part of a transaction shall not cause the vo idness of other parts thereof, if it is likely that
the transaction would have been made even without the void part.

CHAPTER TWO
LEGAL CAPACITY AS A CONDITION FOR VALIDITY OF TRANSACTIONS

Article 63. Transaction Made by a Minor
1. If a minor makes a bilateral transaction (contra ct) without the required consent of his statutory
representative [“legal representative”], then the validity of the transaction depends upon whether the
representative subsequently approves it or not, except when the minor acquires a benefit by the
transaction.
2. If a minor becomes a person with legal capaci ty, he decides himself the validity of his own
declaration of intent.

Article 64. Repudiation of a Transaction Made by a Minor
1. Prior to the [statutory representative’s] approval of a contract made by a minor, the other party is
entitled to repudiate the contract.
2. If the other party knew of the minority of the pers on, then he may repudiate the contract only if the
minor deceived him by claiming that consent from the statutory representative had been received.

Article 65. Emanci pation of a Minor
1. A contract entered into by a minor without the co nsent of his statutory representative is deemed to
be valid if the minor has performed his part of the contract with means given to him, for this purpose
or for his free disposal, by the representative or, with the latter’s consent, by a third party.
4
2. If the statutory representative gives the right to independently manage an enterprise to a minor who
has attained sixteen years of age, then the minor th ereby acquires full legal capacity in relations routine

4 See German Civil Code § 110.

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for this field of activity. This rule applies to the
establishment and the liquidation of the enterprise, as
well as to the commencement and completion of labor relations.
3. The statutory representative may give consent for management of the enterprise only with the
concurrence of the guardianship and curatorship agency.

Article 66. Voidness of a Transaction Ma de Without the Required Consent of the
Representative
A unilateral transaction made by a minor without the re quired consent of the statutory representative is
void. Such a transaction is likewise void if there has been consent by the statutory representative, but
the minor failed to present a written document c onfirming it, and for this reason the other party
repudiates the transaction without delay. Such repudiation shall not be allowed if the other party has
been informed of the statutory representative’s consent.

Article 67. Obligation of Permission Prior to Limitation of Legal Capacity
A transaction made prior to the limitation of le gal capacity requires permission [of the statutory
representative] if it is established that the grounds for which legal capacity has been limited obviously
existed at the time of making of the transaction.

CHAPTER THREE
FORM OF TRANSACTION

Article 68. Significance of Form for the Validity of a Transaction
The validity of a transaction requires the observance of the form prescribed by law. If no such form is
prescribed, the parties may themselves determine it.

Article 69. Types of Form
1. In the case of a simple written form of a cont ract, the signatures of the parties to the transaction
shall be sufficient for the validity of the transaction.
2. Renewal, reproduction or imprinting of a signat ure by mechanical means is allowed in cases where
it is accepted as custom, namely in the affixing of signatures on securities issued in large numbers.
3. If the form of a transaction requires notarial au thentication, then the authentication is made by a
notary, a judge or other person prescribed by law.

Article 70. Entrusting Si gnature to Another Person
A person who, as a result of illiteracy, physical defe ct or illness, cannot sign a transaction in his own
signature, may entrust the signature on the transacti on to another. The signature of the latter shall be
officially authenticated. In addition, the reason shall be indicated for which the person making the
transaction was unable to affix his own signature.

Article 71. Making A Transaction by Draw ing Up Several Documents [Counterparts] If a transaction is made by drawing up several document s of the same content, it is sufficient that each
party affixes his signature to that copy of the do cument which is intended for the [other] relevant
party.
5

CHAPTER FOUR
VOIDABLE TRANSACTIONS
I. Transactions Made by Mistake

Article 72. Concept
A transaction may become voidable if the declaration of intent has been made on the basis of a
substantial mistake.
6

5 Compare German Civil Code § 126[2] – counterparts.

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Article 73. Types of Substantial Mistake
A mistake is deemed substantial when:
a. A person intended to make a different transacti on than that to which he gave his consent;
b. A person was mistaken about the content of the transaction that he intended to make;
c. The circumstances, which the parties considered to be the grounds for the transaction
according to principles of good faith, do not exist.

Article 74. Mistake with Respect to the Identity of a Contracting Party
1. Mistake with respect to the identity of a contra cting party is deemed substantial only when the
identity of the contracting party itself or considerat ion of its personal characteristics is the principal
foundation for making the transaction.
2. Mistake with respect to basic characteristics of a thing is deemed substantial only when these
characteristics are significant in d etermining the value of the thing.

Article 75. Mistake wi th Respect to a Right
Mistake with respect to a right is deemed substantial only when that right has been the sole and
principal foundation for making the transaction.

Article 76. Mistake with Respec t to a Motive of a Transaction
Mistake with respect to a motive of a transaction sh all not be deemed substantial, except when motive
was the subject of the agreement.

Article 77. Consent of a Contracting Pa rty in Transactions Made by Mistake
A declaration of intent made by mistake shall not be voidable if the other party agrees to perform the
transaction according to the wish of the party that intends to make the transaction voidable.

Article 78. Petty Mistakes
Petty mistakes in computations or in a written declarat ion of intent give rise to the right only to correct
the mistake, and not to rescind.

Article 79. Validity of Rescission
1. Rescission shall be declared within one month from the moment at which the grounds for the
rescission were detected.
2. If a transaction has become voidable and the mistake has been caused by the negligence of the
person entitled to rescind, then he shall be bound to compensate the other party for the harm caused as
a result of the voidness of the transaction. The obligation to compensate shall not arise if the other
party knew of the mistake, or it was unknown to him due to his negligence.

Article 80. Mistake Caus ed by an Intermediary
A declaration of intent that has been wrongly commu nicated by a person employed as an intermediary
may become voidable on the same conditions as a tr ansaction made by mistake according to Article 73.

II. Transactions Made by Deceit

Article 81. Concept
1. If a person has been deceived for the purpose of inducing him to make a transaction, then he is
entitled to demand voidance of the transaction. Voidance shall occur when it is evident that the
transaction would not have been made without the deceit.

6 “Material” mistake is closer to the Anglo-American understanding, but not as close to the Georgian word used, which
translates name accurately as “substantial.”

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2. If one party keeps silent with respect to circum
stances, which if the other part had known them he
would not have declared his intent to enter into the transaction, then the deceived party may demand
voidance of the transaction. The obligation to di sclose circumstances with respect to a transaction
exists only when the other party expected it in good faith.

Article 82. Transaction rendere d Void by Reason of Deceit
When rendering a transaction void, it is of no im portance whether the party, by communicating the
wrong information, intended to gain some adva ntage or to inflict injury on the other party.

Article 83. Deceit by a Third Person
1. In the event that a third party has committed th e deceit, the demand for voidance of the transaction
may be made if the party benefiti ng from the transaction knew or ough t to have known of the deceit.
2. If both parties to the transaction have acted deceitfully, then neither of them is entitled to demand
voidance of the transaction or compensation for damages on the grounds of deceit.

Article 84. Limitation Period for Rescission
A transaction made by deceit is voidable within one year. The period shall be computed from the
moment at which the party entitled to rescind de tected the existence of the grounds for rescission.

III. Transactions Made by Duress

Article 85. Concept
The use of duress (violence or threats) for the pur pose of making a transaction shall entitle the person
subjected to the duress to demand voidance of the tr ansaction, even when a third person has exercised
the duress.

Article 86. Nature of Duress
1. Voidness of a transaction is justified by such du ress that by its nature may influence a person and
inspire a fear of real injury to his person or property.
2. In assessing the nature of duress, the age, se x and life circumstances of persons are taken into
consideration.

Article 87. Duress Directed agains t the Near Relatives of a Person
Duress likewise constitutes grounds for voidness of a tr ansaction when it is directed against the spouse,
other family members or near relatives of one of the parties to the transaction.

Article 88. Duress by Lawful Means
Actions exercised neither for illegal purposes nor by using illegal means shall not be deemed to be
duress under Articles 85-87, except in those cases when the means [of influencing the person] and the
purpose [of the influence] do not coincide.

Article 89. Limitation Period for Rescission
A transaction made by duress is voidable within on e year from the moment at which the duress ended.

CHAPTER FIVE
CONDITIONAL TRANSACTIONS

Article 90. Concept
A transaction is deemed conditional when it depend s upon a future or uncertain event, so that the
performance of the transaction is either postponed until the occurrence of the contingency, or the
termination of the transaction is timed to coinci de with the occurrence of the contingency.

Translated by IRIS Georgia May 2001
24
Article 91. Voidness of Unla
wful and Immoral Condition
A condition that contravenes the provisions of law or the principles of morality, or the performance of
which is impossible, shall be void. A transaction th at depends upon such a condition shall be void in
full.

Article 92. Conditio n Dependent upon Will
A condition is deemed to be dependent upon the will when its occurrence or non-occurrence depends
only upon the parties to a transaction. A tran saction made on condition of will is void.

Article 93. Positive Condition
1. When a transaction is made on the condition that some event will occur within a certain period of
time, then the condition will be deemed legally ineff ective if this period of time has elapsed and the
event has not occurred.
2. If no period of time is fixed, then the condit ion may be fulfilled at any time. The condition may be
considered invalid when it is obvious that the occurrence of the event is already impossible.

Article 94. Negative Condition
1. When a transaction is made on the condition that some event will not occur within a certain period
of time, then the condition is deemed fulfilled if th is period of time has elapsed without occurrence of
the event. The condition is also deemed fulfilled when prior to the complete lapse of the period, it is
obvious that the event will not occur.
2. If no period of time is fixed, then the conditi on is deemed fulfilled only when it is obvious that the
event will not occur.

Article 95. Influencing the Occurr ence of the Condition Not Allowed
1. A person who has made a transaction contingent upon a certain condition has no right to perform,
prior to the occurrence of the condition, any action that may hinder the performance of his obligation.
2. If the condition occurs at a certain time, and the person has already performed such action, then he
is bound to compensate the other party for the damage caused thereby.

Article 96. Transaction on a Condition of Postponement
A transaction on the condition of postponement is deemed to be made if t
he creation of rights and
duties stipulated by the transaction depends upon a futu re or uncertain event, or upon an event that has
already occurred but is yet unknown to the parties.
7

Article 97. Transaction on a Condition Subsequent
A transaction on the basis of a condition subsequent is deemed to be made when the occurrence of this
condition causes termination of the transaction, and the state of affairs that existed prior to making of
the transaction is restored.
8

Article 98. Significance of Good Faith Wi th Respect to Occurrence of the Condition
1. If the party for whom the occurrence of the condition is unfavorable intentionally delays its
occurrence in bad faith, then the condition shall be deemed to have occurred.
2. If the party for whom the occurrence of the c ondition is favorable intentionally promotes its
occurrence in bad faith, then the condition shall not be deemed to have occurred.

CHAPTER SIX
CONSENT IN TRANSACTIONS

7 This form of conditional agreement is only marginally different from a transaction based on a positive condition
(Arts. 90, 93) and is no less valid.
8 See German Civil Code § 158(2).

Translated by IRIS Georgia May 2001
25
Article 99. Concept
1. If the validity of a transaction depends upon th
e consent of a third person, both the consent and
the rejection thereof may be declared to either party to the transaction.
2. The consent need not be in the form prescribed for the transaction.
3. If a transaction the validity of which depends u pon the consent of a third person has been made
with the consent of that person, then the 2
nd and 3 rd sentences of Article 66 shall apply accordingly. 9

Article 100. Consent Gran ted in Advance (Permission)
Consent granted in advance (permission) may be revoked prior to the making of a transaction unless
otherwise agreed by the parties. Both parties shall be notified of the revocation of the consent
(permission).
10

Article 101. Subsequent Consent (Approval)
Subsequent consent (approval) shall be retroactive to the moment of the making of the transaction,
unless otherwise established.

Article 102. Disposition of a Th ing by an Unauthorized Person
1. Disposition of a thing by an unauthorized person is valid provided it is done with the prior consent
of the authorized person.
11
2. The disposition becomes valid if [subseque ntly] approved by the authorized person. 12

CHAPTER SEVEN
AGENCY IN TRANSACTIONS

Article 103. Concept
1. A transaction may be made through an agent [o r “representative”] as well. The authority of an
agent may arise either by operation of law or out of a mandate [power of attorney].
2. This rule shall not apply when, proceeding from the nature of a transaction, it must be performed
[“entered into”] by a particular person, or when ever the law prohibits the making of a transaction
through an agent.

Article 104. Agency and the Effects of a Transaction on an Addressee
1. A transaction made by an agent within the scope of his authority, and for and on behalf of the
person represented by him [the principal], shall give rise only to the rights and obligations of the
principal.
2. When a transaction is made for and on behalf of another person, then the other party to the
transaction may not resort to the absence of the ag ent’s authority, if the principal has created such
circumstances that the other party to the transaction believed in the existence of such authority in good
faith.
3. If, when making a transaction, an agent faile d to indicate his authority of agency, then the
transaction shall have legal consequences for the principal, only if the other party ought to have
presumed the existence of the agency [from the circumstances]. The same rule shall apply when for the
other party it does not matter with whom he makes the transaction.

Article 105. Limited Legal Capacity of an Agent
A transaction made by an agent is valid even if the agent was a person with limited legal capacity.

9 See German Civil Code § 182. 10 Compare German Civil Code § 183 (revoc ation may be declared to either party). 11 Compare German Civil Code § 185(1): “Disposition affect ing an object which is made by a person without title, if
made with the approval of the person entitled, is valid.”
12 Compare German Civil Code § 185(2). Disposition is valid if ratified by the person entitled.

Translated by IRIS Georgia May 2001
26
Article 106. Defect of Decl
aration of Intent in Agency
1. When a transaction is voidable by reason of a def ect in the declaration of intent, the declaration of
intent of the principal shall prevail.
2. If the defect in the declaration of intent relates to circumstances determined by the principal in
advance, then this defect may give rise to the ri ght to rescind only if the defect was caused by the
principal.
13

Article 107. Authority of Agency
1. Authority (power of attorney) is conferred by a declaration of intent made towards the person who
is given the power of attorney, or towards a th ird person with respect to whom the agency will be
exercised.
2. The declaration of intent [for conferring authori ty on an agent] need not be in the form prescribed
for making the transaction to which the power of attorney relates. This rule shall not apply when a
special form [for the power of attorney] is predetermined.
14

Article 108. Obligation of Notifi cation Upon Altering the Authority
Third persons shall be notified of alterations to the authorization and its revocation. In case of non-
performance of this requirement, such alterations and revocation of authority shall not be valid in the
face of third persons, except when [such persons] knew or ought to have known of the alterations or
revocation when making the transaction.

Article 109. Grounds for Termination of Authority
Representational authority is extinguished by:
a. The expiration of the term for which the authority was conferred;
b. Renunciation of the authority by the [agent];
c. The revocation of the authority by the person who conferred it;
d. The death of the person who conferred the author ity or the occurrence of his legal incapacity,
unless otherwise provided for by agreement;
e. Performance [of the authorized transaction].

Article 110. Obligation of Agent upon Extingui shment of Authority
Upon extinguishment of his authority, an agent shall return the instrument of authority to the person
who conferred it. He has no right to keep the instrument.

Article 111. Making a Transaction Without Representational Authority
1. If a person without representational authority makes a transaction for and on behalf of another
person, the validity of this transaction depends upon the [ratification] of the principal.
2. If the other party demands [ratification] from the principal, then only he [the other party] need be
notified of the ratification. The ratification may be given within two weeks from [receipt of] a demand
[for it]; otherwise the demand for rati fication shall be deemed to be rejected.
15

Article 112. Right to Repudiate a Contract
Prior to ratification of the contract [by the principal], the other party is entitled to repudiate the
contract, except when this party knew of the deficien cy in the representational authority at the time the
contract was entered into. Renunciation of the co ntract may be declared also towards the agent.
16

13 Compare German Civil Code § 166. 14 Compare German Civil Code § 167. 15 Compare German Civil Code § 177. 16 See German Civil Code § 178.

Translated by IRIS Georgia May 2001
27
Article 113. Agent’s Obligation
when there is a Defect in Representational Authority
1. If a person who makes a transaction as an agent fa ils to prove his representational authority, then
he shall be bound, at the option of the other par ty, either to perform the obligation assumed or to
compensate him, if the principal refuses to ratify the contract.
2. If the agent did not know of the defect in his au thority, then he shall be bound to compensate only
that damage that the other party sustained in relying upon the authority
.
3. The agent shall not be liable if the other party knew or ought to have known of the defect in his
representational authority. Likewise, the agent shall not be liable if his legal capacity was limited, except
when he acted with the consent of his legal [statutory] representative.
17

Article 114. Making of a Transact ion with One’s Own Self Disallowed
Unless otherwise provided for by an agreement, an agent may not make a transaction in the name of
the principal and with himself, either in his own name or as an agent of a third party, except when the
transaction already exists for the performance of some obligation.
18
TITLE THREE
EXERCISE OF RIGHTS

Article 115. Abuse of Rights Disallowed
A civil right shall be exercised lawfully. Exercise of a right exclusively with the intention to inflict
damage on another shall not be allowed.

Article 116. Damage Inflicted Within the Limits of Necessary Self-Defense
1. An action exercised within the limits of necessary self-defense shall not be unlawful and the damage
caused thereby may not be recovered.
2. Self-defense shall be deemed to be necessary if it is required to repel a real and illegal assault against
the person defending himself, or against others.

Article 117. Damage Caused by Extreme Necessity
1. Damage caused to eliminate a danger that in the given circumstances could not be eliminated by
other means, and provided that the damage inflicted is less significant than the damage avoided, shall
be compensated by the [one who initiated the danger].
19
2. Upon consideration of the factual circumstances in which the damage was inflicted, the liability for
compensation of the damage may be imposed on the third person in whose interests the harm-doer
acted, or both this third person and the harm-doer may be excused from liability in whole or in part.

Article 118. Self-help
If assistance from competent bodies cannot be obtai ned on time, and without swift intervention there
is a danger that a right cannot be exercised, or it s exercise will be essentially complicated, then the
action of a person who for the purpose of self-help se izes, destroys or damages a thing, or who for the
same purpose captures an obligor wh o may escape, or stops the actions of an obligor that are contrary
to an action that he [the obligor] ought to ha ve performed, shall not be deemed unlawful.
20

Article 119. Limits of Self-help
1. Self-help may not exceed the limits [of action] that are necessary to eliminate the danger.

17 See German Civil Code § 179. 18 The meaning of the last clause is better understood when compared to the German Civil Code version: “An agent
may not without leave enter into a legal transaction in the na me of his principal with himself in his own name, or as
agent of a third party, unless the legal transaction consists exclusively in the fulfillment of an obligation.” § 181.
19 Literally, “…by the one who inflicted the damage” in th e original. See § 1001of this Code. Compare German Civil
Code § 228.
20 See German Civil Code § 229. While the structure of the English translation of the German Civil Code is different,
the content of all the versions is the same.

Translated by IRIS Georgia May 2001
28
2. In the case of seizure of a thing it shall be
required to immediately make a declaration on the
[appropriation and] attachment of the thing.
3. A captured obligor shall be handed over to the appropriate authorities immediately.

Article 120. Obligation to Compensate Damage
A person who has exercised the ac tions provided for under Article 118 based upon an erroneous
assumption that it was necessary to avoid an unlawful action shall be bound to compensate the other
party for the damage thereby arisen.
21
TITLE FOUR
PERIODS OF TIME
CHAPTER ONE
COMPUTATION OF PERIODS OF TIME

Article 121. Scope of the Rules fo r Computation of Periods of Time
The rules prescribed in this chapter apply to the periods of time fixed in laws, court decisions and
transactions.

Article 122. Point of Time Defini ng the Start of a Period of Time
If a period of time begins to run from an event or a point of time occurring during the course of a day,
then in computing the period the day in which the event or the point of time occurs
is not counted.

Article 123. End of a Period of Time
1. A period of time expressed in days shall end upon the expiration of the last day of the period.
2. A period of time expressed in weeks, months or periods including several months – year, half-year,
quarter – ends upon the expiration of that day of th e last week or of the last month which corresponds
[in name or number] to the day in which the event or point of time occurs.
22
3. If a period of time expressed in months lacks a specified day in which the period ends, then the
period shall end upon the expiration of the la st day of the last month of the period.
23

Article 124. Concepts
1. A half-year denotes a period of time of six m onths, a quarter denotes a period of time of three
months computed from the beginning of a year, and a half-month – a period of time of fifteen days.
2. If a period of time consists of one or more fu ll months and a half-month, then the fifteen days shall
be computed at the end of the period.

Article 125. Computation of a Period of Time in the Event of its Extension
If a period of time is extended, the new period of time shall be computed from the end of the expired
period of time.

Article 126. Computation of a Period of Time by Months
1. If a period of time is expressed in months or years in such a manner that [they need not run
consecutively] then a month shall be computed as th irty days, and a year as three hundred and sixty-five
days.
24
2. The first day of a month is deemed to be the be ginning of the month, the fifteenth day of a month
– the middle of the month, and the last day of a month – the end of the month.

21 Compare German Civil Code § 231, which makes it clear that the liability is strict, without regard to lack of
negligence on the actor’s part.
22 See German Civil Code § 188(2). 23 This clause is best understood in light of the German Civil Code version. If, using the method in Art. 123(2), the
expiration of a period expressed in months would occur on a day that does not exist in that month (e.g., September 31),
then the end of the period is the expiration of the last day of that month (i.e. September 30).
24 Literally translated the Georgian makes no sense in Eng lish. The translation here is taken from the German Civil
Code, § 191.

Translated by IRIS Georgia May 2001
29

Article 127. Days Off and Holidays
If an action is to be performed on a certain day, and th
at day or the last day of the time period falls on a
non-business day or on a day declared to be an official holiday, or on another day off at the place of the
performance of the action, then the next succeed ing business day shall be used instead of [the
designated] day.

CHAPTER TWO
PRESCRIPTION
[STATUTE OF LIMITATIONS]

Article 128. Concept; Types
1. A period of limitation shall apply to the right to demand from another person that he perform a
certain action or that he refrain from an action.
2. A period of limitation shall not apply to:
a. Personal non-property rights, unless otherwise prescribed by law;
b. Demands of depositors for deposits made with a bank or other credit institutions.
3. The general period of limitation is ten years.

Article 129. Limitation Period on Claims Arising out of a Contract
1. The period of limitation on contractual claims is three years, and the period with respect to
contractual claims regarding immovable things – six years.
2. The period of limitation on claims arising out of obligations subject to periodic performance is
three years.
3. In individual cases, other period s of limitation may be fixed by law.

Article 130. Beginning of the Limitation Period
The period of limitation begins to run from the mo ment at which the claim arises. The claim shall be
deemed to have arisen from the moment at whic h the person detected or ought to have detected the
violation of the right.

Article 131. Origination of a Claim
If the origination of a claim depends upon an action of a creditor, then the period of limitation shall
begin to run from the moment at which the creditor could have taken this action.

Article 132. Suspension of the Running of the Limitation Period
The running of the limitation period is suspended:
a. If performance of the obligation is postponed by [state] executive authorities (moratorium);
b. If the filing of a lawsuit is prevented by ex traordinary and, under given circumstances,
unavoidable force majeure;
c. If the creditor or the debtor is in a unit of th e Armed Forces that has been put in a war status;
d. By virtue of other causes in the instances prescribed by law.

Article 133. Suspension of the Running of the Limitation Period During Marriage
The running of the limitation period is suspended b etween spouses as long as the marriage exists. The
same rule applies to claims between parents and childr en until the attainment of majority, as well as to
claims between guardians (curators) and their wards during the whole period of guardianship
(curatorship).

Article 134. Suspension of th e Running of the Limitation Period Due to Legal Incapacity
If a claim has been either brought by or directed against a person without legal capacity or a person
with limited legal capacity who has no statutory repr esentative, then the limitation period shall be

Translated by IRIS Georgia May 2001
30
deemed suspended until the person acquires full legal
capacity or until a statutory representative is
designated.

Article 135. Time During which the Running of the Limitation Period is Suspended
The time during which the running of the limitat ion period is suspended shall not be counted in
computing the limitation period.

Article 136. The Moment of Suspension of the Running of Limitation Period
1. The running of the limitation period shall be suspended on the condition that the circumstances
under Article 132 arose or continued to exist within the last six months of the limitation period or, if
this period is less than six months, then anytime during the limitation period.
2. From the day of termination of the circumst ances that caused the suspension of the limitation
period, the limitation period shall continue to run for another six months or, if the limitation period
itself is less than six months, then for the limitation period.

Article 137. Interruption of the Running of the Limitation Period
The running of the limitation period shall be interru pted if the obligor acknowledges the existence of
the claim before the entitled person by paying an ad vance or an amount of interest, by delivering a
guaranty, or otherwise.

Article 138. Interruption of the Running of a Limitation Period by Bringing an Action
The running of the limitation period shall be inte rrupted if the entitled person files a lawsuit for
satisfaction of the claim or for its ascertainment [decla ratory judgement], or tries to satisfy the claim by
some other means such as by filing a declaration of the existence of the claim with a state body or with
a court, or by [taking action to execute the clai m or judgement]. Articles 139 and 140 shall apply
accordingly.
25

Article 139. Duration of Interruption of the Running of a Limitation Period
1. Interruption of the running of a limitation peri od on the grounds of the filing of a lawsuit shall
continue until the court decision [on that lawsuit] takes effect, or until the litigation is otherwise
completed.
2. If the litigation is interrupted as a result of an agreement between the parties or by reason of the
impossibility of its further continuation, then the ru nning of the limitation period shall be interrupted
[sic] along with the agreement of parties, or upon co mpletion of the last proceedings of the court. If
one of the parties continues the litigation again, th en the new limitation period that has begun to run
after the interruption of the legal proceedings shall be interrupted in
the same manner as the running of
a limitation period is interrupted by the initial filing of a lawsuit.
26

Article 140. Renunciation of a Lawsuit
1. The filing of a lawsuit shall not interrupt the running of the limitation period if the claimant
renounces the lawsuit or if the lawsuit is left withou t consideration by virtue of a court decision that has
entered into legal force.
2. If the entitled person files a new lawsuit within six months, then the limitation period shall be
deemed interrupted as of the time of filing of the first lawsuit.

Article 141. Computation of the Ru nning of Limitation Period Anew
If the running of the limitation period is interrupted, then the time elapsed before the termination shall
not be counted and the period shall begin to run anew.

25 See German Civil Code § 209. 26 Where marked “sic,” the clause contains an editorial er ror. The second sentence makes it clear that in the prior
sentence, the running of the limitation period is resumed
by the suspension of litigation, and the period is interrupted
[“tolled” in common law] if the litigation is resumed. See also German Civil Code § 211.

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31
Article 142. Limitation Period on
Claim Confirmed by a Court Decision
1. The period of limitation on a claim confirmed by a court decision that has entered into legal force is
ten years, even if the claim is subject to a lesser limitation.
2. If the court’s confirmation of the claim relates to periodically repeated actions to be performed in
the future, then the limitation under the second paragraph of Article 129 shall apply thereto.

143. Limitation Peri od on Claims in Rem
If a thing with respect to which a claim in rem ex ists is transferred by succession of title to the
possession of a third person, then the limitation peri od elapsed during possession by the predecessor in
title shall also apply to the successor in title [i.e., be counted in favor of the successor in title.].

Article 144. The Right of an Obligor upon the Lapse of Limitation Period
1. Upon the lapse of the limitation period, the obligor is entitled to refuse to perform the action.
2. If the obligor has performed the obligation after the lapse of the limitation period, then he has no
right to revoke the performance, even if at the time of performance he did not know that the limitation
period had expired.
3. The same rule applies to the means of acknowledgement and security of a debtor.
27

Article 145. Prescription Period on Additional Demand
The prescription period on additional claims is deem ed to expire simultaneously upon the lapse of the
prescription period on the principal claim, even if the prescription period on the additional claims has
not lapsed yet.

Article 146. Alteration of th e Prescription period by Agree ment of the Parties Not Allowed
Neither prescription periods nor their rule of comp utation may be altered by an agreement of the
parties.

27 The translation is literal. The English translation of the German Civil Code counterpart is perhaps sufficiently close
to these words to be accepted as a proper translation of the meaning: “The same applies to a contractual
acknowledgement and to the giving of security of the person bound.” § 222(2).

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32
BOOK TWO
LAW OF THINGS (PROPERTY)
28
TITLE ONE PROPERTY

Article 147. Concept
Property, according to this Code, is every thing, as well as any intangible property benefit, which may
be possessed, used and disposed of by natural an d legal persons, and which may be acquired without
restriction, unless this is prohibited by law or contravenes moral stand
ards.

Article 148. Types of Things
A thing may be either movable or immovable.

Article 149. Immovable Things Defined
Immovable things include a tract of land with its subsoil minerals, the plants growing on the land, and
buildings and other structures firmly attached to the land.

Article 150. Essential Component Parts of a Thing
1. A component part of a thing that cannot be seve red without either destroying the whole thing or
this part, or extinguishing the purpose thereof (an essential component part of a thing), may
individually be an object of a right only in the instances prescribed by law.
2. Essential component parts of a tract of land includ e buildings, structures and things firmly attached
to the land and not intended for temporary use, that may be stipulated by contract as well.

Article 151. Appurtenance
1. An appurtenance is a movable thing which, althou gh not being a component part of the principal
thing, is intended to serve the principal thing and is connected to it by common economic purpose and
thereby is linked in space to the principal thing and, according to established understanding, is deemed
to be an appurtenance.
2. A thing that is attached to land and that may be severed therefrom without losing or substantially
damaging its commodity value is also deemed to be an appurtenance.

Article 152. Concept of Intangible Property
Claims and rights that may be transferred to other persons, or that are intended either for bringing a
material benefit to their possessor, or for entitling the latter to claim something from other persons,
constitute intangible property.

Article 153. Accessory and Limited Rights
1. A right that is connected to another right in suc h a manner that it cannot exist without the latter
right is an accessory right.
2. A limited right is one which is derived from a broader right and which encumbers the broader right.

Article 154. The Fruit of a Thing and a Right
1. The fruit of a thing is income, accrual and/or advantage derived from th
is thing.
2. The fruit of a right is income and/or advantage whic h is received as a result of the exercise of this
right.
3. Income and advantage, the derivation of which is ensured by a thing or a right through a legal
relation, also constitute the fruit of the thing or of the right.

28 Although the main title of this book is the “Law of Thin gs,” and “things” as defined are only tangible (see Art. 147),
the body encompasses also intangible property-rights and claims (Art. 152) in its definition of property (see again Art.
147). A better title for the book would be “The Law of Property (Tangible and Intangible).”

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33
4.
Entitlement [or authorization to use] a thing or a ri ght allows one to receive the fruit of such thing
or right within the scope and duration of such entitlement.
5. If a person is obligated to return the fruit, then he may claim compensation for the expenses
incurred with respect to the fruit, provided th at such expenses result from proper economic
management and do not exceed the value of the fruit.
TITLE TWO
POSSESSION

Article 155. Concept. Types
1. Possession arises through the intentional acquisiti on of actual control [enjoyment] of a thing.
2. A person who, although exercising actual control of a thing, nevertheless is doing this in favor of
another person from whom he has received the posse ssory interest, shall not be deemed to be the
possessor. Only the person who conferred the possesso ry interest shall be deemed to be the possessor.
3. If a person possesses a thing by virtue of a legal relation that either entitles him to possess the thing
for a certain period of time or obliges him to possess the thing, then this person shall be deemed to be
a direct possessor, and the one who conferred the possessory interest or laid on him the obligation shall
be deemed to be an indirect possessor.
4. If one thing is jointly possessed by a number of persons, then these persons shall be deemed to be
joint possessors.
5. If parts of one thing are possessed by a number of persons, then these p
ersons shall be deemed to
be the possessors of the individual parts.

Article 156. Termination of Possession
Possession is deemed terminated if the possessor ce des the thing forever or otherwise loses actual
control of the thing.

Article 157. Transfer of Possession to Heirs
Possession is transferred to heirs in the same form in which it was held by the decedent (a testator or
an intestate).

Article 158. Presumption of Ownership
1. The possessor of a thing is presumed to be its owner.
2. This rule shall not apply in cases when the nature of the ownership relation is identified through the
Public Register. Also, the presumption of ownership shall not apply to the previous possessor if he lost
this thing or it was stolen or otherwise disposse ssed from him. The presumption of ownership operates
in favor of the previous possessor only during the period of his possession.

Article 159. Possessor in Good Faith
A possessor is in good faith if he possesses a thing lawfully or if he m
ay be deemed to be an entitled
person on the grounds of the kind of prudent examination required in bus
iness relations.

Article 160. Claim by the Possessor in Good Faith to Return a Thing back from Illegal
Possession
If a possessor in good faith is dispossessed, then within a three-year period he may revendicate the
thing from the new possessor.
29 This rule shall not apply when the new possessor has the better right
to possession of the thing. The right to revendic ate the possession may also be applied against the
person having the better right to the thing if he acquired it by duress or deceit.

Article 161. Claim by the Possessor in Good Faith for Putting an End to Illegal Obstacles

29 Revendication is a civil law term for recovery of property, analogous to the common law action of replevin.

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If a possessor in good faith is not dispossessed, but
he is otherwise obstructed in the exercise of his
possession, then he may, as if he were the owner, de mand that the obstruction be ended. In addition,
he may claim damages sustained because of the disturbance of his possess
ion. This rule of
compensation for damages shall likewise apply when it is impossible to demand that the disturbance
[obstruction] be ended.

Article 162. Rights of a Lawful Possessor
1. In no case may demand be made of a lawful possessor to return thing. During lawful possession,
the fruits of a thing and of a right belong to him.
2. This rule also applies to relations between direct and indirect possessors.

Article 163. Duty of Non-en titled Possessor in Good Faith
1. A possessor in good faith who did not have the right to the possession initially or who lost this
right is obligated to return the thing to the entitled person. Until the entitled person exercises this right,
the fruit of the thing or of the right shall belong to the possessor.
2. The possessor in good faith may claim from the entitled person reimbursement for those
improvements and expenses which the possessor incurred during possession of the thing in good faith,
and which have not been compensated by the use of the thing or by the fruit derived from it. T
he
value of fruit not derived due to the possessor’s fault shall be deducted [from the amount that he may
claim from the entitled person for compensation]. The same rule [i.e., the possessor’s right to
compensation] applies to such improvements that enhanced the value of the thing, provided the
enhanced value still exists at the moment of the return of the thing.
3. The possessor in good faith may refuse to return the thing until his cla
ims are satisfied.

Article 164. Duties of the Possessor in Bad Faith
A possessor in bad faith must return to the entitled person both the thing and the benefit derived, i.e.,
the fruit of the thing or of the right. The possessor is bound to compensate [the entitled person for] the
fruit that the entitled person does not receive ow ing to the fault of the wrongful possessor. [The
wrongful possessor] may claim reimbursement for th e improvements he made and the expenses he
incurred with respect to the thing only if, at the mome nt of return of the thing, they resulted in the
enrichment of the entitled person. Other claims against the possessor in bad faith shall remain
unaltered.

Article 165. Acquisitive Prescription of Movable Things
1. If a person uninterruptedly possesses a movable thin g for five years as his own thing, he shall
obtain the right of ownership to it (acquisitive prescription).
2. Acquisitive prescription of a movable thing is not allowed if the acquir
er possessed the thing in bad
faith or if he subsequently learned th at the thing did not belong to him.

Article 166. Presumption of Un interrupted Possession of a Thing
If a person possessed a thing at the beginning and at the end of a certain period of time, it shall be
presumed that he possessed the thing during the middle interval of the period as well.

Article 167. Acquisitive Prescription of Immovable Things
If a person is recorded in the Public Register as the owner of a tract of land or of other immovable
property, while he did not in fact acquire the right of ownership thereof, he shall obtain the right of
ownership provided the registration has existed for fifteen years, and during this period the person
possessed the property as his own.

Article 168. Termination of Possession of a Thing by Complaint [Claim] of the Owner
Possession of a thing is terminated if the owner as serts a justified complaint [claim] against the
possessor.

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Article 169. Right of Preempti
on in Acquisition of a Thing
A possessor who has possessed and used a thing on a la wful basis for more than ten years shall have
the preemptive [priority] right to acquire this thing unless otherwise prescribed b
y law.
TITLE THREE OWNERSHIP
CHAPTER ONE
CONTENT OF OWNERSHIP

Article 170. Concept. Cont ent of the Right of Ownership
1. An owner may, within the limits of legal or othe r, namely contractual restraints, freely possess and
use the property (thing), exclude others from using this property, and dispose of it unless [the exercise
of such rights] would violate the rights of neighbors or of other third persons, or unless such actions
constitute abuse of the right [of ownership].
2. Use of the property in such a way that damage is in flicted only on others, so that the priority of the
owner’s interest is not evident and the necessity of hi s action is not justified, shall be deemed to be
abuse of the right [of ownership].
3. A person’s right to use also includes the possib ility of not using the property. If nonuse or non-
maintenance of the thing is prejudicial to the public interest, then the law may prescribe an obligation
for use or maintenance and storage of the thing. In this case the owner shall be bound either to
perform the obligation by himself or to transfer the thing, in exchange for appropriate consideration, to
the use of another person.

Article 171. Right of Ownership to th e Essential Component Part of a Thing
The right of ownership of a thing shall likewise exten d to the essential component parts of the thing.

Article 172. Revendication of a Thing from Illegal Possession and Demand for Putting an End
to the Disturbance [of Ownership] 1. The owner may revendicate the thing from its po ssessor, except when the possessor had the right
to the possess it.
2. If encroachment on or other disturbance of the right of ownership occurs without seizure or
dispossession of the thing, then the owner may demand that the disturber put an end to such action. If
the disturbance continues, the owne r may demand putting an end to the action by filing a lawsuit in
court.

Article 173. Common Property
1. Common (joint and shared) property shall arise by vi rtue of law or on the grounds of a transaction.
Each co-owner may assert a claim against third persons with respect to the property under common
ownership. Each co-owner is entitled to revend icate the thing only in favor of all co-owners.
2. A thing under common ownership, subject to the agreement of the co-owners, may be pledged or
otherwise encumbered with a right in favor of and in the interests of one of the co-owners.
3. Expenses for maintenance and storage of a thin g under common ownership are borne equally by
the co-owners, unless otherwise provided for by law or the contract.
4. Each co-owner has a preemptive [priority] right to the acquisition of any share of the common
property.

CHAPTER TWO
LAW OF NEIGHBORING TENEMENTS

Article 174. Concept. Duty of Mutual Respect
The owners of neighboring tracts of land or othe r immovable properties are bound, in addition to the
rights and duties prescribed by law, to hold each other in respect. All such tracts of land or other

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immovable properties between which a reciprocal
nuisance may arise shall be deemed to be
neighboring ones.

Article 175. Obligation to Tolerate Neighboring Nuisances
1. The owner of a tract of land or other immovable property may not prohibit gas, steam, smell, soot,
smoke, noise, heat, vibrations or other similar inci dents from invading his property from a neighboring
tract provided that they do not obstruct the owner in the use of his tract or impair his rights
significantly.
2. The same rule applies in such case when the nuisance is substantial, but is caused by an ordinary
use of the other tract of land or immovable proper ty and cannot be abated through such undertakings
as are deemed to be regular economic activities for such kind of users.
3. If the owner is [hereby] bound to tolerate such a nuisance, he may demand from the owner of the
influencing tract of land the appropriate monetary compensation, where the nuisance exceeds the use
regarded as ordinary at the given place and is beyond economically permissible limits.

Article 176. Unallowable Encroachment
The owner of a tract of land may demand the prohibition of erection and utilization of such buildings
on neighboring tracts that unallowably encroach on the right to use his tract of land and [such
encroachment] is evident beforehand [foreseeable].

Article 177. Claim for Elimination of Danger
If a tract of land is endangered by the collapse of a building from a neighboring tract, the owner may
demand that the neighbor undertake necessary measur es to eliminate the danger. It shall not be
allowed to change the direction of or to manipu late watercourses and underground streams running
through several tracts of land in such a manner that may cause lessening of the amount of the water
and/or the deterioration of its quality. It shall not be allowed to interfere with the natural flow of
rivers.

Article 178. Right of the Owner of a Neighboring Tract to the Fruit
1. Fruit of a tree or bush that falls onto a neighboring tract of land shall be deemed to be the fruit of
[the tract that it falls on].
2. The owner of a tract of land may cut those branches or roots of a tree or a bush that extend over or
upon of his tract of land.

Article 179. Monetary Compensation for the Obligation of Tolerance
1. If the owner of a tract of land in the course of construction unintentionally encroaches on a
neighboring tract of land, then the owner of the ne ighboring tract shall tolerate this, except when the
latter made a declaration against the encroachme nt in advance or promptly upon detecting it.
2. The encroaching neighbor is obligated to pay mo netary compensation [to the encroached neighbor] that shall be paid annually in advance.

Article 180. Necessary Right of Way
1. If a tract of land lacks the access to public roads, electricity, oil, gas and water supply lines that are
necessary for its adequate use, then the owner may clai m from a neighbor to tolerate the use of his tract
by the owner for the purpose of providing the ne cessary access. The neighbors on whose tracts the
necessary right of way or transmission line passes shall be given monetary compensation which, by
agreement of the parties, may be made as a lump-sum payment.
2. The obligation to tolerate the necessary right of way or transmission line shall not arise if the
already existing access to the tra ct of land was discontinued by th e voluntary action of the owner.

Article 181. Duty of Fixing Boundaries
1. The owner of a tract of land may demand from th e owner of a neighboring tract that he participate
in fixing firm boundary markers, or in restorin g already existing but missing or damaged boundary

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markers. The expense for fixing boundaries is bor
ne equally between the neighbors unless otherwise
stipulated by either mutual agreement or other legal relation.
2. If exact boundary lines cannot be determined, th en the actual possession of the neighbors shall
prevail in the determination. If actual possession ca nnot be exactly determined, then the disputed land
shall be divided in equal parts between the tracts of land. If such division results in an unjust outcome,
then a court shall determine the boundary lin es on the petition of one of the parties.

Article 182. Right to Use A Boundary Structure
1. When two tracts of land are separated by a fen ce or other structure used as a boundary, it is
presumed that the owners of the tracts of land have equal right to use this structure unless th
e exterior
of the structure expressly indicates that it is under the ownership of one of the neighbors solely.
2. If both neighbors are entitled to the joint use of th e boundary structure, then each of them shall use
the structure in such a manner as not to obstruct the other neighbor’
s use.
3. The expenses for maintenance and keeping of the structure shall be borne equally between the
neighbors.
4. As long as one of the neighbors has an interest in the existence of the boundary structure, it may
not be demolished or altered without the consent of [that] neighbor.

CHAPTER THREE
ACQUIRING AND LOSS OF OWNERSHIP
I. Acquiring Ownership of Immovable Things

Article 183. Grounds for Acquiri ng Ownership of Immovable Things
1. Acquiring ownership of an immovable thing shall require a notarized document and registration of
the acquirer in the Public Register. Both the aliena tor and the acquirer may file the application for
registration.
2. The document shall precisely specify the grounds fo r acquiring the immovable thing. If one of the
parties participates through an agent, then the document shall precisely specify this.

Article 184. Abandonment of the Right of Ownership of an Immovable Thing
Relinquishment of the right of ownership of an immo vable thing or other right [related to the thing] requires the declaration of the entitled person on th e relinquishment of this right and the registration
thereof in the Public Register. The declaration shall be filed with the [agency that maintains] the Public
Register. Only after such filing shall the declarat ion on the relinquishment of the right enter into
binding force.

Article 185. Protection of Acquirer’s Interests
Proceeding from the interests of an acquirer, an alienator is deemed to be an owner if he is so
registered in the Public Register, except when the acquirer knew that the alienator was not the owner.

II. Acquiring Ownership of Movable Things

Article 186. Grounds for Acquiri ng Ownership of Movable Things
1. The transfer of ownership of a movable thing shall require transfer of the thing by the owner to the
acquirer on the grounds of a valid right.
2. The following shall be deemed to constitute transfer of a thing: handing over of the thing to the
acquirer into direct possession; transfer of indir ect possession by a contract under which the previous
owner may remain the direct possessor; granting, by the owner to the acquirer, of the right to claim
possession from a third person.

Article 187. Acquirer in Good Faith
1. An acquirer shall become the owner of a thing even if the alienator was not the owner, but the
acquirer is in good faith with respect to this fact. The acquirer shall not be deemed to be in good faith if

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he knew or ought to have known that the alienator wa
s not the owner. Such good faith must exist prior
to the transfer of the thing.
2. The acquirer of movable things cannot be in good fa ith if the owner lost these things, or they were
stolen, or the owner was otherwise dispossessed of th em against his will, or if the acquirer received the
things for free. These restrictions shall not apply to money, securities and/or to things alienated at
auction.

Article 188. Conditional Ownership
1. If an alienator conditioned the transfer of owners hip to an acquirer upon the prior payment of the
price of a thing, then it is presumed that the ow nership shall be transferred to the acquirer only after
payment of the price in full. If the acquirer delays th e payment of the price, and the alienator repudiates
the contract, then the parties shall return th e performances already rendered bilaterally.
2. The condition defined in paragraph (1) shall also be deemed fulfilled if the alienator is satisfied in
any manner other than by payment of the price, or if the acquirer relies upon the limitation period on
the claim.

Article 189. Transfer of Property through Securities
If, instead of the transfer of a thing, the transfer of a security [i.e., negotiable instrument or commercial
paper] is required for the transfer of ownership to the acquirer, then the ownership shall be deemed to
be transferred from the moment at which the al ienator transfers the security to the acquirer.

Article 190. Acquiring Ownershi p of an Unowned Movable Thing
1. If a person takes into his possession an unowned movable thing, he acquires ownership of the
thing unless the appropriation of it is prohibited by law, or unless the
appropriation is prejudicial to the
rights of another person who was entitled to appropriate the thing.
2. A movable thing shall be deemed unowned if the previous owner, having intended to relinquish
ownership, has abandoned possession of the thing.

Article 191. Found Things
1. The finder of a lost thing shall immediately declar e that he has found it to the person who lost the
thing, the owner, the entitled person or, if the identi ties of the foregoing are unknown, to the police or
other local agency, and hand the thing over to them.
2. One year after making the declaration the finder shall acquire ownership of the find, except when
the owner has become known to him or when the right of the owner to the thing has been declared
to
the police. All other rights to this thing shall be extinguished simultaneously upon the acquisition of the
right of ownership to the thing.
3. If the entitled person recovers the thing, the find er may demand from him a reward (finder’s fee) in
the amount of up to five percent of the value of th e thing. In addition, the finder may demand from the
entitled person or from the appropriate agency co mpensation for the expenses of storage of the
property.
4. If the finder relinquishes ownership, the compe tent agency may sell the thing after one year at an
auction and receive the profit or, if the thing is of low value, gratuitously alienate or destroy it.
5. The one-year period shall not apply when animals, highly perishable items or things for which the
storage cost is high are found, and the sum receive d through their alienation shall be returned to the
owner.

Article 192. Treasure Trove
If a thing is found that has been buried for such a long time that its owner cannot be established
(treasure trove), then the right of ownership of the treasure trove shall go in two equal shares to the
finder and the owner of the thing [or place] in which the treasure trove was found.

Article 193. Acquiring Ownership of Esse ntial Component Part of a Tract of Land
When a movable thing is attached to a tract of land in such a manner that it has become an essential

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component part of this tract, the owner of the trac
t of land, according to paragraph (2) of Article 150,
shall simultaneously be the owner of this thing.

Article 194. Co-ownership of the Thing Created by the Merger of Movable Things
1. If movable things are attached to each other in such a manner that they have become essential
component parts of a new integrated thing, or if th e movable things have merged, the previous owners
shall become the co-owners of this new thing. The shares shall be determ
ined according to the values
of the things at the time of their merger.
2. If one of the things, according to established understanding, is deemed
to be the principal thing,
then its owner shall acquire ownership of the appurtenance as well [See Article 151].

Article 195. Co-ownership of a New Movabl e Thing Created by Processing of Material
When a new movable thing is created by processing or altering some material, then the manufacturer
and the owner of the material shall become co-owners of the new thing. The shares sh
all be determined
according to the value of the material and the cost s of manufacturing, unless otherwise stipulated by
agreement.

Article 196. Extinguishment of Ri ghts upon the Transfer of Ownership
If ownership is transferred under Articles 193-195, all other existing rights to the thing shall be
extinguished.

Article 197. Claim for Damages Against the New Owner
A person who loses his ownership under Articles 19 3-195 or whose right is otherwise impaired may
claim compensation for damage from the person who has become the owner. Claim for restoration of
the initial state of affairs shall not be allowed.

III. Acquiring Ownership of Rights and Claims

Article 198. Concept. Content
1. The possessor of a claim or a right that can be assi gned or pledged may transfer it to the ownership
of another person. The claims and rights are transf erred to the new person in the same state in which
they existed with the former possessor.
2. The former possessor is obligated to hand over all documents in his possession with respect to the
claims and rights, as well as all information that is required for use of these claims and rights, to the
new possessor.
3. The former possessor is likewise bound to hand over to the acquirer, at
his request, a duly
authenticated document with regard to the assignme nt of these claims and rights. The expenses for
authentication of this document are borne by the new possessor.

Article 199. Assignment of Claim
1. The possessor of a claim (creditor) may assign the claim to a third person without the consent of
the debtor, unless to do so would contravene either the essence of the obligation, the agreement with
the debtor, or law (assignment of claim). An ag reement with the debtor on the inadmissibility of
assignment of a claim may be made only if the debtor has a legitimate interest [in prohibiting
assignment of the claim].
2. Assignment of a claim is effected by a contract concluded between the possessor of the claim and a
third party. In such cases [following assignment], the third person shall stand in the place of the original
possessor.

Article 200. Right of the Debtor in the Event of Assignment of a Claim
Until the debtor is notified of the assignment of the claim, he is entitled to give performance of the
obligation to the original possessor of the claim.

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Article 201. Transfer of the Means of
Security upon Assignment of Claim
1. By assignment of a claim, both the means of secu rity therefor and other rights in connection with
the claim shall be transferred to the new possessor.
2. The debtor may assert against the new possessor all those defenses that he had against the original
possessor at the time he received notificat ion of the assignment of the claim.

Article 202. Order of Priori ty of Possessors of Claim
If a possessor of a claim has agreed on the assignme nt of one and the same claim with a number of
persons, then the person with whom the possessor of the claim entered into relations first shall be
entitled [to the claim] before the debtor. If this cannot be determined, then priority shall be given to the
person of whom the debtor was notified earlier.

Article 203. Transfer of Debt
1. A third person may also assume a debt by agreem ent concluded with the possessor of the claim
(transfer of debt). In such case [after assumption] the third person shall stand in the place of the
original debtor.
2. The original debtor may disagree with this agr eement between the possessor of the claim and the
third person and pay the debt himself.

Article 204. Consent by the Possessor of a Claim upon Transfer of Debt
If a debtor and a third person enter into an agreemen t on the transfer of a debt, then the validity of the
transfer shall depend upon the consent of the possessor of the claim.

Article 205. Rights of the New Debtor
The new debtor may assert against the possessor of the claim all defenses arising from the relations that
existed between the possessor of the claim and the or iginal debtor. He may not offset the claims that
belonged to the original debtor.

Article 206. Termination of Means of Security upon Transfer of Debt
Immediately upon the transfer of a debt any guaran ty [suretyship] or lien securing the debt shall be
terminated if the guarantor or the pledgor refuses to continue this relationship.

Article 207. Assignment of Claim by Virtue of Law
The rules with respect to acquisition of ownership of rights and claims shall apply accordingly to the
assignment of claims by virtue of law or on th e grounds of a decision made by a court or by a
competent state body.

CHAPTER FOUR
APARTMENT OWNERSHIP IN MULTI-APAR TMENT BUILDINGS [CONDOMINIUMS] I. General Provisions

Article 208. Concept
1. In a multi-apartment building, there is a right of ownership of an apartment (ownership of
apartment) and of the part of the building that is not used for dwelling (ownership of non-residential
area).
2. Ownership of the apartment, as well as ownershi p of the non-residential area, is deemed to be
individual ownership.
3. The tract of land, parts of the building, structures and equipment not designated for individual
ownership shall be under the common ownership of the apartment owners. T
he share in common
ownership is determined according to the number of apartments.
4. Individual ownership may exist only for separate apartments and for other separate parts of the
building. Automobile parking lots are deemed separa te if their boundaries are outlined as a result of
longtime use.

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Article 209. Preemptive Right to Purchase Apartment
1.
Tenants who have lived in an apartment for more than three years shall have the pre
emptive [first
priority] right to purchase the apartment. They shall apply to the last owner of the apartment with a
declaration on the exercising of this right.
2. If a person purchases a rented apartment, he shall stand in the place of the landlord [in relation to
the tenant].

Article 210. Grounds for Acquiri ng Ownership of an Apartment
Acquisition and termination of the right of owners hip of an apartment shall require a notarized
transaction and its registration in the Public Register.

Article 211. Subject of Individual Ownership
1. An area defined under paragraph (2) of Article 208, as well as those component parts of this area
that may be altered, detached or attached in such a manner as to avoid alteration of the exterior of the
building or the unjustifiable encroachment on eith er the common property or the right of another
apartment owner arising from his individual owne rship, is an object of individual ownership.
2. The parts of the building that are required for the stability and safety of the building, as well as
structures and equipment under the common ownership of the apartment owners, may not be the
objects of individual ownership even if they are located in areas under individual ownership.

Article 212. Determination of Shares in Common Property
1. The share of an apartment owner in common property is determined according to the ratio that the
area under his individual ownership bears to the total area under individual ownership.
2. In case of liquidation of an apartment owners’ a ssociation, the shares of the owners in common
shall be determined in accordance with paragraph (1) of this Article.

Article 213. Alienation of Individual Proper ty Without the Corresponding Share of Common
Property Not Allowed
1. Individual property may not be alienated, pledged or otherwise encumbered without regard to the
corresponding share of the common property.
2. An apartment owner simultaneously is a shareholder in the common property.

Article 214. Registration of Ownershi p of Apartment in the Public Register
1. For each apartment ownership a separate sheet shall be filled out in the Public Register.
2. A construction certificate verified by the constru ction agency, plan of the building, and the location
and dimensions of the parts of the building under co mmon ownership shall be attached to the materials
of registration of the apartment’s ownership in the Public Register.

II. Relations among Apartment Owners

Article 215. Registration of Agreements in the Public Register
1. Relations among apartment owners shall be regulated by this Code. Agreements by which the
apartment owners regulate their relations differently than by the norms of this Code, as well as
alteration or termination of such agreements, shall be valid before third persons only if these
agreements are registered in the Public Register.
2. A decision that is subject to a majority of votes as prescribed by this Code or by agreement of the
apartment owners, shall be binding when made even against those owners who did not participate in
the voting or who voted against the decision.

Article 216. Apartment Ow ners’ Association Defined
The totality of individual owners constitutes an as sociation of apartment owners, which is not a legal
person.

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Article 217. Claim for Dissolution of
Apartment Owners’ Association Disallowed
An owner may not demand dissolution of the apartmen t owners’ association. Such a demand is allowed
only if the building is partially or entirely collapsing.

Article 218. Rights of Apartment Owners
1. An apartment owner may use the parts of the bu ilding under his ownership at his own discretion
and exclude any influence on it from other persons, unless to do so woul
d violate the law or the rights
of such other persons.
2. Each apartment owner, under Articles 219 and 220, is entitled to use the common property. In the
case of some other use of the common property ea ch apartment owner shall be given a corresponding
share pursuant to the rules of Article 212.
3. The matters referred to in paragraphs (1) and (2) of this Article shall be specified in detail in the
regulations of the apartment owners’ association, wh ich under paragraph (4) of Article 224 is submitted
by the chairman of the association and approved by the General Meeting of the apartment owners.

Article 219. Duties of Apartment Owners
1. An apartment owner shall:
a. Maintain and use the parts of the building under individual ownership, a
s well as the common
property, so as not to violate the rules of jo int habitation of the owners or to cause them
damage.
b. Take care that persons who are employed in his enterprise located in the building, or to whom
he transfers for use the tract of land or part s of the building under common ownership, observe
the rules under subparagraph (a);
c. Tolerate nuisances affecting the parts of the building under his individual ownership and the
common ownership, provided these nuisances conform to the provisions defined in
subparagraphs (a) and (b);
d. Allow authorized persons to enter into those pa rts of the building under individual ownership
and to use those parts, if required for restoring the common property to proper condition and
for doing current repairs. The damage thereby arisen shall be compensated;
e. Tolerate those measures that are necessary fo r the arrangement of communication and supply
systems. An owner for whose benefit such mea sures are taken is bound to compensate the
damage thereby arisen.
2. In case of collapse of the building, where the damage is not secured by insurance or by other
means, the liability to participate in restoration and reconstruction of the building may not be put on
individual owners. In such case the association is dissolved.

Article 220. Right to Use Common Property
1. Each apartment owner may use the comm on property proportionately to his share.
2. Regardless of the location of his apartment in th e building, each apartment owner shall be liable
before other apartment owners to bear the expe nses for the common property proportionately to his
share, in particular, the expenses for keeping th e building in proper condition, performing current
repairs, and administration and joint use of common property.
3. An apartment owner who has not voted for measur es that are not in connection with keeping the
building in proper condition and current repair shall not be bound to compensate for expenses
resulting from such measures. Concurrently, he has no ri ght to demand the benefits resulting from such
measures.
4. A share is determined pursuant to Article 212.

Article 221. Determination of Shares upon Dissolution of the Association
Upon dissolution of the association, the share of a co-owner is determined proportionately to the value
of his apartment at the time of the dissolution of the association. If the value of the share in the

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common property has changed as a result of measur
es not supported by the apartment owner, then
such change shall not be taken into considerat ion when assessing the value of his share.

Article 222. Imposition of Obli gation to Alienate Apartment
1. If an apartment owner has breached his duties before other apartment owners in such a gross
manner that the association with hi m cannot be continued any longer, then the other apartment owners
may demand from him alienation of his apartment.
2. In particular, the precondition defined in paragraph (1) exists when an apartment owner, in spite of
written notice, grossly breaches the duties under Article 219.
3. A decision with respect to the demand under paragra ph (1) of this Article shall require a two-thirds’
majority of the votes cast by the persons having voting rights.

Article 223. Administration Bodies in Apartment Owners’ Association
Common property shall be administered by apartm ent owners under Articles 224-228 and by the
chairman of the apartment owners’ association under Articles 229-231, and in the case of creating an
advisory council, the administration shall be carried out pursuant to Article 232.

Article 224. Administrati on of Common Property
1. Apartment owners shall jointly administer commo n property unless otherwise stipulated by this
Code or by agreement of the apartment owners.
2. An apartment owner is entitled to undertake, without the consent of the other apartment owners,
necessary measures to avoid damage that directly endangers the common property. This owner has the
right to claim compensation for the expenses incurred by him [in doing so].
3. Each apartment owner may demand that [management ] activities be carried out in accordance with
the agreements and decisions made, or, if they do not exist, in the common interests of the apartment
owners.
4. In particular, proper management in the common interest of the apartment owners includes the
following: a. Approval of the regulations and bylaws of the apartment owners’ assoc
iation;
b. The proper maintenance and repair of common property, if necessary, in order to keep the
building suitable for residence;
c. The proper insurance of common property;
d. The collection of funds for proper maintenance of the building;
e. The adoption of economic plans;
f. The implementation of all measures that are required for the arrangement of communications
and supply systems for the benefit of the apartment owners.

Article 225. Joint Compet ence of Apartment Owners
Apartment owners jointly resolve such matters as: draw ing up economic and financial plans, restoration
of the building in full or in part, approval of the bylaws, election and dismissal of the chairman of the
association, and determination of the amount of expenses for maintenance of the building.

Article 226. Meeting of Apartment Owners
1. Apartment owners make decisions at a meeting of the apartment owners.
2. For a decision to be valid, its subject has to have be en declared by at the time of invitation to the
meeting.
3. A decision may be made without a meeting as well if the apartment owners give their written
consent to the decision.

Article 227. Calling the Me eting of Apartment Owners
1. The chairman of the association shall call the meet ing of apartment owners at least once a year.

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44
2.
The chairman of the association shall also call the meeting of apartment owners upon the request
of more than one-fourth of the apartment owners. If the chairman is absent or evades his duty of
calling the meeting, then one of the apartment owners may call the meeting as well.
3. A meeting shall be held within one week from th e day of the written notice calling the meeting; in
case of urgency the meeting shall be held immediately.
4. The chairman of the association presides over the meeting of apartment owners unless otherwise
decided by the meeting.
5. Resolutions of the meeting are recorded in the minu tes to be kept by the chairman of the meeting.
Each apartment owner is entitled to examine the minutes.

Article 228. The Meeting’s Co mpetence to Make Decisions
1. Each owner shall have one vote in making decisi ons. If an apartment belongs to a number of
owners, they may exercise a voting right only jointly.
2. The meeting is competent to make decisions if attended by more than half of the apartment
owners.
3. If under paragraph (2) of this Article the meeting is not competent to make decisions, then the
chairman may call a new meeting with the same ag enda. This meeting shall be competent to make
decisions regardless of the number of participants , which is to be stated upon the calling of the
meeting.
4. Unless otherwise stipulated by this Code or by the regulations of the apartment owners’ association,
the decisions are made by a simple majority.

Article 229. Rights and Duti es of the Chairman of the Apartment Owners’ Association
1. The chairman of the apartment owners’ association is entitled and obligated to:
a. Implement the decisions of the meeting of apartm ent owners and take care that the regulations
are observed;
b. Undertake necessary measures for proper maintenance and current repair of the common
property;
c. Undertake measures that are required to observe some period of time or to avoid a negative
legal effect;
d. Dispose of the common funds.
2. The chairman, on behalf of all apartment owners, is entitled to:
a. Demand, receive and pay amounts to cover expe nses incurred, debts and mortgage interest,
provided they relate to the common affairs of the apartment owners;
b. Carry out the settlement of accounts and perfor m obligations and other monetary transactions
in connection with the current administration of the common property;
c. Enter into contracts and submit necessary document ation, provided this relates to the interests
of the apartment owners;
d. Appear in court or in other bodies, if so authorized by the apartment owners.
3. The chairman is obligated to keep the funds of the apartment owners separately from his property.
4. The chairman, where necessary, acts by mandat e conferred upon him by the apartment owners,
which specifies the scope of his authority.

Article 230. Economic Plan
1. The chairman shall draft an economic plan prio r to the beginning of each calendar year.
2. The economic plan shall include:
a. Expected revenues and outlays with respect to administration of the common property;
b. The obligation to cover expenses proportionatel y to the shares of the apartment owners.
3. Each apartment owner is entitled to perform measures for the proper maintenance and current
repair of the building, either himself or through a third person. In such cases the chairman takes into
account this work, assesses it and enters it into th e economic plan. The [required] contribution of the
apartment owner for covering expenses shall be reduced according to the work performed.

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45
4.
The apartment owners are obligated, on demand of the chairman, to make a certain advance
payment for securing the approved economic plan. In the event of difficulties regarding the payments,
the chairman may use the appropriate bank credits.
5. The making of the decision concerning the economic plan entitles the chairman to procure a loan
as well.
6. The chairman shall present a financial report at the end of each calendar year.
7. Apartment owners may claim from the chairman an accounting of the work performed at any time.

Article 231. Duty to Repair Dwelling
1. Each apartment owner is liable before the other apartment owners to bear expenses for the
maintenance of common property, the current repair of the building and administration, as well as
other expenses.
2. The expenses and payments defined in paragraph (1) of this Article sha
ll be paid in an amount
corresponding to the share of each apartment owner.
3. Unless otherwise stipulated, the expenses determined for a current year shall be paid in twelve equal
installments. If the collection of funds for proper main tenance of the building is not provided for, then
the chairman may demand payment of these amount s in advance, prior to making the announcement
on the repair of building.

Article 232. Advisory Council
1. The apartment owners may create an advisory co uncil by a simple majority of votes. The council
consists of two members and a chairman.
2. The advisory council assists the chairman in doing his job.
3. The advisory council shall examine the financial and economic plans; the results of implementation
of the economic plan; the report, accounts and estima te of expenses prior to their consideration on the
meeting of the apartment owners, and shall make the corresponding conclusion.

CHAPTER FIVE
LIMITED USE OF PROPERTY BELONGING TO ANOTHER PERSON
I. Right to Build [Hereditary Building Right] 30

Article 233. Concept
1. A tract of land may be transferred to the use of another person for a fixed period of time in such a
manner as to grant him the hereditary and transfer able right to erect on or beneath this tract some
construction, as well as the right to alienate, inhe rit, lend or lease such right (right to build).
2. The right to build may extend to that part of the tract of land that is not necessary for the structure
but provides the opportunity to use the construction better.
3. The duration of the right to build is fixed by agre ement of the parties, and it may not exceed fifty-
nine years.

Article 234. Grounds Giving Rise to the Right to Build
1. The rules governing acquisition of immovable thin gs shall apply accordingly to the creation and
acquisition of a right to build.
2. A construction erected on the basis of the right to build shall be deemed to be an essential
component part of this right.

Article 235. Alienation of the Right to Build
If by agreement of the parties the consent of the owne r of the tract of land is required for alienation or
leasing of the right to build, the owner may refuse to grant such consent only if there are sufficient
grounds to do so.

30 In Roman and civil law, known as a “superficies.”

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46

Article 236. Payment fo
r the Right to Build
1. The possessor of the right to build may be bound by contract to pay compensation [for the right].
This right of the owner of the tract of land [to receive compensation] shall be inseparable from the
right of ownership to the tract of land.
2. The right to build may be unilaterally terminated by the owner only for
non-payment of the
compensation for a period of two years.
3. The parties may predetermine the compensation fo r the right to build for a ten-year period. If
economic conditions substantially change, then the parties are bound to
agree on the compensation
anew.

Article 237. Registration of the Right to Build
The right to build is entered in the Public Regis ter only as a first-ranking right among the property
rights of non-owners. This order may not be altered.
31

Article 238. Termination of the Right to Build
1. Termination of the right to build shall require consent of the owner.
2. The right to build shall not be terminated by co llapse of the construction erected on the tract of
land.

Article 239. Termination of a Paid-for Right to Build
1. When the right to build has been paid for, then af ter expiration of the term of the right, the owner
of the tract of land shall pay to the holder of th e right adequate compensation for the construction
erected on the tract of land. Any sum that fails to am ount to at least two-thirds of the value of the
construction shall not be deemed adequate.
2. The owner of the tract of land may, instead of paying compensation, prolong the right of the
holder for the presumed period of additional existen ce of the construction. If the holder of the right
declines the extension, then he thereby loses the right to claim the compensation as well.
3. The holder of the right to build has no right to remove the construction or its component parts
after expiration of the term of the right to build.

Article 240. Registration of the Claim fo r Compensation in the Public Register
1. At the termination of the right to build, the right to demand compensation arising from the
structure shall take the place of the right to build in the Public Register, replacing it in the sa
me order.
32
2. If, upon expiration of its term, the right to build is still encumbered with a mortgage, then the
mortgagee shall have a lien upon the holder’s claim for compensation
against the owner.

Article 241. Succession in Title at the Termination of the Right to Build
At the termination of the right to build the owner of the tract of land shall become a party to any lease
or rental agreement concluded by the holder of the right.

II. Usufruct

Article 242. Concept
An immovable thing may be transferred to the use of another person in such a manner as to grant to
him the right to use this thing as if he were the ow ner, and to exclude third persons from its use; unlike
the owner, however, he has no right to alienate, mort gage or transfer this thing by inheritance (a
usufruct). The leasing or renting out of this thing shall require the consent of the owner. After the

31 i.e., the right to build ranks before the rights of all other lienholders. 32 That is, the holder of the right’s claim to compensation becomes a lien replacing the right to build in the Public
Register.

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47
usufruct is extinguished, the owner sh
all [substitute the holder of the usufruct] in the existing relations
of lease or rental [made with third parties].

Article 243. Legal Regulation of Creation of a Usufruct
The same rules that govern the acquisition of immovable things shall apply to the creation of a
usufruct.

Article 244. Kinds of Usufructs
1. A usufruct is either subject to payment or free of the requirement that it be paid for.
2. A usufruct may exist either for a certain period of time or for the life of its beneficiary
(usufructuary). The usufruct shall be extinguished by the death of the natural person or liquidation of
the legal person in whose favor the usufruct was established.

Article 245. Usufructuary’s Rights and Duties
1. Prior to the commencement of a usufruct the partie s may inventory the condition of the things
transferable under the usufruct.
2. The usufructuary may not alter the object of use without the consent of the owner.
3. The usufructuary is entitled to those fruits and benefits of the thing as well that are not derived
from ordinary economic use of the thing. In such case he is bound to compensate the owner for the
damage caused to the thing as a result of such use.
4. The usufructuary is not liable for natural wear and tea r to the thing. He shall cover the current
expenses, make repairs to the thing, as well as take care of the normal economic maintenance of the
thing.
5. The usufructuary is bound to insure the thing properly for the duration
of the usufruct.
6. If the thing has perished or it has been damaged, or unexpected expenses
have arisen for its
maintenance, the usufructuary shall immediately notify the owner. He shall tolerate the measures that
the owner undertakes in order to cure the situation. The owner is not obligated to undertake the
appropriate measures. If the usufructuary himself unde rtakes these measures, then at the end of the
usufruct he may remove from the thing the objects atta ched to it by him as a result of such measures,
or he may demand from the owner proper compensation for these objects.
7. If the usufructuary, within the limits of normal econom ic activities, alienates individual objects, then
objects acquired by him must take the place of the alienated objects.

Article 246. Termin ation of Usufruct
1. Upon the end of a usufruct the usufructuary is bou nd to return the thing to the owner.
2. A usufruct is extinguished when both the usufruct an d the ownership are in the hands of the same
person.

III. Servitude

Article 247. Concept
1. A tract of land or other immovable property ma y be used (encumbered) for the benefit of the
owner of another tract of land or other immovable property in such a manner as to either grant this
owner the right to use the encumbered [property] in particular instances, or to prohibit the exercise of
certain actions on this [property], or to preclude th e exercise of some rights of the owner of the
encumbered [property] with respect to the other [property] (servitude).
2. The compensation [for the encumbrance] may be determined in the form of periodic payments.

Article 248. Servitude; Requirements
1. Servitude may exist only when it creates a benefit fo r the entitled person in using his tract of land.
33

33 The concept definition of servitude begins by encompassing servitudes over, and for the benefit of, tracts of land
“and other immovable property” such as a building. Even within article 247, and in subsequent articles the drafter

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2.
The entitled person, in exercising the servitude, shall protect the interests of the owner of the used
(encumbered) tract of land.

Article 249. Obligation of Maintenance of Construction
If the proper exercise of the servitude involves th e usage of a construction situated on the encumbered
tract of land, then the entitled person shall be bound to maintain this construction. At the same time,
the parties may agree that the obligation of main tenance of the construction be imposed on the owner
of the encumbered tract of land, if this is re quired in the interests of the entitled person.

Article 250. Effect of Di vision of a Tract of Land
If the tract of land of the entitled person is divided, then the servitude remains for the benefit of each
portion separately. In such case the exercise of the servitude is allowed only if it does not worsen the
situation of the owner of the encumbered tract of land.

Article 251. A Part Free of the Se rvitude as a Result of Division
If the encumbered tract of land is divided, and th e servitude was laid only upon one part of the whole
tract, then the part of the tract of land with respect to which the se rvitude was not due shall remain free
of the servitude after the division as well.

Article 252. Protection of the Rights of the Entitled Person
If the entitled person is obstructed in the exercise of his rights, he has the same right to avoid the
obstruction as if he were a possessor in good faith.

Article 253. Personal Servitude
1. An immovable thing may be encumbered with a servitude for the benefit of a specific person
according to the provisions of Article 247. Such an encumbrance may be expressed in such a manner
that the entitled person, who may not be the owner, may use a building or a part of the building for the
habitation of himself or together with his family.
34
2. A personal servitude limited in the manner defined in paragraph (1) of this Article may not be
transferred to another person.

CHAPTER SIX
TITLE TO PROPERTY AS SECURITY FOR A CLAIM
I. Security Interest 35

Article 254. Concept
1. Movable things and intangible property that are transferable to another person may be used as
security for a claim in such a manner that the secured cr editor is entitled to priority over other creditors
in the satisfaction of his claim at the expense of the collateral.
2. A security interest may attach to secure payment of future or contingent claims, if these claims can
be determined at the time of the creation of the security interest.

Article 255. Procedure for Granting a Security Interest in Movable Things and Securities
1. A security interest in movable things and, where ne cessary, negotiable securities, as well as other
intangible property, shall be granted pursuant to the procedure prescribed for the acquisition of
ownership of such property. If, in relation to the pr operty, a claim exists towards a third person, then

switches to referring only to “tracts of land.” While in articles following 247 we have left the limited reference to
“tracts of land” as it is, we believe the servitude provis ions apply to all immovable property, including buildings.
34 The exclusion of an owner may refer to the owner of the building, as in such case the seritude would merge with the
greater property right of ownership, and it may refer to ownership of a neighboring immovable property, as in such case
the servitude should be attached to the property, not the person.
35 The terminology used here follows as closely as possible that used in the Uniform Commercial Code, Article 9-105.
The concepts are strongly analogous.

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49
creation of the security interest shall require that th
e third person be notified of the pledging of the
thing.
36
2. The debtor and the secured creditor may notarize th e security agreement. In this case the security
interest is created upon its registration in the Public Re gister, so that the transfer of the collateral into
the possession of the secured party and the making of a declaration to other creditors [i.e., as previous
clause] is not obligatory. The document shall indi cate the identities of the debtor, any possible third
debtor [i.e., guarantor] and the secured party, as we ll as the extent of the secured claim, the interest on
the claim, and the period of time for satisfaction of the claim.

Article 256. Substitution
If a claim is pledged as collateral, and the debtor pe rforms the obligation [underlying the claim] prior to
the expiration of the security inter est, then the performance shall replace the claim [as the object of
collateral – the security interest will be attached to th e performance given, instead of to the claim that
has been satisfied].

Article 257. Rights of a Pledgee in Good Faith
If the object of a security interest (coll ateral) is transferred to another person by transfer of a document,
and the debtor, at the time of creation of the securi ty interest, possesses this thing (or holds this right)
without being entitled to pledge it, then the secured creditor shall be deemed to be
an acquirer in good
faith, provided he does not know and could not have known [that the debtor did not have the right to
pledge the collateral]. This good faith of the secure d creditor grants him priority [in the collateral] over
a third person.

Article 258. Scope of a Security Interest
A security interest secures a claim and other additional claims in connection therewith.

Article 259. Rights of Third Persons
1. If the person who gives a security interest in the coll ateral is not, at the same time, the debtor with
respect to the claim [obligation] secured by the secu rity interest, then he may still assert against the
secured creditor any counterclaim to which the personal debtor is entitled; in the first place, these shall
be counterclaims arising out of offsetting moneta ry obligations and defenses against the claim.
2. If the claim is secured by the pr operty of the debtor [and] of third persons, then such third persons
may demand that the creditors’ claims be satisfied out of the debtor’s property before their property is
used for satisfaction of the claims. The same rule sh all apply to the entitled person when the claim is
secured by various pieces of property of the debtor, and this entitled person has a security interest in
some of them only.
37

Article 260. Extension of the Secu rity Interest to All Property Values Included in the Collateral
A security interest extends to all property values [i.e., all aspects of value] that are inherent in ownership
of the object of the secu rity interest (collateral).

Article 261. Pledge By Transfer of Possession
1. If a lien is secured [perfected] by transfer of the collateral into the possession of a pledgee, then the
pledgee is obligated to keep it properly. He is en titled to receive [from the collateral] the interest that
accrues on the secured claim. He may also claim from the pledgor compensation for necessary
expenses incurred with respect to [maintenance of] the collateral.

36 We have translated the second sentence literally, but it would make for more sense if translated as “If a third party has
a claim in relation to the property, then the third person mu st be notified of the creation of the security interest.”
37 The second sentence means, in other words, that the holder of a security interest in some of the debtor’s property
(creditor 1) may demand that another secured creditor (creditor 2) satisfy his claim first out of property of the debtor not
subject to creditor 1’s security interest . The rule appears to apply without regard to whose security interest attached
first.

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50
2.
If the pledgee fails to perform the duty put on him, the pledgor may claim transfer of the collateral
to a third person.
3. If there is a danger that the pledged object may peri sh or its value may substantially decrease, then
the pledgor may demand that the object be returned , and may offer to the pledgee another kind of
security. The pledgee shall immediately notify the pl edgor of the danger of perishing of the pledged
object or substantial reduction of its value, and fix a period of time for the pledgor to offer another
kind of security. If the pledgor fails to offer another kind of securit
y within this period, then the
pledgee may sell the original collateral. The rules go verning realization of collateral shall apply to such
sale. The sum received through the sale shall replace the collateral. Until the period of the pledge is
expired, this sum shall be kept, with the accrued interest.

Article 262. Debtor’s Duty in the Case of Registration of the Security Interest
1. If a security interest is registered, the debtor shall be bound to keep and properly maintain the
collateral. He is entitled, as before, to derive benefit from the collateral.
2. If there is a possibility that the debtor may fail to perform his obligation [to maintain the collateral],
then the secured creditor may demand that the collateral be transferred to him. In the case of a
pledged claim being registered [as collateral], then the secured creditor is entitled to notify the third-
party debtor [that the secured creditor has taken di rect possession of the claim]. From the moment of
the notification, the [third party] debtor is obligated to pay the claim of the [secured creditor] when it
becomes due.
38

Article 263. Subsequent Pl edging of the Collateral
Subsequent pledging of the collateral by the debtor shall require the prior consent of the [first] secured
creditor.

Article 264. Making a Transaction with the Collateral
The prior consent of the secured creditor shall be required for making a transaction with the collateral.

Article 265. Repeated Pl edging of an Object
One and the same object may be pledged repeated ly. The order of priority shall be determined
according to the moment of pledging.

Article 266. Protection of the Ri ghts of the Secured Creditor
If a secured creditor is obstructed in the exercise of his rights, he may use the same rights against the
obstructing party as if he [secured cred itor] were the owner [of the collateral].

Article 267. Transfer of th e Right to Obtain Security to a New Creditor
1. The transfer of a claim to another person shall al so transfer the right to obtain security [for the
claim] to this person (new creditor).
2. Any third person whose legal status may be aggravated as a result of alienation of the collateral shall
be entitled to pay the [underlying] claim and thereby take over the security interest.
3. The collateral may not be transferred to anothe r person without transferring the corresponding
claim. If the transfer of the colla teral is excluded upon the transfer of the claim, the security interest
shall be extinguished as well.

Article 268. Security In terest Extinguished
A security interest is extinguished simultaneously with the extinguishment of the claim that it secures.

38 A secured creditor may take possession of the collateral from the debtor if he has reason to believe that the debtor is
not properly maintaining th e collateral. The rule applies as well when the collateral is the right of the debtor to receive
payment or performance on a claim against a third party [the third party debtor]. If the secured creditor “takes
possession” of the debtor’s claim against the third party debtor, the secured creditor may notify the third party debtor
thereof, and the third party debtor will be obligated to give performance of the pledged claim directly to the secured
creditor.

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51

Article 269. Security Interest
Extinguished by Waiver of [Right to] the Collateral
1. A security interest is extinguished when the secured creditor declares to the debtor or to the owner
of the collateral that he waives [his right to] the collateral.
2. The lien secured by transfer of possession [pledge] of the collateral shall be extinguished when
possession is returned to the pledgor.

Article 270. Security Interest Extinguished by Reason of Tr ansfer of the Collateral into
Ownership of the Secured Creditor
A security interest is extinguished when the collateral is transferred into the ownership of the secured
creditor. This rule shall not apply when the rights of a third person a
re encumbered with the claim for
securing of which the lien is attached.
39

Article 271. Obligation of Pled gee [Lienholder] Upon Extinguish ment of the Security Interest
When the security interest is extinguish ed, the pledgee shall be bound to return the object [collateral] in
his possession to the pledgor or to the owner.

Article 272. Satisfaction of Secured Creditor
1. The secured creditor shall be satisfied through ei ther the sale or other proper realization of the
collateral.
2. The secured creditor is entitled to realize the collateral when the monetary claim becomes due in
full or in part.

Article 273. Voidness of Agreement on the Immedi ate Transfer of the Right of Ownership to
the Secured Creditor
An agreement by which ownership of the collateral is immediately transferred to the secured creditor if
his claim is not satisfied or the satisfaction failed to occur on time,
shall be void.
40

Article 274. Right of Real ization of the Collateral
A secured creditor has the right to realize the collate ral only if this is necessary for satisfaction of his
claim.

Article 275. Right of Realization of Ob ject Given Repeatedly as Security
If one object is given as security several times, only the secured creditor whose security interest has first
priority in the object shall have the right to realization of it. If the first-ranking secured creditor waives
this right, then the next-ranking secured creditors shall assume the right to realize the object.

Article 276. Transfer of Collateral to the Person Having the Right of Realization
1. Collateral shall be transferred to the secured creditor who has the right to realize it.
2. If realization of the claim [collateral] depends upon [the prior] performance of some legal action,
then the secured creditor may demand that the debtor perform this action. If the debtor fails to do so
within two weeks, then the secured creditor shall be entitled to perform this action, on behalf of the
debtor, towards third persons.

Article 277. Obligation to Give Notice of Possible Realization of the Object

39 We have translated the second sentence from Georgian as it is, but the provision is unclear. The German Civil Code
version says that ownership of the right of pledge (security interest) and the collateral by the same person extinguishes
the security interest unless the claim which is secured by the collateral is encumbered with the rights (claims) of a third
person. German Civil Code §1256(1).
40 “Agreement” here means provision of a contract; not the contract as a whole. Only the invalid provision would be
voided.

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52
The secured creditor is obligated to notify the debt
or in advance of the possible realization of the
object, and, in addition, to indicate the amount of the claim by reason of which the sale is to be
executed. The realization may not be effected before the lapse of two weeks from the notification.

Article 278. Realization of the Collateral at Auction
1. The realization shall be executed through the sale of the collateral at auction.
2. If the collateral has a commodity exchange or mark et price, then the secured creditor may entrust
its sale to a special trading institution.

Article 279. Realization of the Collateral at a Pr ice Lower than the Value of the Material Not
Allowed
Collateral may not be alienated at a price lower than th e value of its material content. At the request of
the debtor, prior to the sale, an independent expert shall determine this price.

Article 280. Other Procedures of Realization
The owner and the secured creditor may agree on a nother procedure for realization of the collateral,
different from the procedures defined in this Chapter. If a third person
has an interest in the collateral
and it would be extinguished as a result of alienation of the collateral, then the alienation shall require
the consent of this third person. If the parties fa il to reach agreement, then a court shall decide [on
disposition of the collateral].

Article 281. Participation of the Secured Creditor and the Owner in an Auction
The secured creditor and the owner [debtor] may join tly participate in the auction. The owner’s bid may
be rejected unless he pays in cash.

Article 282. Obligation to Pa y in Cash at an Auction
The collateral may be sold only on the condition that the buyer pays the price in cash. Otherwise he
shall lose the right [of purchase]. If the sale is carried out without such a condition, then the purchase
price shall be deemed to have been accepted by the secured creditor.

Article 283. Effects of Lawful Alienation of the Collateral
1. Lawful alienation and transfer of the collateral shall pass the property unencumbered to the
ownership of the acquirer.
2. If an object, as collateral, is alienated in such a way that the seller has no security interest in it, or if
the realization is not necessary for satisfaction of the claim, then the acquirer in good faith shall acquire
ownership of the property without encumbrance all the same.

Article 284. Rule for Re alization of a Claim
Realization of a claim is effected through payment by th e [third party or primary] debtor in favor of the
creditor.

Article 285. Proceeds of Realization
Inasmuch as the proceeds derived from the realizat ion of the collateral are intended to satisfy the
secured creditors, the claim shall be deemed to be satisfied by the owner [debtor] in favor of the
creditor. Otherwise, the proceeds shall replace the colla teral [i.e., the security interest shall attach to the
proceeds.]

II. Mortgage

Article 286. Concept
1. An immovable thing may be used (encumbered) for securing a claim in such a manner as to grant
to the creditor the right to receive satisfaction out of this thing and to have priority over other creditors
in receiving such satisfaction (mortgage).

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53
2.
A mortgage may likewise be used to secure future or contingent claims if these claims can be
determined at the time of creation of the mortgage . Similarly, the maximum extent to which the claim
is to be satisfied out of the thing may be determine d. This amount shall be determined by its entry in
the Public Register.
3. A claim secured by a mortgage may be replaced by another claim. Such substitution shall require an
agreement between the owner and the creditor (mortg agee), and registration of this agreement in the
Public Register.

Article 287. Blanket Mortgage
If a claim is secured by a mortgage upon a number of immovable things (blanket mortgage), then each
of these things shall be used to satisfy the claim in common. The creditor may satisfy the claim by any
of these things at his discretion.

Article 288. Owner’s Mortgage
If the claim secured by the mortgage either has not ar isen or is extinguished or is transferred to the
owner of the immovable thing, then the mortgage is also transferred to t
he owner (owner’s mortgage).

Article 289. Registration of Mortgage
1. A mortgage is created by its registration in the Public Register. The registration is carried out
pursuant to an established procedure, by the presen tation of the [required] notarized documents by the
owner of the immovable thing and by the mortgagee. The documents shall indicate the identities of the
owner of the immovable thing, the mortgagee and an y third party debtor, as well as the extent of the
secured claim, the interest thereon and the period of time for performance.
2. A mortgage may also be created so that the right of the creditor arising from the mortgage is
determined only according to the con tent of the claim, and the creditor, in such case, may not rely upon
the registration to prove the existence of the claim. Such a mortgage is entered in the register as a
guaranteed (secured) mortgage. Mortgages of large sums may only be guaranteed mortgages.

Article 290. Encumbering an Immovabl e Thing Repeatedly with Mortgages
1. One and the same immovable thing may be mortgaged several times. The order of priority of the
mortgages shall be determined according to the time of their creation.
2. If the owner of an immovable thing assumes an obligation to another person to terminate the
mortgage once it is, along with the ownership, in th e hands of the same person, then this obligation to
terminate may be registered in the Public Register.

Article 291. Right of an Owner Who is Not Pers onally the Debtor with Respect to the Claim
Secured by the Mortgage
1. If the owner of an immovable thing is not persona lly the debtor with respect to the claim secured
by the mortgage, then he may still assert agains t the mortgagee any counterclaim to which only the
personal debtor is otherwise entitled; specifically, these are any counterclaims [that the debtor has] arising out of offsetting monetary obligat ions and defenses against the claim.
2. If the time of performance of a claim depends upon the dissolution of a legal relationship, then the
dissolution shall be deemed valid only if it is declared by the owner to the creditor or by the creditor to
the owner.

Article 292. Right of the Owner upo n Satisfaction of the Creditor
1. The owner of an immovable thing [pledged as collater al] is entitled to satisfy the creditor when the
performance of the claim is due, or when the debt or is entitled to perform the corresponding action.
41
2. If the owner of the collateral is not personally th e debtor, then he shall assume ownership of the
claim against the debtor if he satisfies the credit or’s claim against the debtor [i.e., – subrogation].

41 Again, this provision applies when the owner of the collateral and the debtor are not the same person.

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3.
Upon satisfaction of the creditor the owner [of the collateral] may demand any documents that are
required for making an appropriate entry in the Pu blic Register for termination of the mortgage.

Article 293. Extension of Mortgage to the Fruit of an Immovable Thing
1. A mortgage extends to the fruit of an immovable thing as well, unless the fruit is derived throu
gh
normal economic activities, or until [the fruit] is alienated.
2. By virtue of the mortgage, both the interest accrued on the claim and the court costs shall be
covered out of the immovable thing.

Article 294. Obligation to Ma intain the Mortgaged Thing
1. The owner is bound to preserve the actual value of the mortgaged thing. If due to a worsening of
the circumstances [surrounding preservation of the th ing] the existence of the mortgage is endangered,
then the creditor may fix a period of time to the owner for elimination of the danger.
2. If the [mortgaged] thing is insured, the insurer ma y pay the proceeds of the insurance to the insured
party after a worsening of the circumstances [surro unding preservation of the thing] only when the
creditor has been informed of the fact of the damage to the mortgaged thing. The creditor may
prevent the payment of the proceeds if he ha s reason to believe that the proceeds [to the
owner/debtor] will not be used for restoration of the thing.
3. If it is found that the owner fails to perform his duty [to preserve the thing], the creditor may
demand transfer of the thing into his care. A cour t shall make the decision with respect to such claim.
4. An agreement by which the owner assumes an ob ligation before the creditor not to use or
otherwise encumber the immovable thing shall be void.
42 The validity of such transactions with respect
to third persons may not be subject to the consent of the creditor.

Article 295. Transfer of the Mortgage and th e Claim Underlying it to Another Person
A mortgage and the claim underlying it may be transferred to another person only simultaneously and
both together. Simultaneously with the transfer of the claim the mortgage is also transferred to the new
creditor. Transfer of the claim shall be deemed valid only when the notarized document on creation of
the mortgage is handed over to the new creditor, and he is registered in the Public Register as the new
creditor.

Article 296. Debtor’s Obligati on Before the New Creditor
If, after the transfer of the claim to a new creditor, the debtor pays the former creditor, this payment
shall not excuse him from his obligation before the new creditor, even w
hen he knew nothing about
the transfer.
43

Article 297. Presumption of Accu racy of the Entry in the Public Register Upon Passing of the
Mortgage and the Claim to the New Creditor
The mortgage and the claim are transferred to the new creditor in the same state in which they were in
the hands of the former creditor. The entry regist ered in the Public Register, proceeding from the
interests of the [new] creditor, shall be deemed accura te. In this case the debtor may not assert that the
claim is non-existent. This rule shall not apply wh en the new creditor knew of the wrong entry in the
Public Register.

Article 298. Rights of a Third Person
1. Any third person whose position would be aggravated as a result of realization of the mortgage
shall be entitled to pay the claim himself and thereb y take over the mortgage. Upon satisfaction of the
creditor he may demand a duly authenticated docu ment [memorializing payment of the claim] and may
demand his registration as the [new] mortgagee.

42 Again, agreement here refers to a provision of a contract, so only the provision would be invalidated, not the whole
contract.
43 The rule charges the debtor with responsibility to know, through the public registry, that the claim and mortgage have
been transferred to a new creditor.

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2.
If one who is personally the debtor satisfies the creditor, the mortgage is passed to him in such a
manner that he may demand compensation from the owner [of the collateral].
44

Article 299. Renunciation of the Clai m or Mortgage by the Creditor
1. If a creditor renounces the claim or the mortgage, the owner shall become the mortgagee. The
renunciation shall take legal effect upon it s registration in the Public Register.
2. If the creditor renounces the mortgage but not the claim, then the personal debtor is discharged all
the same provided that he [the personal debtor] could have received the compensation from the
mortgage [under art. 298-(2)].
45
3. If the owner has a right to rescind [the mortga ge], which excludes the long-term use of the
mortgage, then he may demand that the creditor renounce the mortgage.

Article 300. Claim for Realization of the Thing Encumbered with Mortgage
1. If the debtor delays satisfaction of the claim secured by the mortgage, then the mortgagee shall be
entitled to claim realization of the immovable thing.
2. The realization is effected according to the procedure defined in this Chapter and the norms of the
Civil Procedure Code. The norms of the Civ il Procedure Code shall apply as special norms.

Article 301. Foreclosure Sale at Auction
1. Foreclosure sale at auction, on the application of the creditor, is executed by a court that shall
designate a specialist (expert) [for conducting the auction].
2. The court decision shall be made public. In addition, the court shall be bound to notify the entitled
persons entered in the Public Register of the prospective auction.

Article 302. Other Forms of Real ization of Immovable Property
1. A court may, on the joint application of the owner and the creditor, establish a form of realization
other than auction. Prior to rendering such a decision the court shall hear the par
ties.
2. An agreement by which the ownership of the immovable thing is immediately transferred to the
creditor if he is not satisfied or the satisfaction failed to occur in time, shall be void.
46

Article 303. Debtor’s Rights to a Realized Dwelling-House
1. The debtor shall lose the right to retain the frui t of the thing as of the time of rendering the
decision on the sale of the thing at auction.
2. If the debtor lives alone or with his family in a building or in a part
of a building which is
encumbered with a mortgage, then he is entitled to stay therein as a tenant [after realization] and is
obligated to pay rent at the market ra te to the acquirer of the property.

Article 304. Avoidance of Holding of an Auction
1. An owner or a third person whose rights may be impaired as a result of an auction shall have the
right to avoid the auction by satisfying th e claim prior to the holding of the auction.
2. The filing of the owner’s petition with a court ma y suspend the holding of the auction, but not for
longer than six months, if the entitled person [own er] deems that the auction may be avoided by such
suspension. The same rule applies when the suspension is acceptable either proceeding from the
owner’s personal and economic relations or according to the nature of the debt. The application shall
not be allowed if the suspension will cause dispr oportionately negative effects to the creditor.

44 Compare § 1164 of the German Civil Code. The personal debtor who satisfies the creditor assumes the mortgage in
the collateral put up by the owner and may demand “indemnification” from the owner. These articles regarding a
personal debtor who is not the same person as the owner of the collateral generally assume that the owner has some
obligation to the debtor which he is performing by pledging his property to secure the debtor’s debt.
45 See German Civil Code, § 1165. 46 Again, “agreement” here refers to a provisio n of a contract, not the contract as a whole.

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Article 305. Participation of the Creditor,
the Debtor and the Owner in the Auction
The creditor, the debtor and the owner are entitled to participate themselves in the auction, during
which the debtor and the creditor shall presen t security as deemed appropriate by the expert.

Article 306. Auction Held a Second Time
If, during the first auction, no bid reaches the amount of seventy percent of the value of the thing as
assessed by the expert, then the auction shall be held a second time. The second auction shall be
announced in the same form in which the first one was announced. In addition, it must be indicated
[in the notice] that the auction is being held a seco nd time. The lowest price offered during the second
auction must at least cover the litigation expenses an d the claims of the creditor, otherwise the auction
shall be deemed as not held. The expenses of the auction shall be borne by the owner.

Article 307. Mortgage Extinguished as a Result of Realization of the Thing
1. The buyer of the thing at the auction is obligated to deliver the amount of the purchase price to the
expert who carried out the foreclosure execution; the amount of expenses in connection with the
execution shall be deducted therefrom.
2. The buyer shall be the owner of the thing only upon payment of the price.
3. All mortgages and rights with which the thing was encumbered and which were registered later than
the mortgage of the creditor carrying out the forecl osure execution shall be extinguished as a result of
the transfer of ownership. Limited rights to the th ing [i.e., mortgages, servitudes] registered earlier
[than the mortgage of the creditor carrying out the foreclosure] shall remain unaltered.
4. The new owner shall become a participant in rental and lease relations that exist at the moment of
the transfer of ownership.
47 By the transfer of ownership to the new owner, the former owner is
considered to be a lessee, in accordance with market conditions. 48

Article 308. Procedure for Distribution of the Proceeds of Realization of a Thing
1. If the entitled person is registered as the sole mortgagee, or if the proceeds derived from the
auction, less the expenses, cover the claims of all mortgagees, then the expert, after reexamining the
expenses, shall distribute the amount of the purcha se price among the creditors; and the remainder
shall be given to the person whose thing was sold.
2. If the amount of the purchase price fails to sati sfy all claims secured by the mortgage, then the
expert shall reexamine the expenses, deposit the rema ining amount [after payment of expenses] into a
special account, draw up a plan for distribution of the proceeds according to the order of priority [of
mortgages] entered in the Public Register, and submi t this plan to the court. The court shall approve
this plan and instruct the experts to carry out the distribution in accordance with it.

Article 309. Joint Liabil ity of the State for Improperly Held Auction
If the officially designated expert fails to perform the duties laid on him with respect to the holding of
the auction, then the state shall, al ong with the state expert, be jointly liable before the participants for
the damage caused.

Article 310. Compulsory Administra tion of the Thing (Sequestration)
1. On the application of the mortgagee entitled to foreclosure execution, a court, in lieu of
compulsory alienation at auction, may establish compul sory administration of the thing (sequestration).
In such case the court shall designate the sequestra tor or convey the administrative function to the
owner.
2. Prior to rendering a decision, the court shall hear the persons registered in the Public Register
whose rights may be impaired by the sequestration.
3. Sequestration may be established only when it is expected that the income derived through the
sequestration will exceed the current expenses of it.

47 That is, he replaces the previous owner in relation to any lessees on the property. 48 This rule applies if the owner himself was occupying the property.

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4.
If the debtor lives alone or with his family in a building or in a part
of a building on which the
sequestration is established, he shall be obligated to pay rent according to market rates from the
commencement of the sequestration.
5. The sequestrator shall receive the fruit of the thing and, at the end of a year and after deducting all
expenses including the sequestration expenses, he shall distribute the fruit [income] in accordance with
the distribution plan drawn up by him and approved by the court.
6. The sequestration shall be extinguished when the credit or is satisfied or when it is evident that the
creditor cannot be satisfied through the sequestration.
TITLE FOUR
PUBLIC REGISTER

Article 311. Purpose of the Public Register
1. The Public Register shall be available for inspection by any interested person. The rights of
ownership of immovable things and other rights in things shall be entere
d in the Public Register. Rights
to use, security interests and other rights in movable things may also be registered in the Public
Register.
2. A separate law shall govern the procedure for organization of the Register.

Article 312. Presumption of Veracity and Co mpleteness of Entries in the Public Register
1. The presumption of veracity and completeness shall operate with respect to the Public Register, i.e.
an entry in the Public Register shall be deemed to be accurate until its inaccuracy is proven.
2. In favor of a person who acquires some right fr om another person on the grounds of a transaction
while this right was entered in the Public Register in the name of the alienator, the entry in the Public
Register shall be deemed to be accurate except when a complaint has been lodged against this entry, or
when the acquirer knew of the inaccuracy of the entry.

Article 313. Demand for Consent to the Rectification of an Entry
1. If a right is entered in the Public Register in the name of a person who no longer owns such right,
then the person whose rights and legal status have been impaired by the registration may demand the
consent to the rectification of the entry from that person whose right is affected by the rectification.
2. In order to determine the owner, a complaint ma y be lodged on the grounds of inaccuracy of the
entry in the Register. Upon lodging of the complain t the inaccuracy of the entry shall be presumed.

Article 314. Rights Registered in the Register; Order of Priority
1. The order of priority of rights registered in the Register shall be dete
rmined according to the time
of registration. The date of filing of the application for registration shall be deemed to be the date of
registration.
2. The order of priority may afterwards be altered. This shall require an agreement on rectification
among those persons who substitute each other and th e registration of the alteration in the Register.
3. Upon the registration of a right the owner may set a c ondition that some right be registered prior to
the other right. This condition shall also be registered.

Article 315. Preliminary Entry in the Public Register
1. A preliminary entry may be made in the Register in order to secure a claim for registration of a right
in a thing that is subject to registration. Such a preliminary entry is
allowed to secure a future or
contingent claim.
2. A registration made after recording of the preliminary entry shall in no way affect the person
secured by the registration of the preliminary entr y, unless this subsequent registration impairs or
extinguishes his claim.
3. The registration of the preliminary entry is made in order to establish
the possessor [of a claim to
be registered], on the basis of the permission of the person who owns the thing subject to registration
and to which this entry relates.

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4.
If a person to whose thing the preliminary entry relates has the right to [contest the claim], and this
contest excludes exercise of the claim secured by the preliminary entry for a long period of time, then
this person may demand from the creditor cancellation of the preliminary entry.
5. If the acquisition of some right is void for the person in whose favor t
he preliminary entry was
made, then he may demand from the [person who does acquire] the right consent to such registration
as will be required for effecting the claim secured by the preliminary entry.

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BOOK THREE
LAW OF OBLIGATIONS
GENERAL PART
GENERAL PROVISIONS ON OBLIGATIONS

Article 316. Concept
1. By virtue of an obligation the obligee is entitled to claim performance of a certain action from the
obligor. Refraining from action ma y constitute performance as well.
2. With regard to its content and nature, an obligation may bind each party to act in accordance with
extraordinary diligence as to the righ ts and property of the other party.

Article 317. Grounds Giving Rise to an Obligation
1. An obligation shall arise from the contract between the parties, except when the obligation arises
from tort (delict), unjust enrichment or other grounds prescribed by l
aw.
2. An obligation with regard to the duties under Article 316 may also arise from the grounds of
drawing up of the contract.
3. A party in a negotiation may require from the other party reimbursement for expenses he has
incurred for concluding a contract that, nevertheless, has not been concluded by reason of the other
party’s culpable action.

Article 318. Obligation to Disclose Information
The right to receive some information may arise from an obligation. Disclosure of the information shall
be ensured within the time that it retains signific ance for determining the content of the obligation and
the contracting party can disclose this information without impairing his rights. The recipient of the
information shall reimburse the obligor for the expenses of the disclosu
re.
TITLE ONE
CONTRACT LAW PART ONE
CHAPTER ONE
GENERAL PROVISIONS

Article 319. Freedom of Contract. Obli gation to Enter into a Contract
1. Subjects of private law are free to enter into contracts and determine their content within the scope
of the law. They may also conclude contracts that ar e not prescribed by law, but do not contravene it.
If, for the protection of the essential interests of society or a person, the validity of the contract
depends upon the permission of the state, th en a separate law shall govern this issue.
2. If one of the parties to a contract dominates the ma rket, then it shall be bound by the obligation to
enter into a contract in this field of activity. Th is party may not unjustifiably offer unequal (unfair)
contractual terms to the contracting party.
3. Persons who acquire or use property and services either for non-commerci
al purposes or for
meeting their vital needs may not be unjustifiably de nied from entering into a contract, provided that
the other party to the contract is acting within the scope of its business.

Article 320. Voidness of a Cont ract for Future Property
A contract by which one party undertakes the obligation to either transfer all of its future property or a
part thereof to another person or encumber it with a usufruct shall be void, except where the contract
has been concluded for particular items of future property.

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Article 321. Contract for Transf
er of [Existing] Property
A contract by which one party undertakes the obligati on to either transfer all of its present property or
a part thereof to another person or encumber it wi th a usufruct shall be subject to notarization, except
for a contract that has been concluded for particular things of the present property.

Article 322. Voidness of a Contract for Estate
1. A contract concluded by other persons with respect to the estate of a person during his lifetime is
void. The same rule applies to a contract concluded during a person’s lifetime for either a forced
portion [legitime] of his estate and/or for a testamentary obligation [“legacy”].
49
2. The rule of paragraph (1) of this Article shall not apply to a contract entered into among the
expectant heirs at law for the hereditary or forced portion of one of them.

Article 323. Rule for Alienati on of an Immovable Thing
A contract by which one party undertakes the obligat ion to transfer ownership of an immovable thing
to another person or to acquire it shall be subject to notarization.

Article 324. Scope of a Contract for Encumbrance of a Thing
If a person undertakes the obligation to alienate or encumber his own property, then this obligation
shall also extend to an appurtenance thereof, unless otherwise stipulated in the contract.

Article 325. Definition of the Terms of an Obligation on a Fair Basis
1. If the terms for performance of an obligation are to be defined by one of the parties to the contract
or by a third person, then it shall be presumed when in doubt that such a definition shall be constructed
on a fair basis.
2. If a party considers the terms to be unfair, or th at their definition is being delayed, a court shall make
a decision on the issue.

Article 326. Application of the Rules on Co ntractual Obligations to Non-Contractual
Obligations
The rules on contractual obligations shall likewise a pply to non-contractual obligations unless otherwise
following from the nature of an obligation.
50

CHAPTER TWO
ENTERING INTO A CONTRACT

Article 327. Agreement on the E ssential Terms of a Contract
1. A contract is considered entered into if the part ies have agreed on all of its essential terms in the
form stipulated for such an agreement.
2. Essential terms of the contract shall be those on which an agreement must be reached at the request
of one of the parties, or those considered by law to be essential.
3. A contract may give rise to the obligation to conc lude a future contract. The form stipulated for the
[main] contract applies to the preliminary contract as well.

Article 328. Form of a Contract
1. If a specific form has been prescribed by law fo r the validity of a contract, or if the parties have
determined such a form for the contract, then the contract shall have binding force only if it meets the
requirements of this form.
2. If the parties have agreed on a written form, th e contract may be concluded by drawing up of one
document signed by the parties. A telegraph not ice, telecopy or exchange of letters are likewise
sufficient for observance of the form.

49 See Book Six, Law of Inheritance, §§ 1371-1397. 50 See generally Title II of this Book, “Statutory Obligations.”

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Article 329. The Making of an Offer
1.
A proposal for concluding a contract (offer) constitu tes an offer if in this proposal, addressed to
one or more persons, the proposal-maker (offeror) si gnifies his intention to be bound by the proposal
in the case of consent (acceptance).
2. A proposal addressed to an unspecified circle of persons is an invitatio
n to make an offer unless
otherwise conspicuously signified in the proposal.

Article 330. Making Offer to Present and Absent Persons
1. A reply to an offer made to a present person sh all be deemed to have been received immediately.
2. An offer made to an absent pers on must be accepted within a reasonable period of time in which the
offeror may expect the reply.

Article 331. Acceptance
If the offeror has fixed a period of time for accepta nce, then the offer must be accepted within this
time.

Article 332. Late Acceptance
If the offeror receives a late acceptance, yet the notice of acceptance shows that it was sent out in due
time, then the acceptance is deemed to be late only if the offeror so informs the offeree immediately.

Article 333. New Offer
1. A late acceptance shall be deemed to be a new offer.
2. When a reply indicates consent to conclude the contract but contains terms other than those
specified in the offer, then such a reply is deemed to be a rejection of the offer and to constitute a new
offer.

Article 334. Presumption of Consent of an Offeror
If in business relations the acceptance has been given with modifications, the contract shall be
considered concluded provided that the offeree was entitled to presume consent [to the modifications] from the offeror and the latter did not object immediately [to the modifications].

Article 335. Silence as a Form of Acceptance
1. If a businessperson who performs business opera tions for other persons receives an offer for
performance of such a business operation from a pers on with whom he has had a business relationship,
he is bound to reply to this offer within a reasonable period of time; [otherwise] silence of the
businessperson shall amount to acceptance. The sa me rule applies when the businessperson receives
such an offer from a person from whom he has been requesting an order to perform such a business
operation.
2. Even if the businessperson rejects the offer but th e goods have already been shipped, then he, in
order to avoid harm [to the offeror], is bound to te mporarily preserve the goods at the expense of the
offeror in a manner to avoid their deterioration.

Article 336. Contract Co ncluded in the Street
A contract concluded in the street, in front of a house or in like place
between a consumer and a
person conducting sales within his trade, is valid on ly if the consumer has not rejected the contract in
writing within a week, unless the contract is performed [immediately] upon its conclusion.

Article 337. Interpretation of Part icular Expressions in a Contract
If particular expressions in a contract may be inte rpreted differently, then preference shall be given to
the version that is commonly used at the place of resi dence of the parties to the contract. If the parties
reside in different places, then the interpretation ac cording to the offeree’s place of residence shall
prevail.

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Article 338. Mutually Exclusive and Am
biguous Expressions in a Contract
In case of mutually exclusive and ambiguous expressi ons in a contract, preference shall be given to the
expression that most closely accords with the overall content of the contract.

Article 339. Traditions and Usages of Trade
When determining the rights and duties of the parties to a contract, regard is to be given to the
traditions and usages of trade.

Article 340. Interpretation of Mixed [Complex] Contracts
When interpreting a mixed contract, regard is to be given to the legal regulations that apply to those
contracts that most closely accord with and corre spond to the essence of the performance [of the
mixed contract] 51.

Article 341. Acknowledgment of the Existence of a Debt
1. A contract which acknowledges the existence of a de bt must be in writing. If another form is
stipulated for creation of the obligational relation [i .e. the debt] that is being acknowledged, then the
acknowledgement shall also require this form.
2. If the existence of a debt is acknowledged on th e grounds of a mutual settlement (payment) or a
settlement through negotiation, then observance of the form is not required.

CHAPTER THREE
STANDARD CONTRACT TERMS

Article 342. Concept
1. Standard contract terms are provisions prepared in advance for repeated use that one party (the
offeror) proposes to the other par ty, and which stipulate rules that deviate from, or supplement, norms
prescribed by law.
2. If the parties have determined the contract terms in detail, such terms shall not be deemed to be
standard contract terms.
3. The terms agreed upon by the parties individually shall prevail over standard contract terms.

Article 343. When Standard Co ntract Terms Become an Integral Part of a Contract
1. Standard contract terms become an integral part of a contract only when:
a. the offeror, at the [time and] place of conclusi on of the contract, has made an explicit notation
referring to these terms and
b. the other party to the contract was able to observe the content of these terms and, if he agrees
to them, to accept them.
2. If the other party to the contract is a businessper son, then standard contract terms become an
integral part of the contract if this was to be expected by him when acting with the due diligence
required in business relations.

Article 344. Uncommon Provisions in Standard Contract Terms
Provisions contained in standard contract terms that are of such an uncommon character that the other
party could not have expected them shall not become an integral part of the contract.

Article 345. Interpretation of Unclear Provisions In Favor of Other Party
If the text of standard contract terms is unclear, then an interpretation in favor of the other party
[offeree] is preferred.

51 The clause seems to be saying that where a single contr act deals with multiple issues, such as lease of one thing and
sale of another, or perhaps lease and sale of the same thing, then interpretation of the contract should follow the rules of
the Civil Code regarding such type of contracts individually, i.e. for contracts of sale and contracts of lease.

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Article 346. Voidness of Terms Contravening
Principles of Trust and Good Faith
A term among standard contract terms is void, notwithstanding its inclusion in the contract, if it
disadvantages the other party to the contract and is i rreconcilable with the principles of trust and good
faith. In addition, regard is to be given to the circ umstances in which this term has been included in the
contract, to the mutual in terest of the parties, etc.

Article 347. Voidness of St andard Contract Terms
When the offeror uses standard contract terms towards natural persons who are not c
onducting
entrepreneurial activities, then the following provisions thereof shall be void:
a. A provision by which the offeror fixes unreasona bly long or obviously insufficient periods of
time for accepting or refusing to accept an offer, or for performance of certain actions (periods
of time for acceptance and performance);
b. A provision by which the offeror, contrary to provisions prescribed by l
aw, reserves for himself
unreasonably long or insufficiently determine d periods of time for performance of his
obligations (periods of time before which breach is deemed to occur);
c. A provision which gives the offeror the right to repudiate his obligation without a reason which
is justified and named in the contract (r eservation for repudiation of the contract);
d. A provision which gives the offeror the right to modify, or to deviate f
rom, the promised
performance, if agreement on such a thing is unacceptable to the other party to the contract
(reservation for amending the contract);
e. A provision which gives the offeror the right to demand from the other party to the contract an
unreasonably high reimbursement for expenses incurred (unreasonably high compensation for
incurred expenses).

Article 348. Other Grounds for Voi dness of Standard Contract Terms
When an offeror uses standard contract terms to wards natural persons who are not conducting
entrepreneurial activities, the following provisi ons of such terms shall likewise be deemed void:
a. A provision which stipulates a price increase in an unreasonably short period of time (short-
term price increase);
b. A provision which excludes or restricts:
the right to refuse performance, which [other wise] accrues to the [offeree, or party to a
contract] under this law,
or,
the right of the [offeree] to suspend performance until the other party performs his
binding obligation (right to refuse performance);
c. A provision by which the [offeree] is deprived of his right to set off with a claim that is
undisputed or has been recognized by a court of law (prohibition of setoff of counterclaims);
d. A provision by which the offeror is freed from his statutory obligation to warn the other party
or to fix a period of time for performance of the obligation [for cure of default] (warning on
performance of an obligation, fixing a period [for cure])
52;
e. Agreement on the amount [that the offeror may] claim for damages when the stipulated amount
exceeds the [actual] damage (exceeding claim for damages);
f. A provision which excludes or limits the liability for damage caused by a grossly negligent
breach of obligation by the offeror or by his agent (liability for negligence);
g. A provision by which, in case of breach of the main obligation by the offeror:
the other party to the contract is deprived of, or restricted in his right to repudiate the
contract,
or,
the other party to the contract is deprived of or, contrary to sub-paragraph (f) of this
article, restricted in his right to demand damages for non-performance of the contract

52 In context, the provision makes most sense if we understand it to mean that the offerer cannot free himself of the duty
to warn the offeree that the offeree is in default and to give him additional time to perform – to cure the default.

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(breach of the principal obligation);
h. A provision which, in case of partial performan ce of the obligation by the offeror, excludes the
right of the other contractual party to clai m damages for non-performance of the entire
contract, or to repudiate the contract if partial performance of the contract is of no interest to
this party (losing of interest in the event of partial performance of the obligation)
;
i. Any provisions that, contrary to rules prescribed by law, limit the liab
ility of the offeror for
defects of “things” while supplying newl y produced goods and performing works.
53

CHAPTER FOUR
CONTRACT FOR THE BENEFIT OF A THIRD PERSON

Article 349. Concept
Both the creditor and a third person may demand pe rformance of a contract which has been concluded
for the benefit of the third person, unless otherwise prescribed by law or stipulated in the contract, or
unless otherwise following from the essence of the obligation.

Article 350. Interpretation of a Contract Co ncluded for the Benefit of a Third Person
1. In the absence of a special stipulation, the circumstances of the matter, namely, the purpose of the
contract, shall determine:
a. whether the third person is to acquire th e right [to demand performance] or not;
b. whether this right is effective at once [uncondit ionally] or is subject to certain preconditions;
c. whether the parties to the contract are entitled to revoke or modify the right accrued to the
third person without his consent.
2. The party that has made a stipulation in the cont ract for the benefit of a third person shall retain
the right to substitute the third person named in the contract regardless of the [other] contracting
party’s consent.

Article 351. Third Person’s Renunciation of the Right Acquired Under Contract
If a third person renounces the right acquired unde r a contract, then [his] creditor may demand
performance of the obligation himself, unless otherwise following from t
he contract or from the
essence of the obligation.

CHAPTER FIVE
AVOIDANCE OF A CONTRACT

Article 352. Effects of Avoidance of a Contract
1. If one of the parties to the contract, in the circ umstances under Article 405, repudiates the contract,
the performances and benefits [already] derived shall be returned to the parties (restitution in kind).
2. Instead of restitution in kind, the obligor shall be obligated to pay monetary compensation if:
a. Given the nature of the acquired [performance, benefit] it cannot be returned;
b. The party has used, alienated, encumbered, tr ansformed or altered the received object;
c. The received thing has deteriorated or perished ; wear and tear resulting from its proper use
shall not be taken into account [i.e., shall not exclude return of the t
hing].
3. If a return performance has been stipulated in the contract, then monetary compensation
may not be substituted for such performance.
4. The obligation of monetary compensation shall not arise if:
a. The defect of the thing, which gives rise to the right to repudiate the contract, was ascertained
upon its transformation or alteration;
b. The thing deteriorated or perished through the creditor’s [obligee’
s] fault;

53 Inclusion of the word “things” indicates that the offeror may not waive liability for defects in goods supplied or in
materials used in performing works, but leaves open th e possibility that he may waive liability for defects in
workmanship in performing works. Cf. § 148.

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65
c.
The thing deteriorated or perished while in the custody of an authorized
person, [and] he
treated it with the same care as his own thin g; [but] whatever remains shall be returned.
5. Pursuant to Article 394, the creditor [obligee] may claim damages for breach of the [obligor’s] obligation [to perform] under paragraph (1) of this article.

Article 353. Liability of the Ob ligor [When] Not Deriving Benefit Because of Breach of the
Rules for Proper Use of the Thing
1. If the obligor has not derived the benefit [of the th ing] owing to breach of the rules for proper use
of the thing, when he should have been able to de rive the benefit, he shall be bound to compensate the
creditor [obligee] for the damage caused by not deriving the benefit.
2. If the obligor returns the thing, pays reimbursem ent in money or, under sub-paragraphs (a) and (b)
of paragraph (4) of Article 352, no claim for da mages arises, then he shall be reimbursed for
unavoidable expenses. Other expenses shall be reim bursed only if the creditor has benefited from
them.

Article 354. Performance of Obligations Arising from Avoidance of a Contract
The parties shall be bound to simultaneously perf orm obligations arising from the avoidance of a
contract.

Article 355. Obligation of Notice of Avoidance of a Contract
Avoidance of a contract is exercise d by notice to the other party.

Article 356. Time Limits fo r Avoidance of a Contract
If no time limit is fixed for avoidance of a contract , then the other party to the contract may fix such a
period of time for the person entitled to avoid the c ontract. The period of time shall be reasonable. The
right to avoid the contract is extinguished unless noti ce of avoidance is given before the period of time
lapses.

Article 357. Avoidance of a Cont ract by a Number of Persons
If a number of persons participate in one or another of the contractual parties, then the right to avoid
the contract shall be exercised jointly by all participan ts of the party who avoids the contract, by giving
the notice of avoidance to all participants of the other party. If the right to avoid the contract is
extinguished for one of the persons [belonging to a pa rty] entitled [to avoid the contract], then this
right shall be extinguished for all of the persons [in that party.]

Article 358. Avoidance of a Contract Not Allowed
Avoidance of a contract shall not be allowed on the grounds of non-performance of an obligation if the
obligor could have performed the obligation throug h a setoff, and after avoidance he immediately
declares a setoff against the obligation.

Article 359. Avoidance of a Contract by the Creditor
If a contract has been concluded with the stipulatio n that the obligor, under the contract, shall forfeit
his rights in case of non-performan ce of his obligations, then the creditor [obligee] shall be entitled to
avoid the contract in the event that such non-performance occurs.

Article 360. Mistake in th e Basis of a Settlement
1. A contract by which a dispute or uncertainty between the parties is settled through mutual
compromises (settlement) is void if, proceeding from the content of the contract, this settlement relies
on grounds not relevant to the true state of affa irs, and the dispute or uncertainty would not have
occurred had the parties known the true state of affairs.
2. Uncertainty may exist when performance of some requirement is in doubt.

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TITLE TWO
PERFORMANCE OF OBLIGATIONS
CHAPTER ONE
GENERAL PROVISIONS

Article 361. Presumption of Existence of Obligation
1. Each performance implies the existen ce of an [underlying] obligation.
2. The obligation must be performed duly, in good faith, and at the time and place determined.
54

Article 362. Place of Performance of Obligation
If the place of performance is neither fixed nor determinable from the essence of the obligational
relation, then delivery of the object must be effected as follows:
a. In the case of an individually [specifically] de fined object – at the place where it was located at
the moment the obligation originated;
b. In the case of an object defined by generic charac teristics – at the obligor’s place of business;
and if no such place exists, then at hi s place of residence (legal address).

Article 363. Change in Domicile of Obligor or Creditor [Obligee] 1. If prior to the performance of an obligation the pl ace of residence or the domicile of the enterprise
of the obligor changes and the obligee thereby incurs additional expense, then the obligor shall
compensate the creditor for such expenses.
2. If prior to the performance of the obligation the place of residence or legal address of the obligee
changes and thereby the expenses increase or the [ obligor’s] performance is endangered, then both the
compensation for increased expenses and the risk of [non-performance] with respect to delivery of the
object shall be put on the obligee.

Article 364. Earlier Performance
The obligor is entitled to perform the obligation ear lier than the time period fixed, unless the creditor
rejects the [early] performance on legitimate grounds.

Article 365. Performance of the Obligation When No Period of Time for the Performance is
Fixed
If a period of time for performance of the obligat ion is neither fixed nor determinable from other
circumstances, the creditor may claim its performa nce at any time, and the obligor may perform it
immediately.

Article 366. Demand for Earlier Performance Not Allowed
If a period of time [for performan ce] is fixed, then it shall be presumed when in doubt that the obligee
may not demand performance before [the expiration of] this period of time, and the obligor may
perform the obligation earlier than this period of time.

Article 367. Right to Demand Performa nce of the Obligation Immediately
If for the performance of an obligation some period of time is fixed in favor of the obligor, then the
obligee may claim performance immediately if the obligor has become insolvent, has reduced the
promised security, or has failed to submit it at all.

Article 368. Performance of Obligation in the Case of a Conditional Transaction
If the validity of a transaction depends upon the o ccurrence of some condition, then the obligation
shall be due from the day of occurrence of this condition.

Article 369. Refusal to Perform the Obligation

54 The Georgian word for good faith may also be translated as “conscientiously.” Here, both meanings are appropriate.

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67
The person who is obligated [to perform] under a bilateral contract may
refuse to perform the
obligation until the counter-performance is rendered, except when he has been obligated to perform his
obligation [before such counter-performance is rendered].

Article 370. Consumer Credit
1.
In cases of consumer credit the beneficiary of th e credit [i.e. the buyer] may refuse to repay the
credit if the buyer has a counter claim against the seller proceeding from the purchase contract that
would entitle him to repudiate the performance of his obligation [i.e. the obligation to pay for the
goods].
2. The contract of sale together with the contract of credit shall constitute an interrelated transaction
if the credit serves to finance the purchase price and both contracts are regarded as an economic whole.
An economic whole shall be deemed to exist when the seller has participated with the issuer of the
credit in the preparation or conc lusion of the contract of credit.

Article 371. Performance of the Obligation by a Third Person
1. Unless it follows from the law, the contract or th e nature of the obligation that the obligor must
perform the obligation personally, a third pe rson may perform the obligation as well.
2. The obligee may reject the performance offered by a third person if the obligor is against it.

Article 372. Satisfaction of the Credit or by the Third Person [Subrogation] If the creditor forcibly executes against a thing be longing to the obligor, then any person at risk of
losing his right in the thing by the forced execution shall be entitled to satisfy the creditor. When the
third person satisfies the creditor, the right to dema nd [against the debtor-obligor] shall be passed to
this person.

Article 373. Acceptance of Performa nce by an Unauthorized Person
1. The obligor is bound to give performance of the ob ligation to the creditor or to the person who is
authorized by law or by a court judgment to accept the performance.
2. If an unauthorized person has accepted performance of the obligation, then the obligation shall be
deemed to have been performed if the creditor [ob ligee] gave his consent thereto or received profit
[benefit] from the performance.
55

Article 374. Alternative Obligations
If one obligation is to be performed from among seve ral obligations (alternative obligations), then the
obligor shall have the right to choose from among them, unless otherwise following from the contract,
the law or the essence of the obligation.

Article 375. Choosing Obligations to be Performed
If it occurs that the obligor may repudiate one obligation out of the two due obligations, then the
obligation to perform the other action shall remain effective.

Article 376. The Rule for Choos ing Alternative Obligations
Under Article 374, the choosing from among alternative obligations is effected by making a declaration
to the other party to the contract or by effecting the performance. The chosen obligation shall be
deemed to be the obligation due from the beginning.

Article 377. Choosing More Than Tw o Obligations to be Performed
The rules of Articles 374-376 shall likewise apply when [the obligor may choose from among more than
two alternative performances in satisfying the obligation].

55 Logically, the clause must refer to po st-facto consent, because if the creditor ga ve prior consent then the recipient of
the performance would not have been “unauthorized at the time of the transaction.”

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68
Article 378. Performance of an
Obligation in Installments
The obligor has the right to perform the obligati on in installments (performance of obligation in
installments) if the creditor so agrees.

Article 379. Right of the Creditor to Accept Other Performance
The creditor shall not be obligated to accept a performance other than the one determined in the
contract. This rule shall likewise apply when the performance is highly valuable.

Article 380. Quality of Perf ormance of an Obligation
If the quality of performance is not specified in detail in the contract, then the obligor shall be bound to
perform the work of at least average quality an d to hand over the thing of average quality.

Article 381. Performance of Obli gation In the Case of an Individually Defined Object
If an individually defined thing constitutes the sub ject of the contract, then the obligee shall not be
obligated to accept another thing, even if the latter is of higher value.

Article 382. Performance of Obligation in the Case of a Generic Thing
If the subject of the performance is a thing that ma y be substituted (generic thing), then the obligor
must always perform the obligation.

CHAPTER TWO
PERFORMANCE OF MONETARY OBLIGATIONS

Article 383. Concept
Monetary obligations are expressed in the nati onal currency. Parties may establish a monetary
obligation in foreign currency unless it is prohibited by law.

Article 384. Procedure for Fixing an Annual Rate of Interest
If by law or by contract the obligation is an in terest-bearing one, then the maximum amount of the
annual rate of interest shall be fixed by special normative act.

Article 385. Procedure for Demanding Retu rn of Payment Made Without Obligation
Whatever has been paid without an obligation [requi ring the payment] may be claimed back under the
rules regulating unjust enrichment.

Article 386. Place of Performa nce of Monetary Obligation
1. When the place of performance is in doubt, a monetary obligation must be performed at the
creditor’s domicile (place of residence or legal address).
2. If the creditor has a banking account intended for [r eceiving] transfers of funds in that place or in
that country where the payment is to be effected, th en the debtor may perform his monetary obligation
by transfer to this account, except when the creditor is against this.

Article 387. Order of Paymen t of Monetary Obligation
1. If the debtor is liable before the creditor for several like performances arising out of various
obligations, and what has been performed is not enough to pay all the debts, then the obligation chosen
by the debtor for satisfaction at the time of performa nce shall be paid off; and if the debtor does not
choose, then that debt shall be paid off which was the first to fall due
.
2. If the dates on which claims mature occur simu ltaneously, then the claim which is the most
burdensome for the debtor shall be performed first.
3. If the claims are equally burdensome, then the claim for which the least security exists shall be
performed first.

Article 388. Priority of Covering Court Costs

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Payment by the debtor that is not sufficient to pay
off all the debt due shall discharge first any court
costs, then the principal (debt), and finally the interest.

Article 389. Payment of Monetary Obligations in Case of a Change in the Exchange Rate of the
Currency
If, prior to the date of maturity of the payment, the currency (rate of exchange) appreciates or
depreciates, or if the currency has been changed, th e debtor shall be bound to make payment according
to the rate of exchange that existed at the time of the creation of the obligation. In the case of a change
in the currency, the exchange relations shall be ba sed on the rate of exchange that existed between
these currencies on the day of the change in currency.

CHAPTER THREE
CREDITOR [OBLIGEE] IN DEFAULT

Article 390. Concept
1. The creditor [obligee] shall be deemed to be in de fault if he fails to accept the performance offered
to him when it is due.
2. When some action of the obligee is required for the performance of the [debtor’s] obligation, he
shall be deemed to be in default if he fails to perform this action.

Article 391. Obligation of the Obligee to Compensate Damage
The obligee must compensate the damage sustained by the obligor because of the obligee’s fault in not
accepting performed obligati on when it was due.

Article 392. Liability of the Obligo r when the Obligee is in Default
When the obligee is in default, the obligor shall be liable for non-performance of the obligation only if
the performance turned out to be impossible b ecause of the intentional [misconduct] or gross
negligence of the obligor.

Article 393. Obligee in Default; Effects
If an obligee is in default, then, regardless of his fault:
a. He shall be obligated to compensate the obligor against additional expenses incurred for the
storage of the object of the contract;
b. He shall bear the risk of accidental d eterioration or perishing of the thing;
c. He shall no longer be entitled to r eceive interest on a monetary obligation.
TITLE THREE
BREACH OF OBLIGATION
CHAPTER ONE
GENERAL PROVISIONS

Article 394. Claim for Damages In Case of Breach of an Obligation
1. In case of breach of an obligation by the oblig or, the obligee may claim damages arising from the
breach. This rule shall not apply when the obligor is not responsible for breach of the obligation.
2. In case the obligor exceeds the time for his perfor mance, the obligee may fix [an additional] period
of time for the obligor to perform the obligation. If the obligor fails to perform the obligation within
this time period as well, then the obligee shall be entitled to demand damages instead of performance
of the obligation.
3. Fixing an additional period of time is not required when it is evident that such a period will not
yield any result, or when extraordinary circumstances exist which, taking into account the interests of
both parties, justify the immediate a pplication of the claim for damages.

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Article 395. Preliminary Agreement on Releas
e from Liability for Damages Not Allowed
1. An obligor shall be liable only for damage infli cted by intentional or negligent action, unless
otherwise foreseen and otherwise following from the essence of the obligation.
2. A preliminary agreement of the parties on releasing the obligor from liability for damages in case of
intentional breach of an obligation shall not be allowed.

Article 396. Liability of the Obligor for the Action of His Representative
The obligor shall be liable for the actions of his le gal representative and of those persons whom he
employs for performance of his obligations to th e same extent as for his own culpable action.

Article 397. Liability of an Ob ligor Upon Receiving the Object of Performance From Another
Person
The obligor shall be liable for his performance even when he was to rece
ive the object of his
performance from another person and could not r eceive it, unless otherwise provided for in the
contract or by other circumstances.

Article 398. Adaptation of a Cont ract to Changed Circumstances
1. If the circumstances that constituted the grou nds for execution of the contract have evidently
changed after execution of the contract, and the parties, had they taken these changes into account,
would not have executed the contract or would have ex ecuted it with different contents, then it may be
demanded to adapt the contract to the changed ci rcumstances. Otherwise, taking into account
individual circumstances, a party to the contract may not be required to strictly observe the unchanged
contract.
2. It is the same as a change in circumstances when the understandings, which constituted the grounds
for execution of the contract, have turned out to be wrong.
3. In the first instance, the parties should try to ad apt the contract to the changed circumstances. If
such adaptation is impossible, or if the other party does not agree on it, then the party whose interest
has been harmed may repudiate the contract.

Article 399. Repudiation of a Long-t erm Relationship of Obligation
1. Any party to the contract may, on legitimate gr ounds, repudiate a long-term relationship of
obligation without observing the time period fixed for termination of the contract. The grounds are
legitimate when, taking into account the specific si tuation, including force majeure and the mutual
interests of the parties, the party [seeking to terminate] the contract cannot be required [expected] to
continue the contractual relationship until lapse of th e agreed period of time, or until expiration of the
period of time fixed for termination of the contract.
2. If the grounds also constitute a breach of the contractual obligations, then repudiation of the
contract is allowed only after expiration of the period of time fixed for elimination of the deficiencies
or after an unsuccessful warning [to cure the brea ch]. Paragraph (2) of Article 405 shall apply
accordingly.
3. The entitled person may repudiate the contract within a reasonable period of time after the grounds
for termination of the contract have become known to him.
4. If, as a result of termination of the contract, th e already given performance is no longer of any
interest to the entitled person, then the terminati on of the contract may be extended to this already
given performance as well. In order to secure the r eturn of the already given performance, articles 352-
354 shall apply accordingly.
5. Article 407 shall apply accordingly to the clai m for damages [arising out of this article].

CHAPTER TWO
OBLIGOR EXCEEDING THE TIME PERIOD FOR PERFORMANCE

Article 400. Concept
The obligor shall be deemed to have exceeded the ti me period for performance of the obligation, if:

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71
a.
He has not performed the obligation within th e time period fixed for his performance;
b. Even after warning by the obligee, following the date of maturity of the promised performance,
he fails to perform the obligation.

Article 401. Impossibility of Performing of Obligation
Exceeding of the time period for performance shall not be deemed to have occurred if the obligation
was not performed due to circumstances that were not caused through the obligor’s fault.

Article 402. Obligor’s Liability
In cases where the obligor has exceeded the time for performance, he is liable for any negligence.
56 He
shall be liable even for an accident, unless he proves that the damage would have occurred even in the
event of the timely performance of the obligation.

Article 403. Payment of Interest on Interest Not Allowed
1. An obligor who has exceeded the time for payment of a sum of money shall be obligated to pay for
the period of delay a rate of interest prescribed by law, provided that the obligee, proceeding from
other grounds, may not claim more.
2. Payment of interest on interest shall not be allowed.

Article 404. Obligee’s Right to Claim Damages
The obligee shall have the right to claim damages cause d by the obligor’s exceeding of the time period
for performance.

CHAPTER THREE
BREACH OF OBLIGATION DURING THE TERM OF A BILATERAL CONTRACT

Article 405. Fixing Additional Period of Time In Case of Breach of Obligation
1. If one of the parties to a bilateral contract breaches an obligation arising from the contract, then the
other party to the contract may repudiate the contra ct after the unavailing lapse of an additional period
of time fixed by him for performance of the obligati on. If, proceeding from the nature of the breach
of obligation, an additional period of time for performance is not afforded to the breaching party, then
a warning shall be equivalent to the fixing of an a dditional period of time. If the obligation has been
breached only in part, then the obligee may repu diate the contract only if the performance of the
remaining part of the obligation is no longer of interest to him.
2. Fixing an additional period of time or issuing a warning is not required when:
a. It is obvious that it will yield no results;
b. The obligation has not been performed within the time period fixed under the contract, and the
creditor has tied in the contract the continuati on of the relation to the timely performance of
the obligation [i.e. stipulated that time is of the essence];
c. Proceeding from specific grounds and taking into account the mutual interests of the parties,
the immediate termination of the contract is justified.
3. The contract may not be repudiated if:
a. The breach of the obligation is insignificant [not material];
b. The requirements of paragraph (2) of Article 316 ha ve been violated and, in spite of that, the
obligee may be required to leave the contract in force;
c. The obligee himself is fully or principally liable for the breach of the obligation;
d. There is a counterclaim against the [obligee’s] claim of breach, which the obligor has already
asserted or will assert immediately after [t he obligee’s] repudiation of the contract.
4. The obligee is entitled to repudiate the contract pr ior to the date when [the obligor’s] performance
is due, if it is obvious that grounds for repudiation will occur.
57

56 Meaning is obscure, but it may mean that the obligor is liable for any negligence that caused the delay.

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5.
The obligor is entitled to determine for the ob ligee a reasonable period for repudiation of the
contract.

Article 406. Right to Receive Counter-performance
1. If under a bilateral contract the obligor has the right to repudiate his obligation and the
circumstance that gives him this right has been caus ed through the obligee’s fault, then the obligor shall
retain the right to receive counter-performance.
2. This rule shall not apply if the grounds for the counter-performance aro
se at a time when the
obligee was delaying receipt of the [obligor’s] performance.
58

Article 407. Compensation for Damages in the Case of Avoidance of the Contract
1. At the time of withdrawing from the contract, the obligee may demand compensation for damages
caused by the non-performance of the contract.
2. This rule shall not apply when the grounds for the obligee’s withdrawal from the contract did not
arise through the fault of the obligor.
TITLE FOUR
DUTY TO COMPENSATE DAMAGES

Article 408. Duty to Restore th e Original State of Affairs
1. A person who is obligated to compensate for damages must restore the state of affairs that would
have existed if the circumstance giving rise to the duty to compensate had not occurred.
2. If, as a result of bodily injury or harm inflicted to the health of a person, his ability to work has
been lost or reduced, or if his needs increase, then the injured person shall be compensated for such
damage by the payment of monthly allowances.
3. The victim is entitled to demand the payment of expenses for medical care in advance. The same
rule also applies when professional retraining becomes necessary.
4. The victim may demand compensation instead of allo wances, if significant grounds exist therefor.
59

Article 409. Impossibility of Restoratio n of the Original State of Affairs
If the compensation for damages is impossible by restor ation of the original state of affairs, or if such
restoration would require [unreasonably] high expend itures, then the obligee [claimant] may be given
monetary compensation.

Article 410. Preliminary Renunciation of the Right to Damages Not Allowed
Renunciation by preliminary agreement of the righ t to damages for breach of an obligation is not
allowed.

Article 411. Damages for Lost Profit
Damages shall be compensated not only for the loss of property actually incurred, but also for lost
profit. Profit is deemed to be lost if the person did not receive it, but would have received it if the
obligation had been duly performed.

Article 412. Damages to which the Ob ligation for Compensation Applies

57 The Georgian text does not clearly indicate whether the obligee may repudiate before his own performance or the
obligor’s performance is due. The German Civil Code in its analogous article makes it clear, however, that the obligee
is not required to give his performance or wait for the obligor’s performance if it is clear that one of the accepted
grounds for repudiation will occur.
58 The clause is equally obscure in th e Georgian original. One must infer into it that the obligee was justifiably
delaying receipt of performance from the obligor, and therefore the obligor has neither a right to repudiate nor a right to
expect “counter-performance.”
59 Note that 408(2)-(4) generally apply to tort damages. See art. 326.

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The duty to compensate applies only to damages that
the debtor could have foreseen and that are the
direct consequence of the action causing the damages.

Article 413. Compensation for Non-property Damages
1. Monetary compensation for non-property damages may be claimed only in the cases precisely
prescribed by law, in the form of a reasonable and fair compensation.
2. In cases of bodily injury or harm inflicted on a person’s health, the victim may claim damages for
non-property damage as well.
60

Article 414. Calculation of Damages
The interest that the creditor had in due performan ce of the obligation must be taken into account in
calculating damages. The time and place for perfor mance of the contract must [also] be taken into
account in calculating damages.

Article 415. Fault of the Victim in Incurring Damages
1. If an action of the victim also contributed to the occurrence of the damages, then the duty to
compensate and the amount of compensation shall de pend on which party’s fault was more responsible
for causing the damages.
2. This rule shall likewise apply when the fault of the victim is seen in having failed to take action to
avoid or reduce harm.
61
TITLE FIVE
ADDITIONAL MEASURES FOR SECURING A CLAIM [ADDITIONAL REMEDIES]

Article 416. Kinds of Additional Measures for Securing the Performance of an Obligation
The parties, in order to secure the performance of an obligation, may also determine under the contract
additional means for doing so: by penalty, earnest money or a debtor’s guaranty.

CHAPTER ONE
PENALTY

Article 417. Concept
Penalty: an amount of money [pre ] determined by agreement of the part ies to be paid by the obligor in
case of non-performance or imprope r performance of an obligation.

Article 418. Form of Determining the Penalty
1. The parties to the contract are free to determine a penalty that may exceed the possible damages.
2. An agreement on a penalty must be made in written form.

Article 419. Demanding the Pa yment of a Penalty and the Performance of the Obligation
Simultaneously Is Not Allowed
1. An obligee may not demand simultaneously the paym ent of a penalty and the performance of the
obligation, unless the penalty has been stipulated to apply in those cases where the obligor has failed to
perform the obligations on time.
2. The obligee is always entitled to claim compensation for damages.

Article 420. Reduction of Penalty by the Court
A court, taking into account the circumstances of the case, may reduce a disproportionately high
penalty.

60 See previous footnote. 61 See previous footnote.

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CHAPTER TWO
EARNEST MONEY

Article 421. Concept
Earnest money is a sum of money paid by one party to a contract to the other party as evidence of the
execution of the contract.

Article 422. Counting Ea rnest Money Towards Paym ent of an Obligation
Earnest money is counted towards the payment account stipulated by the obligation, and if it is not
counted towards this payment, then it shall be returned after performance of the obligation.

Article 423. Counting Earnest Money Towards Compensation for Damages
1. If the party who gave the earnest money breaches the obligation put on it, then the earnest money
shall remain with the party who received it. In addition, the earnest money shall be counted towards
any compensation for damages.
2. If non-performance of the obligation is caused by the fault of the party who received the earnest
money, then this party must return to the other party double the amount of the earnest money. In
addition, the party who gave the earnest money may demand compensation for any damages.

CHAPTER THREE
DEBTOR’S GUARANTEE

Article 424. Concept
A debtor’s guaranty is an undertaking to perform an unconditional action or an action that is beyond
the object [scope] of the contract.

Article 425. Validity of a Guarantee
The guarantee shall be considered real [valid] unless it contravenes [other] rules prescribed by law or
unless it obliges the debtor excessively.

Article 426. Form of a Guarantee
A guarantee must be formulated in writing.
TITLE SIX
TERMINATION OF OBLIGATIONS
CHAPTER ONE
TERMINATION OF AN OBLI GATION BY PERFORMANCE

Article 427. Termination of an Obligation by Performance in Favor of the Obligee
A relationship of obligation is terminated by perf ormance of the obligation in favor of the obligee
(performance).

Article 428. Termination of an Obligation by Novation
A relationship of obligation is also terminated when, in place of performance of the originally foreseen
obligation, the obligee accepts performa nce of another obligation (novation).

Article 429. Acceptance of the Performance of Obligation
1. The obligee, on demand of the obligor, shall issue a document confirming that performance of the
obligation has been received in full or in part.
2. A document drawn up to confirm payment of a de bt that says nothing about the interest on the
debt shall be taken to mean that the interest has b een paid and the monetary obligation is satisfied in
full.

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3.
When the payment of a debt is made periodically, in installments, then the document confirming
payment of the last installment shall, until proven otherwise, give rise to the presumption that the
preceding installments have also been paid.

Article 430. Particulars of a Docu ment On Receipt of Performance
A document on receipt of performance drawn up by a creditor or by a person authorized for such
purpose must include data on the amount and the kind of the debt, the name and the last name of the
debtor or of the person who is paying the debt, an d the time and place of the performance [payment].

Article 431. Right to Demand a Document of Indebtedness
If a document of indebtedness [i.e. promissory no te] was issued, then the debtor, along with the
document on receipt of performance, may demand return or cancellation of the document of
indebtedness. If the creditor is unable to return this document, then the debtor shall be entitled to
demand an officially authenticated receipt indicating that the obligation is terminated.

Article 432. Compensation for Ex penses of Issuing the Document of Receipt of Performance
1. The expense of issuing the document on receipt of performance shall be borne by the debtor,
unless otherwise stipulated in the ag reement between him and the creditor.
2. If a creditor changes his place of residence, or if he dies leaving heirs at another place of residence,
then the increased expense of issuing the document on receipt of performance shall be borne by the
creditor or by his heirs.

Article 433. Repudiation of Performance by Reason of the Creditor’s Non-Performance of His
Duties
If a creditor refuses to issue a document on the rece ipt of performance, or to return or cancel the
document of indebtedness, or to indicate in the document on receipt of performance that return of the
document of indebtedness is impossible, or to [oth erwise] acknowledge that the debt is extinguished,
then the debtor shall be entitled to repudiate performance. In such cases the creditor shall be deemed
to be in default [to have exceeded the term for performance of an obligation].

CHAPTER TWO
TERMINATION OF AN OB LIGATION BY DEPOSIT

Article 434. Concept
1. If an obligee delays acceptance of the performan ce or his location is unknown, then the obligor
shall be entitled to place the object of performance on deposit with a notary public or with a court, and
deposit the money or securities to th e deposit account of a notary public.
2. By such deposit the obligor shall be released from the obligation before the obligee.

Article 435. Transfer of the Depo sited Property to the Obligee
The judge or notary public [as the case may be] shall transfer the deposited property to the obligee. [In
the obligee’s absence] the court or the notary shall select a keeper [trustee], but the documents shall be
retained by them [i.e. the court or notary].

Article 436. Objects Suitable for Deposit
Deposited objects must be suitable for storage. Pe rishable objects shall not be accepted for storage.

Article 437. The Place of Storage
The safekeeping must be effected according to the place of performance.

Article 438. Demand that the Obligee Accept the Object
The court or the notary public shall notify the ob ligee of the acceptance of the object for storage and
shall demand from him that he accept the object.

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Article 439. Compensation for Expe
nses with Respect to Storage
All expenses with respect to the storage shall be borne by the obligee.

Article 440. Reclamation of the De posited Object by the Obligor
1. The obligor is entitled to clai m the deposited object back prior to its acceptance by the obligee,
unless he refused to reclaim it initially. If the oblig or reclaims the object, the storage shall be deemed
not to have occurred.
2. The obligor may retrieve the deposited object if the ob ligee refuses to accept it, or if the period of
time fixed under Article 441 has lapsed.
3. If the obligor retrieves the object, he shall bear the expenses of storage.

Article 441. Period of Time for Stor age of the Object of Performance
The court or the notary public shall keep the object of performance for a period of up to three years. If
within this time period the obligee does not accept the object, then the obligor shall be notified and it
shall be demanded of him to retrieve the object. If, within the period of time [stipulated] for return [of
the object to the obligor], the obligor fails to accept the object, then the object shall be deemed to have
become the property of the state.

CHAPTER THREE
TERMINATION OF AN OBLIGATION BY SETOFF OF COUNTERCLAIMS

Article 442. Possibility of Setoff of Obligations
1. Counterclaims between two persons may be terminated by setoff, if these claims have become due.
2. Setoff of obligations is also possible when the ti me for performance with respect to one of these
claims has not expired, but the party holding [such] claim agrees to the setoff. The setoff of the
obligations is exercised by notice to the other party.

Article 443. Possibility of Setoff when the Prescription Period [” Statute of Limitations”] on a
Claim has Lapsed
Lapse of the prescription period [
limitation period] on a claim shall not exclude setoff of the
obligations if the prescription period had not expire d at the time when the claim could still have been
offset.

Article 444. The Claims to be Offset
If the claims to be offset cannot compensate each other in full, then only that claim shall be offset
which is the lesser of the two claims.
62

Article 445. Several Claims to be Offset
1. If a party to a contract who was notif ied of a setoff has several claims to be offset, then the rules of
Article 387 shall apply.
2. If party is obligated to pay interest and other expens es to the other party in addition to the principal
obligation to him, then the rules under Article 388 shall apply.

Article 446. Setoff of Obligations When Th ere are Different Places of Performance
Set-off of obligations is also allowed when different places have been designated for performance of
the respective claims [obligations].

Article 447. Setoff of Claims Not Allowed
Setoff of claims shall not be allowed:
a. If setoff of claims was excluded in advance by agreement;
63

62 Implicitly, the greater claim is offset to the extent of the value of the lesser claim.

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b.
If the obligation is one with respect to which an order of payment could not be directed, or if
the object of the obligation concerns [a person’s] livelihood;
c. If the obligation stipulates compensation for damage that has been caused by infliction of harm
on a person’s health or death;
d. In other instances determined by law.

CHAPTER FOUR
TERMINATION OF AN OBLIGATION BY FORGIVENESS OF DEBT

Article 448. Concept
Forgiveness of a debt by agreement betwee n the parties terminates the obligation.

Article 449. Effects of Forgiveness of Debt for Other Joint Debtors
The granting of debt forgiveness to one joint debtor releases the other joint debtors as well, except
when the creditor retains his claim against them. In such case, the creditor may assert against the rest
of the joint debtors only one claim, le ss the share of the released debtor.

Article 450. Effects of Forgiveness of Debt Granted to the Principal Debtor
1. Forgiveness of debt granted to the princi pal debtor releases any sureties as well.
2. Forgiveness of debt granted to the surety does no t release the principal debtor from performance
of the obligation.
3. Forgiveness of debt granted to one sur ety releases the other sureties as well.

Article 451. Effects of Renunciation of the Claim Under a Bilateral Contract
Under a bilateral contract the renunciation by one of the parties of its claim does not terminate [that
party’s] obligation [to perform]. Such party is obliga ted to perform his obligations stipulated under the
contract until the other party renounces his claim too.
CHAPTER FIVE
OTHER GROUNDS FOR TERMINAT ION OF AN OBLIGATION

Article 452. Termination of an Obligation Where the Obligee a nd the Obligor Turn Out to be
One and the Same Person
The relationship of obligation is terminated when th e obligee and the obligor turn out to be one and
same person.

Article 453. Termination of Obligation by Reason of Death of the Obligor
1. The death of the obligor terminates the obligat ion if performance is impossible without his
personal participation.
2. Death of the obligee terminates the obligation if the performance was intended personally for the
obligee.

Article 454. Termination of Obligation by Reason of Liquidation of Legal Person
The obligation of a legal person is terminated from th e moment of the registration of completion of its
liquidation.
TITLE SEVEN
MULTIPLE OBLIGEES OR OBLIGORS WITH RESPECT TO AN OBLIGATION
CHAPTER ONE
JOINT OBLIGEES

Article 455. Joint Entitlement

63 But see Art. 348(c). Setoff may not be prohibited in consumer contracts.

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If a number of persons are entitled
to claim performance of the obligation so that each of them may
claim the performance in full, and the obligor is liable for the performance only once, then these
persons are jointly entitled persons – joint obligees.

Article 456. Grounds Giving Rise to Joint Entitlement
Joint entitlement shall arise out of the contract, by law or by indivisibility of the object of the
obligation.

Article 457. Rendering Performance of the Obligation to any Obligee
The obligor, at his own discretion, may render the pe rformance of the obligation to any of the obligees,
unless one of the obligees has asserted a claim against him according to
Article 455.

Article 458. Rendering Performance of th e Obligation to One of the Obligees
Rendering the performance of the obligation in full to one of the obligees releases the obligor from the
obligation before the rest of the obligees.

Article 459. Effects of Renunciation by One of the Joint Obligees
If one of the joint obligees renounces the claim ag ainst the obligor, the obligor is released from
payment only to the extent of the share of the payment which was due to this obligee.

Article 460. Applying the Facts Associat ed with Other Obligees Not Allowed
The obligor may not use against one of the obligees the facts associated with the other obligees.

Article 461. Rights of He irs of a Joint Creditor
If a joint creditor leaves a number of heirs, each heir shall be entitled to only that part of the right to
the debt that corresponds to his portion of the estate.

Article 462. Liability of a Joint Obligee Before the Re st of the Joint Obligees
1. A joint obligee who has received the performance in full from the obligor shall be liable to pay to
the rest of the obligees the shares to which they are entitled.
2. The joint obligees shall have equal shares in relation to each other unless otherwise established
among them.

CHAPTER TWO
JOINT OBLIGORS

Article 463. Joint Obligation
If a number of persons are bound to perform the obligat ion so that each of them is to participate in the
performance of the entire obligation (joint oblig ation), and the obligee has the right to claim the
performance only once, then these persons are joint obligors.

Article 464. Grounds Giving Rise to Joint Obligation
Joint obligation shall arise out of the contract, by la w or by indivisibility of the object of the obligation.

Article 465. Right of the Ob ligee to Claim Performance from Any of the Obligors
The obligee, at his own discretion, may demand the pe rformance from any of the obligors, both in part
or in full. Until the entire performance is render ed, the obligation of the rest of the obligors shall
remain effective.

Article 466. Counterclaim of a Jo int Obligor against the Obligee
A joint obligor is entitled to assert against the obligee all such counterclaims which arise out of the
essence of the obligation, or to which only this obligor is entitled, or which are joint for all joint
obligors.

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Article 467. Effects of the Entire Pe
rformance by One of the Obligors
Rendering of the entire performance by one of th e obligors releases the rest of the obligors from
performance. The same rule applies in the case of setoff exercised by the obligor with the obligee.

Article 468. Applying the Facts Associat ed with Another Obligor Not Allowed
The facts associated with one of the joint ob ligors may be used only against this person unless
otherwise following from the relationship of obligation.

Article 469. Lawsuit against One of the Joint Obligors
The filing of a lawsuit against one of the joint obligors does not deprive the obligee of his right to file a
lawsuit against the rest of the obligors.

Article 470. Effects of Dela y in Accepting Performance
1. The effect of a delay by the obligee in accepting performance from one of the joint obligors shall
be effective for the rest of the joint obligors [i.e., in giving them claims or defenses against the obligee].
2. The effects of a delay in performance by one of the joint obligors may not be used against the rest
of the joint obligors.

Article 471. Rights of He irs of a Joint Obligor
If a joint obligor leaves a number of heirs, each he ir shall be obligated to pay the claim in accordance
with his portion of the estate. This rule sha ll not apply when the claim is indivisible.

Article 472. Merger of the Creditor’s Claim wi th the Debt of One of the Joint Debtor’s
If the claim of the creditor is merged with the debt of one of the joint debtors, the obligation laid on
the rest of the debtors shall be terminated to th e extent proportional to the share of this obligor.

Article 473. Right of Subrogation in the Case of Entire Performance by One of the Obligors
1. An obligor who has performed the joint obligation has the right of subrogation against the rest of
the obligors proportionately to their equal shares, t hough with subtraction of his own share, unless
otherwise stipulated by the contract or law.
2. When it is impossible to determine the extent of th e liability of each obligor, the obligors shall be
equally liable before each other.

Article 474. Effects of Inso lvency of a Joint Obligor
If one of the obligors is insolvent, then the share fixed for him shall be distributed in equal shares
among all other, solvent obligors.

Article 475. Compensation of a Joint Obligor
If a joint obligor has received an advantage from th e joint obligation, another joint obligor who has not
received such advantage may claim from the former sa tisfaction [compensation] for the performance of
his own obligation.

Article 476. Effect of Lapse of the Limitation Period
Suspension or interruption of the limitation period with respect to one of the joint obligors shall not be
effective with respect to the other obligors.

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SPECIAL PART
TITLE ONE
CONTRACT LAW PART TWO
CHAPTER ONE
SALE. EXCHANGE
I. General Provisions

Article 477. Concept. Content
1. Under a contract of sale, the seller is obligated to tr ansfer to the buyer the right of ownership [title] to the property and the documents conn ected thereto and deliver the goods.
2. The buyer is obligated to pay to the seller th e agreed price and accept the purchased property.
3. If the contract does not expressly indicate the pric e, the parties may agree on the method of its
determination.

Article 478. Expenses of Sale of a Movable Thing
Expenses with respect to the transf er of the sold thing, in particular the expenses of weighing,
measuring and packing, shall be borne by the seller, and the expenses of receipt and carriage of the
goods from the place of execution of the contract to another place shall be borne by the buyer, unless
otherwise stipulated under the contract.

Article 479. Expenses of Sa le of an Immovable Thing
The expenses of executing a contract of sale of a plot of land or other immovable thing, as well as the
expenses of notarization of the transf er of the title of ownership, its registration in the Public Register
and submission of the necessary documents therefor, shall be borne by the buyer.

Article 480. Duties of Selle r When Shipping the Goods
1. If the seller transfers the goods to a carrier under a contract, and these goods are not clearly marked
either by an identification marker or by any other means, then the seller must notify the buyer of the
shipment of the goods and, in addition, must disp atch to the buyer a detailed list of the freight.
2. If the seller is obliged to ship the goods, he m ust execute the contracts that are required for carriage
of freight to the determined place an d for regular terms of such carriage.
3. If the seller is not obliged to insure the freight du ring the carriage, then, upon request of the buyer,
he must hand over to the buyer all the informati on he possesses which is required for execution of such
a contract of insurance.

Article 481. Obligations of a Seller of a Plot of Land
1. The seller of a plot of land is obligated to pay the expenses for the development of the plot and
expenses for similar undertakings incurred prior to th e execution of the contract, without regard to the
moment that the obligation to pay [for such works] arises.
2. The seller of the plot of land shall not be lia ble for those public obligations that may be
unregistered in the Public Register.

Article 482. Passing of the Risk of Accidental Perishing of a Thing
1. Upon transfer of the thing sold the risk of accide ntal perishing or deterioration of the thing shall
pass to the buyer, unless otherwise agreed by the parties.
2. If the seller, upon request of the buyer, ships the sold thing to a place other than that stipulated in
the contract, then the risk of accidental perishing or deterioration of the thing shall pass to the buyer
from the moment at which the seller delivered the thing to the carrier or to the person responsible for
performance [of carriage].

Article 483. Presumption of Acceptance of the Goods

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The goods shall be considered accepted if the buye
r performs such action that evidences acceptance.

Article 484. Grounds for Repudiation of the Contract
1. Each party to the contract may refuse to perform it s obligations if it turns out after execution of the
contract that there is a real danger of non-performance by the other pa rty of a significant part of its
obligations.
2. Such refusal shall not be allowed if the saf ety [performance] of this party is secured.

Article 485. Selling Goods to a Number of Persons
If a seller has sold one and the same item to a number of persons, then priority shall be given to the
buyer into whose possession the good was transferred fi rst, and if the good has not been transferred to
any of them, then to the buyer with w hom the contract was executed earlier.

Article 486. Delivery of the Sold Goods in Installments
When the sold goods are delivered in installments, a party to the contract may repudiate the contract if,
by reason of the non-performance of only one obligation of delivery by the other party, a real danger
arose that the future obligations of delivery will not be performed as well.
64

Article 487. Duty to Transf er a Thing Without Defects
The seller must transfer to the buyer the object of the sale free of material defects or defects of rights
[title].

Article 488. A Thing Without Material Defect
1. A thing is without material defects if it is of th e agreed quality. If the quality is not agreed in
advance then the thing shall be deemed without defect if it is suitable for the use
stipulated in the
contract or for ordinary use.
2. The following are equivalent to defects: if the seller transfers only on
e part of the thing or an
entirely different thing, or he transfers it in insuffici ent quantity, or if one part of the thing is defective,
except for such cases where the defect will not mate rially affect the performance of the thing.

Article 489. A Thing Without Defects of Rights [Title] 1. A thing is without defects of right [title] when a third person may not assert against the buyer any
claim with respect to his rights to it.
2. The title is considered defective wh ere a non-existent [false] title is registered in the Public Register.

Article 490. Duties of the Seller When Selling a Defective Thing
1. If the thing sold is defective, the seller must either eliminate the defect or, in case of a generic thing,
replace it within the time required.
2. Expenses required for elimination of the defect, incl uding expenses of transportation, transit, work
and cost of material, shall be borne by the seller.
3. The Seller may refuse to eliminate the defect or to replace the thing if either action would require
disproportionately high expenses.
4. If the seller, in order to eliminate the defect, tran sfers to the buyer a thing without defect, then he
may demand from the buyer return of the defective thing.

Article 491. Right of the Buyer to Terminate the Contract
1. By reason of the defect of the thing, the buyer may demand dissolution of the contract under
Article 352.
2. The seller must compensate the buyer for expenses thereby incurred.

64 The drafter appears to have deliberat ely written this article so that either the buyer or the seller can repudiate the
contract if the other party does not perform its obligations related to delivery. The buyer’s obligations related to
delivery would be, at a minimum, receipt and acceptance of the goods, as well as payment.

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Article 492. Demand for Price Reduction
If the buyer does not demand elimination of the de
fect or replacement of the defective good with a
new one without defect after lapse of the period of time accorded to the seller, [nor demands] dissolution of the contract, then he may demand re duction of the price of the good in the amount
necessary for elimination of the defect. The price exis ting at the time of execution of the contract shall
be taken into account.

Article 493. Right to Reject the Goods
1. The buyer is entitled to refuse to accept the g oods if the seller has delivered to him a smaller
quantity of goods than that specified in the contract . If the buyer accepts the [non-conforming delivery] he shall pay [for the delivery a] price proportional to the price under the contract.
2. If the quantity of goods delivered exceeds the amou nt specified in the contract, then the buyer may
either accept this amount and pa y the price proportionately to the pr ice under the contract, or accept
only that amount which is specified in the contract and return the excess at the expense of the seller.

Article 494. Procedure for Compensation of Damages Arising Out of the Sale
1. Damages sustained due to defect of the thing sold or due to the breach of other conditions
stipulated in the contract shall be recovered according to the general rules [i.e. the rules of this Code for
breach of contract].
2. No rights shall accrue to the buyer on the grounds of the defect of the thing bought if at the time
of execution of the contract he knew of the defect.

Article 495. Acceptance of a Defective Thing by the Buyer
1. If the buyer is an entrepreneur, he is obliged to inspect the thing immediately; if after detecting the
defect he fails to assert a complaint against the seller within an appropriate period of time, or within the
period of time during which he ought to have know n of the defect, then he shall be deprived of the
right to complain on the grounds of the defect of the thing.
65
2. If the seller intentionally kept silent about the defect of the thing, he may not enjoy the right
provided for in this Article.

Article 496. Duration of Fitness of a Thing
If the seller fixes the duration of the fitness of the th ing, it shall be presumed that the defect detected
within this period of time entitles the bu yer to make a claim with respect to the defect.
66

Article 497. Exclusion of Liability of Seller
The liability of the seller for defects may be excluded or limited by contract. Such a contract term,
however, shall be void if the seller intentiona lly kept silent about a defect of the thing.

Article 498. Transfer of Right or Other Property
1. The rules regulating the sale of a thing shall apply accordingly to the sale of a right or other
property.
2. In case of sale of a right the seller shall incur th e expense of verification of the validity of the right
and its transfer.
3. If a right is sold that provides the possibility to possess a thing, then the seller is obligated to
transfer to the buyer that thing withou t material defects or defects of title.

Article 499. Sale of a Thing Repeatedly

65 “Appropriate” may mean reasonable or it may mean a period of time stipulated in the sale agreement for the buyer to
complain of defects.
66 The article is intended to apply to perishable goods.

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If a thing is sold repeatedly, then a right securing an obligation [i.e., a lien] shall be passed to
every
subsequent buyer. A buyer may assert claims [with
respect to the defect in title caused by the lien] within the scope of his rights against the relevant seller in this succession of sales.

Article 500. The Right to Arre st a Thing [Seller’s Lien] If the buyer does not accept the thing in time or fails to pay its price in time, the seller is obligated to
keep the thing. The seller has the right to retain the thing or to detain it in transit until the buyer
compensates him for his corresponding expenses.

Article 501. Return of the Thing by the Buyer
If the buyer has accepted the thing but is willing to retu rn it lawfully, then he must take care of storing
the thing. The buyer has the right to retain the thing until the seller compensates him for his
corresponding expenses.

Article 502. Expenses of Storage of the Thing
The party who is obligated to keep the thing may, at the expense of the other party, store it in the
warehouse of a third person, unless to do so would cause disproportionat
e expenses.

Article 503. The Right of the Keeper of the Thing
1. The party who keeps the thing according to the ru les under Articles 500-502 may sell the thing by
observing the applicable rules if the other party dela ys in accepting the thing or in compensating him
for the expenses of keeping it. He shall notify the other party about this.
2. The party who sells the thing is entitled to retain from the sale proceeds the amount which
corresponds to the expenses of storing and selling the thing and he shall hand over the remaining
amount to the other party.

Article 504. Peculiarities of Ke eping Highly Perishable Things
If in cases within Articles 500 and 501 the thing is highly perishable or it may depreciate or its storage
requires high expense, then the party who is liable to keep it shall be obliged to sell it according to the
provisions of Article 503.

II. Installment Sale

Article 505. Concept
In the case of an installment sale the seller is obliga ted to deliver the thing to the buyer before the price
is paid. Payment of the price of the thing is made in periodic installments on fixed time intervals.

Article 506. The Form of an Installment Sales Contract
1. An installment sales contract sh all be executed in writing.
2. The contract shall specify:
a. The [total] amount of cash payment;
b. The amount and time of payment of the installments;
c. The annual rate of interest.
3. The seller shall deliver to the buyer the copies of the documents of sale.

Article 507. Presumption of Execution of Contra ct from the Moment of Delivery of a Thing
If a contract is executed in violation of the requi rements under Article 506, the contract shall be
deemed to have been executed from the moment of delivery of the thing. In such a case the buyer is
obligated to pay only the price of the thing, without interest.

Article 508. Bilateral Restitution Upon Non-Performance of the Obligation

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When the seller retains the right to repudiate the co
ntract if the buyer does not perform the obligations
imposed on him, then upon [seller’s] repudiation both parties shall be bound to return to each other
what they have received under the contract. An agr eement that contravenes this rule shall be void.

III. Redemption

Article 509. Concept
If, under a contract of sale, the seller has the right of redemption, the exercise of this right shall depend
upon the will of the seller.

Article 510. Redemption Price
Redemption is exercised by paying the initial price. Simultaneously, the buyer may also demand the
amount by which the value of the goods has increase d up to the moment of redemption as a result of
useful expenditures [valuable improvements], and the redeemer may demand deduction of the amount
by which the value of the goods has decreased up to the time of its redemption.

Article 511. An Appurtenance Under Redemption
The buyer shall be obliged to return the purchased thing with its appurtenances.

Article 512. Compensation for Damage s Incurred Prior to the Redemption
If the buyer has damaged the thing prior to the seller ’s exercise of his right of redemption, he must
compensate the seller for the damage thereby arisen.

Article 513. Invalidity of Alienation of the Thing Prior to the Redemption
If the buyer has alienated the thing prior to the exercise of the right of redemption, such aliena
tion shall
be void.

Article 514. Time Limitation on the Right of Redemption
The period of time during which the right of rede mption may be exercised may not exceed five years.
This period of time may not be extended.

Article 515. Option
The parties may agree that the buyer has a unilateral right to buy some object within a specified period
of time or until the occurrence of some specified event (option to purchase), or, under the same
conditions, the seller has the right to sell the object to the buyer (o
ption to sell). The norms regulating
a contract of sale shall apply an option c ontract unless the parties agree otherwise.

IV. Preferential Right of Purchase 67

Article 516. Concept
1. A person having a preferential right of purchase may exercise this right if the obligor executes a
sales contract with respect to the given thing with a third person.
2. The preferential purchase right is neither alie nable nor hereditary unless otherwise stipulated.

Article 517. Obligation of Notification on the Possible Sale of the Thing
1. The obligor shall immediately notify the person ha ving the preferential purchase right of the
content of the contract that he intends to execute with third persons.
2. The preferential purchase right is exercised by notice to the obligor. Through the notice, the
contract of sale shall be executed between the enti tled person and the obligor under the terms of the
obligor’s offer made to the third party.

67 Substantively, the right descri bed in this section is more akin to a right of first refusal.

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3.
The person having the preferential purchase right ma y exercise this right only within the period of
time fixed by the obligor.

Article 518. Voidness of an Agreement Relying on Non-Exercise of the Preferential Purchase
Right
An agreement between the obligor and a third person shall be void if, un
der that agreement, the
contract of sale is dependent upon non-exercise of th e preferential purchase right, or the obligor has
the right to repudiate the contract in case of exercise of the preferential purchase right.

Article 519. Performance of Additional Obligation
1. If a third person has incurred an additional oblig ation by contract which the person having the
preferential purchase right is unable to perform, th en he [the person with the preferential right] shall
pay the value of the additional obligation instead of [performing it].
2. If the additional obligation cannot be measured in monetary terms, the preferential right of
purchase may not be exercised; the agreement on th e additional obligation is voided if the agreement
was made in order to elude the preferential right of purchase.
68

Article 520. Contract of Sale Condi tioned upon Approval of a Thing
A contract of sale may be executed on the condition of approval of the thing, provided the buyer does
not reject the thing within the agreed period of time . In case of rejection the parties shall be bound to
return to each other what they have received under the contract.

V. Exchange [Barter]

Article 521. Concept
1. Under a barter agreement, the parties are bound to transfer to each other ownership of property.
2. Each party to the barter agreement is deemed to be the seller of the property that it offers and the
buyer of that property that it receives in return.

Article 522. Inequality of the Exchanged Property
If the bartered property is not equal in value to th e property received in return, [then the difference in
the relative values] may be paid for monetarily by agreement of the parties.

Article 523. The Rules Applie d to Exchange [Barter] The corresponding rules regulating sales c ontracts shall apply to barter contracts.

CHAPTER TWO
GIFT

Article 524. Concept
Under a contract of gift the donor gratuitously tran sfers to the donee ownership of property with the
consent of the donee.

Article 525. Execution of a Gift Contract. Promise of a Gift
1. A gift contract is deemed to be executed from the moment of transfer of the property.

68 The article seems to be saying that where a third person has made an agreement with the obligor that contains an
additional element of performance above what the holder of the preferential right was willing to pay or do, then the
holder of the preferential right would have to pay the oblig or the value of the additional performance in order to
maintain his preferred status (to preempt the third party). If the additional level of performance is something that
cannot be measured in monetary terms — some aspect of qu ality of performance or reputation — then the preferred party
loses his status to the third party. This will not be th e case, however, if the additional measure of performance was a
mere ruse to avoid the preferential right of the entitled person.

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2.
If the object of the gift is prope rty of the type to which ownership may arise only by observance of
a particular form prescribed by law, then that form must be observed in the gift contract.
3. A promise of a gift shall give rise to the obligati on to give the gift only if [the document promising
the gift] is notarized.

Article 526. Gift Disallowed
A person does not have the right to transfer property by gift if the gift would deprive the donor or his
dependents of their basic means of support.

Article 527. Defect of Prop erty Transferred by Gift
If the donor maliciously conceals a defect in the property transferred by gift, he shall be obliged to
compensate the donee for th e damage thereby sustained.

Article 528. Charitable Donation
1. The parties may determine that the validity of the contract of gift is dependent on the performance
of some condition or on the achievement of a pa rticular objective. This objective may be the common
good as well [as more private purposes] (charitable donation).
2. Besides the donor, the person in whose interests the condition was stipulated may also demand
performance [of the condition].
3. If the donee does not perform the conditi on, the donor may repudiate the contract.

Article 529. Revocation of the Gift by Reason of Ingratitude of the Donee
1. The gift may be revoked if the donee is extremely ungrateful towards or severely insults the donor
or his near relative.
2. If the gift is revoked, then the donor may recover the property given by gift.
3. The gift may be revoked within one year after the donor becomes aware of the circumstance that
gives him the right to revoke the gift.

Article 530. Recovery of th e Thing Given by Gift
1. If after giving the gift the donor comes into hard ship and he is unable to support himself or his
dependents, then he has the right to demand the thin g given by gift back from the donee, provided it
actually exists and the return would not put the donee in hardship.
2. The thing given by gift may not be recovered if the donor put himself into hardship by intent or
gross negligence.

CHAPTER THREE RENTAL
Article 531. Concept
Under a rental contract the lessor is bound to transfer the thing to the use of the lessee for a specified
period of time. The lessee is obligated to pay to the lessor the stipulated rent.

Article 532. Transfer of the Object of Renting in Suitable Condition
The lessor is obligated to transfer to the lessee the rented thing in a condition suitable for the use
specified under the contract, and to maintain this condition during the term of the rental contract.

Article 533. Duty to Transfer Defectless Thing
The lessor must transfer to the lessee the thing with no material defects or defects of right [title].
Article 534. A Thing With out Defects of Right
A thing is without defects of right [title] when a third person may not assert against the lessee any
claims with respect to the thing.

Article 535. A Thing Without Material Defects

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A thing is without material defects if it has the stipul
ated characteristics. If these characteristics are not
stipulated, then the thing shall be deemed without defect if it is suitable for the us
e specified in the
contract or for ordinary use.

Article 536. Reduction of Rent by Reason of Defect of the Thing
1. If the rented thing is found to be defective, then the amount of the rent shall be reduced
proportionately to the amount by which the suitability of the thing is decreased by reason of the defect.
This right shall expire upon elimination of the def ect. An immaterial defect shall not be taken into
account.
2. A contract of tenancy evidently detrimental to the tenant of a lodging shall be void.

Article 537. Compensation of Damage Arisen by Reason of the Defect of the Thing
1. If the defect that decreases the suitability of the thing exists at the moment of execution of the
contract, or if it is found afterwards because of ci rcumstances for which the lessor is liable, or if the
lessor delays elimination of the defect, then the le ssee may claim damages in such a manner that he will
not be deprived of the right to claim reduction of the rent.
2. If the lessor delays elimination of the defect, th en the lessee may eliminate it himself and claim
indemnification against the expenses.

Article 538. Effect of Not Asserting a Claim on the Grounds of the Defectiveness of a Thing
If at the time of conclusion of the contract the lesse e is aware of the defect of the thing and he does
not assert a claim on these grounds, then the rights under Article 536 shall not accrue to him.

Article 539. Voidness of an Agreem ent on Release from Liability
An agreement by which the lessor’s liability for defect of the thing is relieved or limited shall be void if
the lessor has intentionally concealed the defect.
69

Article 540. Obligation to Tolerate Nuisances in Case of Rental of Lodgings
The tenant of a lodging must tolerate the influences applied to the rented thing that are required for
maintenance of the rented lodging or the building. Th e landlord shall, if it is possible, notify the tenant
of these measures and shall avoid such actions that are not caused by necessity.

Article 541. Right to Re pudiate the Contract
1. If transfer of the rented thing to the lessee, in w hole or in part, is delayed, or if afterwards the lessee
was deprived of the right to use the thing, th en the lessee may repudiate the contract without
observance of the time period stipulated for the dissolution of the contract. Repudiation of the
contract is allowed only if the lessor does not eliminate the circumstances hindering the use of the thing
within the time fixed by the lessee.
2. The fixing of a period of time [for cure] is not required if the lessee has lost interest in the contract
as a result of those circumstances that give grounds for repudiation of the contract.
3. In the rental of lodgings, an agreement which prohibits or restricts the right to dissolve the
agreement defined in paragraph (1) of this Article shall be void.
70

Article 542. Dissolution of a Contract for Rental of Lodging by the Tenant
If a dwelling or other lodging intended for human habi tation is in such condition that its use creates a
significant danger to the health of the dwellers, then the tenant may dissolve the contract of tenancy
without observance of any notice period. The tenant sh all still have this right even if at the time of
conclusion of the contract he was aware of the danger but did not assert the claim thereupon.

69 As before, use of the term “agreemen t” indicates a provision within a contract. Only the provision, not the whole
contract, is voided.
70 See previous note. The same principle will continue to apply throughout.

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Article 543. Duties of the Lessee Upon De
tecting the Defect of the Rented Thing
If the rented thing is found to be defective, or if necessary measures are to be taken in order to protect
the thing from an unforeseen danger, then the lessee must immediately notify the lessor thereof. The
same rule applies when a third person asserts his rights to the thing.

Article 544. Burden of Encumbranc e Created on the Rented Thing
The burden of an encumbrance created on the rented thing rests on the lessor.

Article 545. Obligati ons of the Lessor
1. The lessor shall be obligated to compensate the lessee for necessary expenses incurred with respect
to the thing.
2. The obligation to compensate other expenses [undertaken by the lessee] shall be determined in
accordance with the rules governing management of the affairs of another person without his
mandate.
71

Article 546. Right of the Lessee to Things Added to the Rented Thing
1. The lessee shall be entitled to retain what he equipped the rented thing with.
2. The landlord of a dwelling place may substitute the exercise of this right with appropriate
compensation, except when the tenant disagrees with the landlord on legitimate grounds.

Article 547. Liability for Normal Wear and Tear to the Thing
The lessee is not liable for alteration or deterioration of the rented thing caused by the use specified
under the contract.

Article 548. Expenses of Current Repair
1. As a rule, the tenant is bound to do current repair s. He may not make alterations or reconstruction
of the dwelling place without the consent of the landlord.
2. The tenant shall be bound to perfor m these works at his own expense.
3. The landlord may claim damages that have b een caused by non-performance of the duty under
paragraph (1) of this Article by the tenant.

Article 549. Consent of the Lessor on Sublease
The lessee has no right to convey the rented thing to a third person (sublease) without the consent of
the lessor. A family member of the lessee sh all not be deemed to be a third person.

Article 550. Refusal of Sublease Disallowed
The landlord may not reject a sublease of a dwelling if the tenant, having a legitimate reason, is willing
to sublet some or all of the rented lodgings to a thir d person. This rule shall not apply if the sublessee is
an undesirable person for the landlord, or if the lodg ings have been overcrowded, or if a sublease is
unacceptable to the landlord for other reasons.

Article 551. Fate of the Sublease upon Completion of the Renting Relation
If the sublease was intended to evade the guaranties of dissolution of the rental contract, then upon
completion of the renting relation the lessor shall a ssume those rights and duties that existed between
the lessee and the sublessee.

Article 552. Amount of Securi ty for the Rental Relation
1. If under a rental contract for a dwelling place the tenant is bound to submit security for the
obligation [to pay rent], the amount of the security may not exceed the amount of treble the monthly

71 That is, if a tenant undertakes expenses which were no t necessary, then his right to compensation from the landlord
shall be governed by the same rules that apply where a person undertakes expense to manage, protect or improve the
property of another person without the latter’s permission. See torts, §§ 969-975.

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rent. If the monetary amount is to be paid in advance, then the tenant shall be entitled to pay it in
equal monthly installments over three months.
2.
Interest at the rate prescribed by law shall accrue on the security paid in advance, and after
completion of the rental relation it shall be returned to the tenant together with the accrued interest.
3. Any agreement concluded otherwise to the detriment of the tenant shall be void.

Article 553. Procedure for Payment of the Rent
1. Rent is to be paid upon expiration of the term of the rental contract. If the payment of rent is
specified to be made periodically, then it must be paid at the end of each period of time.
2. The payment of additional expenses may be require d only if an agreement on that matter exists
between the parties.

Article 554. Effect of Nonpayment of Rent Through Fault of the Lessee
If the tenant is obstructed in use [of the rental proper ty] through his own fault, he shall not be released
from payment of the rent.

Article 555. Early Dissolution of the Contract by the Initiative of the Tenant of a Dwelling
Place
The tenant of a dwelling place is enti tled to dissolve the contract of tenancy before the expiration of its
term, provided he gives notice thereof to the landlo rd not less than one month before the expiration of
the term and offers to the landlord a tenant who is solvent and acceptable for the landlord, and who
agrees to be the tenant over th e remaining term of the tenancy.

Article 556. Counterclaims of th e Tenant against the Landlord
If, against the claim for payment of rent on a residen ce, the tenant has the right to [arrest property] or
set off other claims arising out of the tenancy relati on, then the tenant may exercise such right even if
the contract stipulates otherwise, provided he gives advance notice thereof to the landlord.

Article 557. Dissolution of the Contra ct by the Initiative of the Lessor
A lessor may dissolve the contract before the expirati on of its term if the lessee, having ignored the
notice given by the lessor, substantially damages th e rented thing or creates an apparent danger
threatening substantial damage.

Article 558. Dissolution of the Contract Because of Non-Payment of the Rent
A lessor may dissolve the contract before the expiration of its term if the lessee has not paid the rent
for three months.

Article 559. Termination of the Rental Relation by Expiration of its Term
1. The rental relation is terminated upon ex piration of the term of the contract.
2. If the lessee continues to use the thing after ex piration of the term of the contract and the lessor
does not object thereto, then the contract shall be deemed to have been extended for an indefinite
term.
3. If the term of the rental contract is not fixed, th en the making of a declaration on dissolution of the
contract shall terminate the renting relation.

Article 560. Right to Claim Exte nsion of the Contract of Tenancy for an Indefinite Term
If a contract of tenancy for a dwelling place is conc luded for a fixed term, then the tenant may claim
extension of the contract of tenancy for an indefinite term by giving written notice thereof at least two
months before termination of the renting relation, provided the landlord declares his consent th
ereto.

Article 561. Period of Time fo r Dissolution of the Contract
The period of time for dissolution of a rental cont ract is three months unless otherwise following from
the circumstances or from agreement of the parties.

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Article 562. Termination of a Contract of Tenanc
y of a Dwelling Place for Legitimate Reasons
1. The landlord may terminate a contract of tenancy for a dwelling place only if legitimate reasons
exist for termination.
2. A reason is legitimate if:
a. The tenant has substantially breached his obligations under the contract;
b. The landlord needs the dwelling place personally for himself or for his near relatives;
c. The tenant refuses to pay an increased rent, that corresponds to market rates, offered by the
landlord;
d. The tenant has committed against the landlo rd such illegal or immoral acts that the
continuation of their relation is no longer possible.
3. If the object of the contract of tenancy is a furnis hed apartment, then the landlord may always
dissolve the contract of tenancy provided he obser ves the time period fixed for dissolution of the
contract.

Article 563. Form of Termin ation of the Contract
Termination of a contract of tenancy of a dwelling place must be made in writing.

Article 564. Duties of the Lessee upon Termination of the Rental Contract
Upon termination of the rental contract of a thing th e lessee shall be bound to return the thing to the
lessor in the same condition in which he received it, taking into account normal wear and tear, or in the
condition which was specified under the contract.

Article 565. Right of Continued Occupancy Disallowed
The lessee of a tract of land has no right to occupy [arrest] the tract for satisfaction of his claims.

Article 566. Transfer of Rented Property to Third Persons
If the lessee has transferred the thing to the use of a third person, then after termination of the rental
contract the lessor may recover the thing from the third person.

Article 567. Recovery of Damages Arising as a Re sult of Failure to Return the Rented Thing
1. If after completion of the renting relation the lesse e has not returned the rented thing, the lessor
shall have the right to claim payment of the stipulated rent for the period of delay as compensation for
damages.
2. An agreement by which the lessee is bound to compensate damages in excess of the [actual] damage sustained shall be void.

Article 568. Landlord’s Lien on the Things of the Lessee
For securing any claims arising out of the renting re lationship, the lessor of a tract of land, house or
apartment has a lien on those things that the lessee brou ght to the place. The lien lapses simultaneously
upon removal of the things from the rented premises if this is done in the ordinary course of life [i.e.,
and not to evade the lien].

Article 569. Form of a Rental Contract on a Tract of Land
A rental contract covering a tract of land for a term of more than ten years shall be drawn up in writing.
In case the form is not observed it shall be pre sumed that the contract has been concluded for an
indefinite term. Termination of the contract is a llowed only upon expiration of the first year of the
rental.

Article 570. Procedure for Dissolu tion of Contract Concluded for a Term of More Than Ten
Years
If a rental contract is concluded for a term of more than ten years, then after ten years each party may
dissolve the rental contract within the period prescribed under Article 561.

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Article 571. Transfer of
Rights of the Tenant to his Family Members
If a contract of tenancy is concluded for a dwellin g place where the tenant keeps his household jointly
with his family members, then in case of death of the tenant, his family members shall enter into the
legal relation with the landlord. They shall have the right to dissolve the contract of tenancy within the
time period prescribed by law.

Article 572. Succession of Title in case of Alienation of the Rented Thing
If the lessor alienates the rented thing to a third pe rson after having transferred it to the [possession of
the] lessee, the acquirer shall stand in the place of the lessor and the
rights and duties arising out of the
renting relation shall pass to him.

Article 573. Limitation Peri od on Claim for Damages
1. For replacement or deterioration of the rented thin g the lessor is entitled to claim damages and the
lessee is entitled to assert against him any clai m for recovery of expenses within six months.
2. The limitation period on the lessor’s claim for damage s begins to run from the moment of return of
the rented thing, and the limitation period on the le ssee’s claim – from the moment of termination of
the rental contract.

Article 574. Dispute Between Spou ses in the Case of Divorce
1. Where, in the case of divorce, the spouses cannot agree on who will live in the rented lodgings, a
court shall settle the dispute.
2. For the court it is of no importance which of the spouses is the tenant.
If the court acknowledges
the right of that spouse to the lodgings who is not the tenant, then this spouse shall become the
participant in the tenancy relation.

Article 575. Protection of Rights of Lessee
The lessee has the right to protect his possessions from any encroacher including the owner.

CHAPTER FOUR
FINANCE LEASE

Article 576. Concept. Content
1. Under a finance leasing contract the lessor is obligated to transfer to the use of the lessee the
specified property for a term fixed by the contract. The lessee is obligated to pay compensation to the
lessor in accordance with the specified periodicity.
2. The lessor is obligated to produce or purchase the property specified un
der the contract.
3. The finance leasing agreement may obligate or enti tle the lessee to either purchase or rent the
object of the finance lease upon expiration of the term of the agreement, unless the contract ends with
the complete depreciation of the thing. In assessing the final value of the thing the fact of depreciation
shall be taken into account in any event. Unless there is a contrary provision in the contract, the lessee
shall be entitled to purchase the object of the finance lease.

Article 577. Form of a Contract of Finance Lease
A finance leasing contract shall be concluded in writing. The contract shall include:
a. The full price;
b. The amount of finance leasing payments and the time periods for payment;

c. The amount of the final payment due, and, in case of early performance of the contract, the
procedure for its computation.

Article 578. Liability of the Lessor

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1.
The lessor in a finance lease shall be liable to the lessee for failure or delay in transfer of the
property, as well as for the transfer of defective property, in accordance with the rules governing a
rental contract.
2. The parties may agree that the lesse e, prior to asserting a complaint against the lessor, must claim
satisfaction from the supplier of the property.

Article 579. Liability of the Lessee
If the contract is terminated before its term due to the fault of the lessee, then the lessor may not assert
against the lessee claims that go beyond his in terests in connection with the performance. In
assessment of the claim, consideration is to be give n to the remaining value of the rented property, the
remaining interest on the lease rental payment, and the costs saved.

Article 580. Other Rules Appl icable to Finance Leasing
The rules governing a rental contract that do not c ontravene Articles 576-579 shall apply to the finance
lease.

CHAPTER FIVE
LEASE

Article 581. Concept
1. Under a lease contract the lessor is bound to transfer the specified property to the temporary use of
the lessee and to [allow the lessee] the possibility of obt aining fruits during the term of the lease, if they
are obtained through proper manageme nt of the leased property. The lessee is obligated to pay to the
lessor the stipulated lease payment. The lease payment may be determined both in money and in kind.
The parties may agree on other means of d etermination of the lease payment as well.
2. The rules governing a rental contract shall apply to a lease contract unless otherwise provided for
under Articles 581-606.

Article 582. Dissolution of a Lease Contract Concluded for a Term of More Than Ten Years
If a lease contract is concluded for a term of more than ten years, then after expiration of this term
each party may dissolve the lease relation with in the period prescribed under Article 561.

Article 583. Lease of Land with Inventory
1. If a tract of land is leased with inventory, then the lessee shall be liable for maintenance of each part
of the inventory.
2. The lessor shall be obligated to replace those parts of the inventory that have become unsuitable
due to circumstances beyond the control of the lessee. The lessee is obligated to restitute the loss of
livestock included in the inventory, regardless of the proper management of the leased property.
3. The lessee must keep the inventory in such conditi on, and over the term of the lease must replenish
it to such extent, that corresponds to the properly managed property. Particular pieces of inventory
purchased by the lessee and attached to the common inventory shall become property under the
ownership of the lessor.

Article 584. Risk of Accide ntal Loss of Inventory
1. If the lessee of a tract of land receives the inventory with an assessment of its value and undertakes
to return it also with an assessment of its valu e upon expiration of the contract, then the risk of
accidental loss or deterioration is on him. The lessee may dispose of individual parts of the inventory
within the limits of proper management of the property.
2. Upon expiration of the term of the lease contract the lessee shall return the inventory to the lessor.
The lessor may refuse to accept the inventory purcha sed by the lessee if it is unnecessary for proper
management of the tract of land or if it is overly expensive; simultaneously with the lessor’s refusal, the
right of ownership of unaccepted inventory shall pa ss to the lessee. If there is a difference in the
assessments of the value of conveyed and returned inventories, then this difference shall be

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compensated in money. The assessment shall be made
on the basis of those prices that were operative
at the moment of completion of the lease contract.

Article 585. Prohibition of Disposition of Individual Parts of Inventory Not Allowed
Provisions of a lease contract that obligate the lessee not to dispose of individual parts of the inventory
or to dispose of them only with the consent of the lessor shall be valid only if the lessor undertakes the
obligation to purchase the inventory in accordance with the inventory assessment [valuation] performed upon expiration of the lease relation.

Article 586. Lien on the Inventory
1. The lessee of a tract of land shall have a lien on the inventory under h
is possession for those claims
that may be asserted against the lessor that relate to the leased inventory.
2. The lessor may avoid the lessee’s lien by submitting other means of security. He may redeem each
item of the inventory from the lien by offering me ans of security equal to the value of the released
items.

Article 587. Sublease
1. The lessee has no right to sublease without the consent of the lessor.
2. The lessor may refuse to allow the renting out of in dividual parts of the leased property if thereby
he will sustain significant loss.
3. The lessee shall be liable to the lessor for such use of the thing by the sublessee or by a renter that
was not authorized by the lessor. The lessor may dir ectly put an end to such use of the property by the
sublessee or by the renter.

Article 588. Early Return of the Leased Property
1. If the lessee returns the property before termination of the lease relation, he shall be exempt from
further lease payments only if he offers to the lessor a new lessee who is solvent and acceptable to the
lessor in lieu of himself. The new lessee must agree to accept the lease contract on the same conditions.
2. If the lessee fails to offer such a lessee, then he shall be bound to pay the lease payments up until
end of the lease relationship [i.e., to the end of the contract term].

Article 589. Dissolution of a Lease Contract with an Unspecified Term
1. If the term of a contract for lease of land or of a right is not specified, then the contract may be
dissolved only after one year; in such case it may be dissolved no later than one month after the end of
the year of lease.
2. These rules shall likewise apply when a lease relation may be dissolved earlier than as prescribed by
law.

Article 590. Dissolution of the Contract by Reason of Death of the Lessee
1. If the lessee dies, both his heirs and the lessor ma y dissolve the lease relationship within six months
after the end of the calendar year.
2. The heirs may refuse to allow dissolution of the contract and may claim extension of the lease
relationship, provided they are able to properly mana ge the leased property themselves or through third
persons.

Article 591. Recovery of Damage in Case of Failure to Return the Leased Property
If, after completion of the lease relationship, the le ssee has not returned the leased property, the lessor
may claim payment of the stipulated lease payment for period of the delayed return; the lessor may
claim other damages as well.

CHAPTER SIX
LEASE OF AGRICULTURAL LAND

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Article 592. Concept
1.
Under a contract for lease of agricultural land, a tract of land is transferred for agricultural
purposes, with or without dwellings or farming equipment (or an enterprise) intended for economic
use.
2. The rules governing lease contracts shall apply to the lease of agricultural land unless otherwise
prescribed for the lease of agricultural land.

Article 593. Form of the Contract
A contract of lease of agricultural land shall be drawn up in writing. In the case of nonobservance of
this form it shall be presumed that the cont ract has been concluded for an indefinite term.

Article 594. Inventory of the Leased Property
At the beginning of the lease relation the parties sha ll jointly make an inventory of the leased property
that shall include the amount and condition of the property at the moment of its transfer under the
lease. The same rule shall apply at the end of the lease relation. The inventory shall be signed by both
parties and the date of its making shall be indicated therein.

Article 595. Condition of the Leased Property. Its Repair
The lessor must transfer to the lessee leased property in a condition suitable for the use specified under
the contract and must maintain this condition during the whole term of the lease. The lessee is bound
to perform current repairs of the property at his own expense, to repair the dwelling and farming
structures, roads, ditches, pipelines and fences. He is obligated to use the leased property for economic
purposes.

Article 596. Lien on the Fruit
For the satisfaction of claims arising out of the lease relationship the lessor shall have a lien on the
things added by the lessee [to the property] and on the income derived from the leased property
(fruits).

Article 597. Claim for Reduc tion of Lease Payment
If more than half of the annual production to be re aped from the area under lease accidentally perishes,
then the lessee shall have the right to demand pro rata reduction of the lease payment. The lessee has
the right to claim reduction of the lease payment only before harvesting.
72

Article 598. Obligation to Co mpensate Necessary Expenses
The lessor is obligated to compensate the lessee for necessary expenses incurred with respect to the
leased property.
73

Article 599. Compensation for Expenses Incurred by Consent of the Lessor
Apart from the expenses defined under Article 59 8, upon expiration of the leasing relationship the
lessor shall compensate the lessee for those other expenses to which he [the lessor] consented.

Article 600. Compensation fo r Harvest Not Yet Gathered
If a leasing relationship is terminated during a year of the lease, the lessor shall compensate the lessee
for the value of the harvest that is not yet gathered bu t is to be gathered before the end of the current
year of the lease.

Article 601. Obligation of the Lessee to a New Lessee

72 Changes have been made in verb tens e and vocabulary to clarify the clause. 73 See Article 595. The lessor is obligated to compensate the lessee only for those expenses which were incurred to
restore some fundamental aspect of the property’s suitability , as delivered by the landlord. The lessee is not entitled to
compensation for routine maintenance.

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1.
Upon expiration of the term of a lease of agricult ural land, the lessee shall leave to any new lessee
the buildings in a suitable condition, and the equi pment and agricultural products in the amount
necessary for the continuation of manageme nt until harvesting in the next year.
2. If the lessee is obligated to leave the products in a larger amount or of a better quality than he
received at the beginning of the lease, then he may demand from the lessor compensation for the
[additional] value.

Article 602. Obligation to Re turn the Leased Property
After expiration of the leasing relationship the lessee sh all be obligated to return the leased property in
a condition that secures proper management of the property as it existed
before the return.

Article 603. The Lessee’s Rights to Indi vidual Parts of the Leased Property
1. The lessee has the right to detach the equipment with which he equipped the leased property. The
lessor may substitute the lessee’s right to detach with corresponding compensation, except when the
lessee has a legitimate interest in the detachment.
2. An agreement that excludes the lessee’s right of detachment, defined in paragraph (1) of this
Article, shall be valid only if this agreement st ipulates the corresponding amount of compensation.

Article 604. Demand for Extensio n of the Lease Relationship
The lessee may demand from the lessor extension of the lease relationship if:
a. The leased property is the sustenance of the lessee’s business;
b. The tract of land is vitally essential for sustaining the lessee’s business and the
dissolution of the
lease, even in accordance with the contract, is so painful for the lessee and his family that it may
not be justified even on the grounds of the legitimate interests of the lessor.

Article 605. Termination of the Lease Re lationship by the Lapse of its Term
The lease relationship is terminated by the lapse of the term of the contract. A contract concluded for a
term of more than three years may be extended for an indefinite term if an offer of one party to extend
the lease relation is not rejected by the other par ty within three months. The offer and the rejection
shall be made in writing.

Article 606. Termination of Lease Relationship in the case of a Contract for an Unspecified
Term
1. If the duration of a lease relationship is not specifi ed, then each party to the contract may, no later
than ten days from the commencement of a year of th e lease, declare its intention to dissolve the lease
contract for the next year of the lease. A calendar year is deemed to be a year of the lease. If the parties
agree on a shorter period of time, then this shall be drawn up in writing.
2. When a lease relationship may be terminated earlier th an as prescribed by law, this shall be allowed
only at the end of a year of the lease.

CHAPTER SEVEN FRANCHISE

Article 607. Concept
A franchise agreement is a long-term relationship of obligation under which independent businesses are
bilaterally bound, as far as necessary, to promote th e production and marketing of goods and rendering
of services by performing specific obligations.

Article 608. Obligati ons of a Franchiser
1. A franchiser is obligated to present to a franchis ee, in the form in which the franchiser exercises
them: intangible property rights; trademarks and tr adenames; samples and packaging; the concepts of
management, production, purchase and marketing of the goods, as well as other information required
for promotion of sales.

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2.
The franchiser is obligated to protect the system of joint operation from the intervention of third
persons, to develop it consistently, and to support the franchisee by sh
aring business skills and
furnishing information and training.

Article 609. Obligati ons of a Franchisee
A franchisee is obligated to pay the franchise fee, th e amount of which is essentially calculated taking
into account the contribution made towards the impl ementation of the system of the franchise, to
actively conduct the business with due diligence, to receive services, and to purchase goods through the
franchiser or through persons named by the franchiser if this is directly related to the objective of the
agreement.

Article 610. Obligation Not to Disclose Confidential Information
At the time of execution of the contract, the parties must openly and completely inform each other
about the circumstances relating to the franchise, especially the system of the franchise, and to
communicate the information to each other in good faith. The parties are obligated not to disclose the
information confided to them even if the agreement is not executed.

Article 611. Form of Contract
The validity of a franchise contract requires that it be in written form. In addition to clearly indicating
the bilateral obligations, the duration of the cont ract, provisions on dissolution or extension of the
contract and other essential clauses, the contract sh all contain a complete description of the system of
the franchise.

Article 612. Duration of the Contract
1. The duration of the contract shall be determined by the parties, taking into consideration the
requirements for marketing the given goods and services.
2. If the duration of the contract exceeds ten years, then either party is entitled to dissolve the contract
by observing a one-year period of time required for dissolution.
74 If neither party exercises this right to
dissolve the contract, the contract shall be extended for two years [at the end of its term]. If the
contract is dissolved by lapse of its term or by the in itiative of the parties, then the parties shall try,
observing the principles of mutual confidence, to c ontinue the contract on the same or altered terms up
until the time the business relationship is actually ended.

Article 613. Loyal Competition
1. Even after expiration of the contractual relationshi p the parties are obligated to compete with each
other loyally. Within these limits, the franchis ee may be prohibited from competing [with the
franchisor] within a specified area for a period of time, not to exceed
one year.
2. If the prohibition of competition may endanger the professional business [of the franchisee], then
an appropriate monetary compensation shall be give n to the franchisee despite the expiration of the
term of the contract.

Article 614. Liabilit y of the Franchiser
The franchiser is liable for the rights and information specified by the
system of the franchise. If, by
his fault, he breaches the contractual obligation, th e franchisee shall be entitled to reduce the franchise
fee. The amount of the reduction shall be determined finally by an independent expert, the expenses of
whose services shall be borne by the parties.
CHAPTER EIGHT
[GRATUITOUS] LENDING

Article 615. Concept

74 It is unclear whether termination may be introduced by eith er party within the ten year term, or only within one year
of the end, barring which the contract is automatically extended for an additional two years.

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Under a contract of lending, the lender undertakes
the obligation to transfer property to the borrower
for his temporary and gratuitous use.

Article 616. Liabil ity of the Lender
The lender shall be liable only for damages inflicted either intentional
ly or by gross negligence.

Article 617. Obligation to Compensate Damages in Case of Concealment of Defect
If the lender knowingly conceals a defect of the right or the thing from the borrower, he shall be
obligated to compensate the damage thereby inflicted.

Article 618. Purposeful Use of the Loaned Thing
The borrower may not use the thing otherwise than as stipulated in the contract. He has no right to
transfer the thing to the use of a third person without the consent of the lender.

Article 619. Obligation to Bear Ordinary Expenses
1. Ordinary expenses required for maintenance of the loaned thing shall be borne by the borrower.
2. The lender’s obligation to compensate other expe nses shall be determined in accordance with the
rules governing management of the affair s of another person without his mandate.
75

Article 620. Wear and Tear to the Loaned Thing
The borrower shall not be liable for changes to or deterioration of the
loaned thing if they are caused
by uses that comply with the contract.

Article 621. Obligation to Return the Loaned Thing
1. The borrower shall be bound to return the loaned thing after expiration of the term fixed under the
contract of lending.
2. If no such term is fixed under the contract, then th e lender may retrieve the thing after expiration
of the period of time required for the intended use; and if the intended use is not specified, then he may
demand return of the thing at any time.
3. The borrower may return the thing at any time.

Article 622. Effect of Death of the Borrower [and Unforeseen Circumstances] If the borrower dies or if the lender is in need of the thing due to unforeseen circumstances, then the
lender may dissolve the contract.

CHAPTER NINE
LOAN

Article 623. Concept
Under a loan contract the lender transfers to the ownership of the borrower money or some other
generic thing, and the borrower undertakes the obligation to return a thing of the same kind, quality
and amount.

Article 624. Form of a Loan Contract
A loan contract is made orally. The parties may agree on a written form as well. In the case of an oral
contract its validity may not be proved only on the grou nds of evidence given by witnesses [testimony].

Article 625. Loan Interest
The parties may predetermine that the loan is to be made for interest, the rate of which shall reasonably
correspond to the ceiling interest rate fixed by the Na tional Bank or by the Interbank Credit Auction.
An agreement made in violation of this rule shall be void.

75 See footnote to § 545.

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98

Article 626. Termination of the Co
ntract and Payment of the Debt
1. If the time for payment of the debt is not specified under the contract, then the loan shall be repaid
upon termination of the contract by the lender or the borrower.
2. The period of time for termination of the contract is three months. If no interest is promised, then
the borrower may prepay the debt before its due date. Prepayment of an interest-bearing loan shall be
allowed only by the preliminary agreement of th e parties or by the consent of the lender.
3. The interest shall be paid after the lapse of each ye ar. If a date of maturity is specified in the loan,
then both the debt and the interest shall be paid when due.

Article 627. Right to Clai m Immediate Repayment
The lender has the right to claim immediate payment of the debt if the economic condition
76 of the
borrower substantially deteriorates, endangering the claim for repayment of the loan. This right shall
likewise be effective if the deterioration of the borrower’s economic condition preceded conclusion of
the contract, but the lender became aware of it only after conclusion of the contract.

Article 628. Promise of Loan
In case of promise of a loan, the promisor may ref use to grant the loan if the other party’s economic
condition has deteriorated so badly [since the promis e was made or the promisor became aware of the
promisee’s condition] that the repayment of the loan may be endangered. The promise of a loan shall
be made in writing.

CHAPTER TEN
CONTRACT FOR WORK [BY INDEPENDENT CONTRACTOR]

Article 629. Concept
1. Under a contract for work the contractor undertak es the obligation to perform the work specified
in the contract, and the client is obligated to pay the agreed compensation to the contractor.
2. If some article is to be manufactured under a contract for work, and the contractor manufactures it
with materials that he purchased himself, then he transfers ownership of the manufactured thing to the
client. If a generic thing is manufactured, the rules governing a contract of sale shall apply.
3. Drawing up an estimate of the work to be performed under the contract shall not be compensated
as part of the contract, unless otherwise stipulated by agreement.

Article 630. Agreement on Compensation
1. An agreement to pay compensation for the work sha ll be implied if, taking into consideration the
circumstances of the case, the contract work woul d be expected to take place only if compensated.
2. When the amount of compensation has not been agreed upon, a tariff rate shall be deemed to apply
as agreed compensation, provided such a rate exists, or , if no tariff schedule exists, then a usual level of
compensation shall apply.

Article 631. Effects of Exceed ing an Approximate Estimate
1. If a contractor significantly exceeds an approx imate estimate, he may demand only an agreed
compensation, except when the cost overrun could not be foreseen.
2. The contractor shall immediately notify the client of any overrun of the approximate estimate that
could not be foreseen at the time of execution of th e contract. If the client terminates the contract on
the grounds of the cost overrun, he shall be obliged to pay for the work according to the approxim
ate
estimate.

76 Literally, “property status.”

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Article 632. Obligation to
Perform the Work Personally
A contractor shall perform the work personally only if this proceeds from the specific circumstances or
from the nature of the work.

Article 633. Client’s Obligation to Compensate for Damages
1. The contractor may claim damages if the client does not accept the work performed. The client is
also obligated to pay damages if he fails to perf orm any actions required for performance of the work.
2. The amount of compensation for damages shall be determined, on the one hand, according to the
period of delay and the amount of compensation, and on the other according to what the contractor
would have received in consideration for his labor skills used otherwise had the employer received the
performance in time.
77

Article 634. Mechanic’s Li en in Movable Things
For securing his claims [against the client] the c ontractor may use the right of lien on any movable thing
manufactured or repaired by him if this thing is in the possession of the contractor for the purpose of
its manufacture or repair.

Article 635. Mechanic’s Lien on a Plot of Land for Construction
If the object of the contract is a structure or indivi dual parts a structure, the contractor may, proceeding
from his requirements under the contract, demand that a lien be placed on the land plot used for the
construction.

Article 636. Dissolution of the Contract
The client may repudiate the contract at any time before completion of the work, but he must
compensate the contractor for the work performed and compensate damages caused by the dissolution
of the contract.

Article 637. Dissolution of the Contract by the Initiative of the Contractor
Before completion of the work the contractor may termi nate the contract only in a manner that enables
the client to receive the services from someone el se, except when there are some important grounds for
the termination. In this case the obligation to compensate damages [to the client] shall be excluded.

Article 638. Right to Demand a Portion of the Compensation
If the contractor terminates the contract under Article 637, he may demand compensation
proportionately to the services rendered [before termi nation], if the client has any interest in [received
value from] the services rendered.

Article 639. Obligation to S ubmit a Thing Without Defect
If the services include the manufacture of some articl e, then the contractor must deliver the thing to the
client with no material defects or defects of rights [title].

Article 640. An Article Withou t Defects of Right [Title] An article is without defects of right [title] if thir d persons may not assert against the client any rights
[with respect to the article].

Article 641. An Article without Material Defect
1. An article is without material defect if it co rresponds to the agreed conditions; and if no such
conditions are agreed upon, then the article shall be deemed to be without material defect if it is
suitable for the use stipulated in the contract or for ordinary use.

77 The intention appears to be that the contractor shall r eceive compensation in the amount that he would have received
had he been allowed to work during the period that he was delayed. In effect, he gets the contract rate for the period of
delay.

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2.
A material defect shall exist where the contractor has manufactured an article different from or in a
smaller quantity than the article ordered.

Article 642. Claim for Additional Performance
1. If the article is defective, the client may demand additional performance. The contractor may, at his
choice, either eliminate the def ect or manufacture a new article.
2. For the purpose of additional performance the contractor is obligated to incur any necessary
expenses, including expenses of transportation, work and materials. The contractor may refuse to
provide additional performance if it will require disproportional expenses.
3. If the contractor manufactures a new article, he ma y demand return of the defective article from
the client.

Article 643. Elimination of the Defe ct in the Article by the Client
1. If the contractor has not refused to provide a dditional performance because of disproportional
expense, but the time period fixed for the addi tional performance on the grounds of the article’s
defectiveness has expired without any result, then the client may eliminate the defect himself and
demand compensation [from the contractor for] the expenses incurred.
2. In any case within paragraph (2) of Article 405, th e fixing of an additional period [for performance] shall not be required.
3. The client may demand from the contractor payment in advance for the expenses required to
eliminate the defect.

Article 644. Repudiation of the Contract Because of Defect of the Article
On the grounds of defectiveness of the article the client may repudiate the contract under Article 405.
In such case the contractor shall be obligated to compensate the client for expenses related to the
contract.

Article 645. Reduction of Compensation Because of Defect of the Article
A client who neither receives the remedy of additiona l performance of the contract after the expiration
of the time fixed therefor, nor repudiates the cont ract, may reduce the compensation to be paid to the
contractor by an amount that equals the decrease in value of the article as a result of the defect.

Article 646. Performing Work with the Contractor’s Materials
1. If the contractor performs labor with his own ma terials, he shall be liable for material of poor
quality.
2. The contractor shall be liable for improper use of th e client’s materials. The contractor is bound to
submit to the client an accounting of material expenditures and to return any remaining materials to
him.

Article 647. Obligation to Give a Warning Notice
1. The contractor is bound to timely warn the client that:
a. The material received from the client is unsuitable and of poor quality;
b. If the client’s instructions are fulfilled, the work will be unstable or useless;
c. There exist other circumstances beyond the control of the contractor endangering the durability
and suitability of the work.
2. If the client, notwithstanding the warning given by the contractor, fails to replace the unsuitable and
substandard materials within an appropriate time, fails to alter the ins
tructions given on the procedure
of work performance, or fails to eliminate the othe r circumstances threatening damage to the suitability
and durability of the work, then the contractor shall have the right to repudiate the contract and to
claim damages thereby sustained.

Article 648. Payment of Comp ensation for Work Performed

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The client is obligated to pay compensation to the
contractor after the work is performed, unless the
contract predetermines payment in installments.

Article 649. Acceptance of the Work
If, under the contract or proceeding from the nature of the work performed, its conveyance is required,
the client is obligated to accept the work performe d and to pay the compensation for it on acceptance.
The work shall be deemed accepted if the client fails to accept the work within the time fixed by the
contractor.

Article 650. Liability of the Co ntractor in Case of Perishing of the Client’s Property
The contractor shall be liable for the perishing or deterioration of the client’s property due to the
contractor’s negligence.

Article 651. Risk Placed on the Contractor
1. Prior to delivery of the performance to the client, the risk of accidental loss or deterioration of the
work performed is on the contractor. Simultaneously wi th delivery of the work performed, the risk of
accidental loss or deterioration shall shift to the client . [For purposes of shifting the risk of loss or
deterioration to the client,] the client’s delay in ac cepting performance shall be equivalent to delivery of
the performance to the client.
2. The risk of accidental loss or deterioration of materials is on the party supplying the materials.

Article 652. Effect of Accept ance of a Defective Article
If the client is aware of a defect in the article and yet he accepts it without asserting a complaint, then
he shall have no right to make any claim on the basis of such defect.

Article 653. Guaranty Period
If the contractor has given a period during which the fitness of the article is guaranteed, then any defect
detected during this period shall give rise to corresponding rights [in the client].

Article 654. Effect of Intentional Concea lment of a Defect by the Contractor
If the contractor intentionally conceals a defect, he may not resort to any agreement that excludes or
restricts the right of the client to make claims regarding defects in the article.

Article 655. Limitation Period
The client may assert claims regarding defects in the performance within one year [following acceptance
of the work], and may assert claims with respect to structures [buildings] within five years from the date
of acceptance of the work.

Article 656. Computation of the Li mitation Period when the Work is Received in Installments
If under a contract the work is received in installm ents, then the limitation period on claims arising
from defects begins to run from the date of receipt of the work in full.

CHAPTER ELEVEN
TOURIST SERVICES

Article 657. Concept
Under a tourism contract a travel agency is obligated to render the agreed services to a tourist (traveler).
The tourist is obligated to pay the promised co mpensation to the travel agency for the services
rendered.

Article 658. A Third Person Traveler

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1.
Prior to the beginning of the travel the tourist ma y demand substitution of a third person to travel
in his place. The travel agency may refuse to substit ute the third person if the latter does not qualify for
the travel, taking into account the necessary conditions thereof.
2. The travel agency may demand from the tourist compensation for any additional expenses caused
by participation of the third person in the travel.

Article 659. Shortcomings of the Travel
1. The travel agency is obligated to or ganize the travel so as to avoid shortcomings in the travel that
may devalue or reduce the significance of the trav el for ordinary purposes or for the purposes
stipulated under the contract.
2. If the travel has such shortcomings, the tourist may demand their elimination. The travel agency
may refuse to eliminate the shortcomings if to do so would require disproportionately high expenses.
3. If the travel agency fails to eliminate the shortcomi ngs within a reasonable period of time fixed by
the tourist, then the tourist may eliminate the shortcomings himself and demand compensation of
necessary expenses thereby incurred. Fixing a period of time for cure is not required if the travel agency
refuses to eliminate the shortcomings, or if the tour ist has an interest in elimination of the shortcoming
immediately.

Article 660. Reduction of the Price Be cause of Shortcomings of the Travel
1. If the travel is defective, its price shall be reduced taking into account the duration of the
shortcomings.
2. The price shall not be reduced if the tourist, thro ugh his own fault, fails to notify the travel agency
of the shortcoming.

Article 661. Termination of the Co ntract on the Tourist’s Initiative Because of Shortcomings
1. If the tourist has sustained significant harm beca use of the shortcoming defined under Article 659,
he may terminate the contract. The same rule shall likewise apply when he is unable to participate in the
travel for a legitimate reason known to the travel agency.
2. Termination of the contract is allowed when the travel agency fails to eliminate the shortcomings
within a time period fixed by the tourist. Fixing the time period is not required if the shortcomings
cannot be eliminated, or if the travel agency refuse s to eliminate them, or if the termination of the
contract is justified by the special interests of the tourist.
3. Upon termination of the contract the travel agency shall be deprived of its right to receive the
agreed compensation, but it may demand compensati on for services already rendered without defect.
4. If the contract provided for the return travel of the tourist, then after termination of the contract
the travel agency is obligated to return the tourist ba ck [to his point of origin]. Any additional expenses
in this case shall be borne by the travel agency.

Article 662. Compensation for Damage Caus ed by the Shortcoming of the Travel
1. If the shortcomings of the travel have been cause d by circumstances for which the travel agency is
liable, then the tourist may claim damages caused by nonperformance [of the travel agency’s duties] without limiting the right to terminate the cont ract or the right to demand reduction of the
compensation [to be paid to the travel agency] arising out of the grounds of the shortcomings.
2. If the travel was ruined or if it was organize d improperly, the tourist may demand corresponding
monetary compensation for the uselessly wasted vacation.

Article 663. Limitation Period on Clai ms Arising out of a Tourism Contract
1. A tourist may assert against a travel agency the claims defined under Articles 659-662 within one
month from the lapse of the time period of the travel stipulated in the contract. After expiration of the
limitation period the tourist may assert his claims only if he was not at fault in exceeding the limitation
period.
2. The limitation period for claims by the tourist is six months. This period begins to run from the
date at which the travel should have ended under the contract. If the tourist asserts the claim before

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beginning of the limitation period, the running of th
e limitation period shall be suspended until the date
on which the travel agency rejects the claim.
78

Article 664. Limited Liability
The travel agency, by agreement with the tourist, may limit its liability to treble the amount of
compensation for its services if:
a. The harm sustained by the tourist was not caused by the intent or gross negligence [of the travel
agency],
or
b. The travel agency is not solely and entirely liable to the tourist for the damage caused through
the fault of one of the persons who perf ormed the travel agency’s obligations.

Article 665. Repudiation Before th e Beginning of the Travel
1. The tourist may repudiate the contract at an y time before the beginning of the travel.
2. Upon repudiation of the contract by the tourist the travel agency shall be deprived of its right to
receive the agreed compensation. At the same time, it may demand appropriate compensation, the
amount of which shall be determined on the basis of the agreed compensation, by deducting the
amount that it could have received by providing its services otherwise.
79

Article 666. Force Majeure
1. If the travel is essentially obstructed, or if any othe r danger arises, or if the tourist sustains harm due
to the occurrence of force majeure that could not have been anticipated at the time of execution of the
contract, then either the tourist and th e travel agency may terminate the contract.
2. In a case of termination of the contract as provided under paragraph (1) of this Article, the rules of
paragraph (3) and the first sentence of paragraph (4) of Article 661 shall apply. Each party shall bear
half of the additional expenses of return travel. In other cases the additional expenses shall be borne by
the tourist.

Article 667. Agreement to the Detr iment of a Traveler Disallowed
The rules prescribed in this Chapter may not be altered to the detriment of a traveler.

CHAPTER TWELVE
CARRIAGE
I. Contract of Carriage

Article 668. Concept
Under a contract of carriage, the carrier is obligated to transport freight or passengers to the place of
destination for an agreed fee.

Article 669. Liability of the Carrier
1. The carrier shall be liable for damage sustained by the passenger, as well as for damage to the
passenger’s baggage, or its loss.
2. The liability shall not accrue if the damage is ca used by force majeure or by the passenger himself
or his baggage.
3. The liability of the carrier may not be excluded or limited by contract.

Article 670. Obligation to Enter into a Contract
A person who publicly offers the carriage of freight or passengers shall be obligated to enter into a
contract of carriage unless grounds for refusal exist.

78 Clauses 1 and 2 appear, without explanation or distinction, to present two different rules for calculating the limitation
period on claims, and different limitation periods.
79 The clause appears to prov ide that the travel agency receives compensation, using the co ntractually agreed rates or
amounts as a basis, that it would have received if its services had been otherwise engaged.

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Article 671. Carriage by Se
veral Means of Transport
If a motor vehicle [mobile container] loaded with fr eight is transported on one part of the passage by
means of marine, railway or air transport and – in the situation defined under Article 682 – the freight
is not unloaded, then the norms of this Chapter shall apply to the entire carriage all the same.

Article 672. Form of a Contract of Carriage
A contract of carriage shall be drawn up in the form of a bill of lading (or other document). Regardless
of the nonexistence, defectiveness or loss of a bill of lading, the content and validity of a contract of
carriage shall be determined by the norms of this Chapter.

Article 673. The Procedure for Drawing Up a Bill of Lading
1. A bill of lading shall be drawn up in three origin als signed by the shipper and by the carrier. The
first original document is kept by the shipper, the second accompanies the freight, and the third is kept
by the carrier.
2. If the freight to be carried will be transported by several means of transport, or in the case various
kinds of freight or freight divided into individual sh ipments, then either the shipper or the carrier may
demand that as many bills of lading be drawn up as there are kinds of freight, [individual shipments], or
means of transport.

Article 674. Particulars of a Bill of Lading
1. A bill of lading shall include the following:
a. The date and place of issuance;
b. The name and address of the shipper;
c. The name and address of the carrier;
d. The date and place of consignment, as well as the place of delivery of the freight;
e. The name and address of the recipient;
f. The regular name of the type of freight and pack aging, and in case of hazardous freight, its
universally recognized symbol;
g. The quantity, marks and [identifying] numbers of the freight to be shipp
ed;
h. The weight of the freight or otherwise indicated volume;
i. The costs of carriage (price of carriage, additiona l expenses, customs duties and other expenses
that arise from the time of execution of th e contract until the freight is delivered);
j. The marks [seals] of customs and other similar agencies;
k. The indication that the carriage, regardless of the bilateral agreement, is still subject to the
norms of this Chapter.
2. If necessary, the bill of lading shall include additional data as follows:
a. Prohibition of reloading to another transport;
b. Expenses which the shipper undertakes;
c. The amount of the “markup” to be paid at the dispatch of the freight;
80
d. The value of the freight and the indicati on of any special interest in delivery;
e. Instructions given by the shipper to the carrier with respect to insurance of the freight;
f. The agreed period of time within which the carriage is to be completed;
g. The list of documents handed over to the carrier;
3. The parties may also enter in the bill of lading any other data that they consider appropriate.

Article 675. Liabilit y of the Shipper
1. The shipper shall be liable for all expenses and damages due to the incorrect or incomplete
submission of:

80 Or “added value” or “added price.” Cf. Art. 690.

Translated by IRIS Georgia May 2001
105
a.
The data required under subparagraphs (b), (d), (e), (f), (g), (h) and (j) of paragraph (1) of Article
674;
b. The data defined under paragraph (2) of Article 674;
c. All other data or instructions of the shipper with respect to the drawing up of the bill of lading
or to be entered therein.
2. If the carrier, on demand of the shipper, enters the data listed under paragraph (1) of this Article in
the bill of lading, then it shall be presumed, until pr oven otherwise, that the carrier acted on behalf of
the shipper [in filling out the bill of lading].
3. If the bill of lading does not include the inform ation required under subparagraph (k) of paragraph
(1) of Article 674, then the shipper shall be liable for any expenses and damages that the person having
the right to the freight sustains by reason of absence of this information.

Article 676. Liability of the Carrie r upon Acceptance of the Freight
1. When accepting the freight, the carrier shall be obligated to inspect:
a. The number of pieces of the freight, the accuracy of the data contained in the bill of lading
regarding the marks and [identifying] numbers of the freight; and
b. The external condition of the freight and its packaging.
2. If the carrier lacks the appropriate means to inspect the data defined in subparagraph (a) of
paragraph (1) of this Article, then he shall enter in th e bill of lading the conditions to be performed. He
shall likewise enter those conditions which pertain to the external condition and packaging of the
freight. These conditions shall not be binding upon the shipper unless he clearly acknowledges them in
the bill of lading.
3. The shipper may demand that the carrier inspect the weight of the freight or its otherwise indicated
volume. He may also demand that the carrier inspect th e content of the freight. The carrier is entitled
to demand compensation for any expenses it incurs with respect to the performance of such
inspections. The results of the inspection shall be indicated in the bill of lading.

Article 677. Presumption of Execut ion of a Contract of Carriage
1. Until proven otherwise, a bill of lading (or c onsignment or other form accepted in the carriage
business) shall be proof that the contract of carriag e has been executed and its content determined, and
the carrier has taken the freight into its custody.
2. If the bill of lading does not indicate the conditio ns of carriage, then it shall be presumed, until
proven otherwise, that at the time of the taking of the freight into custody by the carrier, the freight and
its packaging were in good external condition and th e number of pieces of the freight, the marks and
[identifying] numbers thereof corresponded to those indicated in the bill of lading.

Article 678. Liability of the Sh ipper for Damage Caused by Substandard Packaging of the
Freight
The shipper shall be liable to the carrier for an y damage inflicted on persons, materials and other
property because of the poor quality of packaging of the freight, as well as for expenses incurred by
reason of the poor quality packaging of the freight, except when the defect was obvious, or the carrier
knew of the defect at the time of acceptance of the freight but did not stipulate any condition in this
respect.

Article 679. The Shipper’s Obligation to Furnish Necessary Information
1. The shipper is obligated to attach to the bill of lading all those documents that are required for the
performance of customs and similar operations prior to the delivery of the freight [to the consignee], or
to hand over these documents to the carrier and furnish all necessary information.
2. The carrier shall not be obligated to examine whether or not these documents and information are
correct and sufficient. The shipper shall be liable to the carrier for any damage caused by the
incompleteness or inaccuracy of the documents and data, unless these [failures in the documents] occurred due to the carrier’s fault.

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106
3.
The carrier shall be liable for loss or improper use of the documents indicated in and attached to
the bill of lading or handed over to it; the carrier ’s liability may not exceed the liability for loss of the
freight.

Article 680. Rights of the Shipper
1. The shipper is entitled to dispose of the freight, and to demand termination of the carriage; it may
also demand that the carrier not change the destinati on of the freight, or deliver it to any person other
than the one indicated in the bill of lading.
2. The shipper’s rights [under subparagraph (1) abov e] shall be extinguished immediately upon the
handing over of the second original of the bill of ladi ng to the consignee of the freight, [i.e., the original
that went with the freight] or when the consignee ex ercises its rights under paragraph (1) of Article 681.
From this moment forward, the carrier must execute the instructions given to it by the consignee.
3. The consignee acquires the right to dispose of th e freight immediately upon the drawing up of the
bill of lading if the shipper so designates in the bill of lading.
4. If the consignee, when exercising its right of dis position, has instructed that the freight be delivered
to a third person, then that third person shall not be entitled to name another consignee.
5. The right of disposition shall be exer cised subject to the following rules:
a. If the shipper or, in the case defined under paragr aph (3) of this Article, the consignee, wishes
to exercise its right of disposition, then it must present the first original bill of lading, which
shall include the new instructions, to the carrier, and it must compensate the carrier for all
expenses and damages that arise as a result of the execution of these instructions.
b. The execution of the instructions must be possible when they reach the person who is to
execute the instructions. They may not obstruct the carrier in the conduct of its regular
business activities, nor may the instructions be allo wed to inflict damage on [other freight of the
shipper or of the consignee];
81
c. The instructions shall not cause division of the freight.
6. If the carrier, on the grounds defined in subparagraph (b) of paragraph (5) of this Article, is unable
to execute the instructions, it shall immediately notify the person who gave these instructions that they
cannot be executed.
7. A carrier who fails to execute instructions given in a ccordance with the provisions of this Article, or
who executes them without having demanded the firs t original of the bill of lading, shall be liable
before the entitled person for any damage caused thereby.

Article 681. Rights of the Consig nee upon Delivery of the Freight
Upon delivery of the freight to its predetermined destin ation, the consignee shall be entitled to demand
that the carrier tender the second original bill of ladi ng as confirmation of the receipt of the freight, and
the freight shall thereby be deemed to be delivered. If a shortage of the freight is detected, or if the
freight is not delivered within the period of time defined under Article 688, then the consignee may
exercise on his own behalf the [shipper’s] rights ar ising out of the contract of carriage against the
carrier.

Article 682. Impossibility of Performance of the Contract
1. If, prior to the receipt of the freight at the plac e predetermined for delivery to the consignee, it is
[clear that it will be] impossible to perform the cont ract in accordance with the conditions indicated in
the bill of lading, then the carrier shall demand instructions with resp
ect to [delivery of] the freight
from the person entitled under Article 680.
2. If the circumstances enable the carriage to be performed otherwise than under the conditions
indicated in the bill of lading, and if the carrier within an appropriate period of time is unable to receive

81 The bracketed text is translated literally, bu t would more logically read “on the freight of other shippers or
consignees.”

Translated by IRIS Georgia May 2001
107
from the entitled person the instructions with respect to the freight defined under Article 680, then it
shall undertake such measures that are deemed to
be in the best interests of the entitled person.
82

Article 683. Circumstances Impedi ng Delivery of the Freight
1. If, after arrival of the freight at its destination, circumstances arise hindering the delivery of the
freight to the consignee, the carrier shall demand instructions from the shipper. If the consignee
refuses to accept the freight, the shipper shall be enti tled to dispose of the freight himself, even without
presenting the first original bill of lading.
2. Until the carrier receives contrary instructions from the shipper, the consignee may d
emand
delivery of the freight to him even when he [first] refused to accept the freight.
3. If the circumstances impeding the delivery of th e freight arise after a consignee entitled under
§ 680(3) has ordered the freight delivered to a third person, then in the cases where paragraphs (1) and
(2) of this Article would apply, the consignee sha ll stand in the place of the shipper and the third
person in the place of the consignee.

Article 684. The Right to Demand Compensation for Expenses That Arise on the Grounds of
Instructions Given by the Shipper
1. The carrier has the right to demand compensation for expenses incurred by reason of receiving or
executing instructions, except when these expens es arise through the carrier’s own fault.
2. In cases under Article 683 and paragraph (1) of Ar ticle 682, the carrier may urgently unload the
freight at the expense of the entitled person, and after such unloading the carriage shall be deemed
completed. Following this, the carrier shall store the freight for the entitled person. He may entrust the
storage of the freight to a third person, and in such case he shall be l
iable only for [due diligence in the] selection of the third person. All claims and expens es arising out of the bill of lading [in these
circumstances] shall be paid from the value of the freight.
3. Without waiting for instructions from the entitled person, the carrier may sell the freight if the
goods are highly perishable or if the condition of th e freight justifies such action, or if the expenses of
storage exceed the value of the fr eight. The carrier may sell the freight in other cases as well if no
instructions from any party are given to it.
4. If the freight has been sold in accordance with this Article, then the sum, less the expenses related
to the freight, shall be transferred to the entitled person. If these expenses exceed the proceeds, the
carrier may demand compensation for the difference.
5. The procedure of sale shall be determined in a ccordance with the laws and usages of the place
where the freight is located.

Article 685. Carrier’s Lien on the Cargo
The carrier, on the basis of expenses arising out of the contract of carriage, shall have a lien on the
freight until he is entitled to dispose of the thing.

II. Liability of the Carrier

Article 686. Concept. Content
1. The carrier shall be liable for the partial or total lo ss of the freight and damage to it if the freight
was lost or damaged within the period of time from its acceptance [by the carrier] to its delivery [to the
consignee], as well as for exceeding the period for delivery [delay].
2. The carrier shall be released from liability if the lo ss or damage to the freight or the overrunning of
the period for delivery has been caused through the fault of the person entitled to the freight, or
because of instructions from such person for which the carrier is not liable. [The carrier is likewise
relieved of liability] if the defect of the freight has been caused by circumstances which the carrier could
not avoid, nor could their results be avoided.

82 This subparagraph of course presuppo ses the existence of impossibility as provid ed for in the first subpargraph of the
article.

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108
3.
The carrier may not avoid its liability by claiming defect in the means of transportation used for the
carriage or the fault of the staff of the lesso r or lessee of the means of transportation.
4. In the cases defined under paragraphs (2)-(5) of Article 687, the carrier shall be released from
liability if the loss or damage to the freight was caus ed by extraordinary danger related to the following
circumstances:
a. Open, uncovered transportation was used, provided its use was directly agreed to and indicated
in the bill of lading;
b. The freight was not packaged or the packaging was of a poor quality that risked loss or damage
to the freight, having due regard to the nature of the freight;
c. The examination, loading, stowing or unloading wa s done by the shipper or the consignee or by
a third person who acted for them;
d. Because of the peculiarity of the specific freight, a danger of partial or total loss or damage is
presumed to exist, and in particular, there is a presumptive danger of breakage, rust, corrosion,
withering, spilling, normal wear and tear or the influence of insects and rodents;
e. The freight to be transported was inadequately marked or numbered;
f. Animals were transported.

Article 687. Burden of Proof
1. The burden of proof that the loss or damage to the freight or the delay in delivery was caused by
the circumstances defined in paragraph (2) of Article 686 is on the carrier.
2. If the carrier proves that, proceeding from the sp ecific circumstances of the case, the loss or
damage may have been caused by one or more of th e dangers specified in paragraph (4) of Article 686,
it shall be presumed that the damage was caused thereby. The entitled person may prove that the
damage was not caused by this dang er or not only by this danger.
3. The presumption stated in paragraph (2) of this Arti cle shall not apply if the freight is lost or has
perished in extraordinary circumstances in a case defined under subparagraph (a) of paragraph (4) of
Article 686.
83
4. If the carriage is performed by a means of trans portation which is equipped with special equipment
for protecting the freight from heat, cold, temperatu re variation or wind, the carrier may resort to
paragraph (4) of Article 686 only if he proves that he has performed [all] necessary tasks for the
selection, operation and use of such equipment and observed all the requirements incumbent upon
him.
5. The carrier may resort to subparagraph (d) of paragr aph (4) of Article 686 only if he proves that he
undertook all measures incumbent upon him and observed all instructions
given to him.

Article 688. Exceeding the Period for Delivery of the Freight
The period of time for delivery of the freight shall be deemed to have been overrun if the freight is not
delivered within the agreed period of time, or, in ca se no time was fixed, within an ordinary period of
time required for transportation, having due regard to circumstances tha
t relate to the determination of
the time required for assembling parts of the freight wh en the freight is to be loaded in parts, or if a
time period was not observed which a prudent carrier ought to have obser
ved.

Article 689. Presumption of Loss of Freight
1. The entitled person may deem the freight to be lo st, even without presenting any additional proof
thereof, if the freight is not delivered to its dest ination within thirty days after the agreed time of
delivery, or, if no such time was fixed, within sixty days after acceptance of the freight by the carrier.
2. The entitled person, upon compensation for damages for the lost freight, may demand in writing
that he be immediately notified if the lost freight is found within one year from the date he receives
compensation for the damage. The reply to this demand shall be made in writing as well.

83 The net result of this paragraph appears to be that use of open, uncovered transportation gives the carrier no
protective presumption against liability for loss, even if that method of transportation was agreed to with the shipper.

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109
3.
Within thirty days after receipt of notice [that th e freight has been found], the entitled person may
demand delivery of the freight to him, after satisfa ction of any rights [claims] arising out of the bill of
lading, and on the condition [that he] return the compensation received, [taking into account] deduction for [his] expenses which arose at the time of the payment of compensation for his damage.
84
His claims for damages with respect to overrunning of the time period for delivery under Articles 692
and 694 shall not be altered.
4. If the demand provided for under paragraph (2) of this Article is not asserted, or if there is no
instruction [request] because of the thirty-day period re ferred to in paragraph (3), or if the freight is
found after the lapse of one year from the date of compensation, then the carrier may dispose of the
freight in accordance with the rules effective at the place where the freight is located.

Article 690. Right to Demand Payment of the “Markup” [Carrier’s Fee] If the freight is delivered to the consignee without pa yment of the due markup that is to be paid to the
carrier upon delivery of the freight at its destination, then the carrier may, with reference to the right of
recourse, demand compensation for damages from the shipper.

Article 691. Procedure for Sh ipping Hazardous Freight
1. If the shipper ships a hazardous freight, he shall be obligated to furnish accurate information and a
warning notice to the carrier, and, where necessary, to insure the freight. If these obligations are not
carried out in the bill of lading, then the shipper and the consignee ar
e required to prove by other
means that the carrier was precisely aware of the type of the freight and the expected danger.
2. If the carrier was not aware of the danger associa ted with the hazardous freight under paragraph (1)
of this Article, then he may at any time and at any place unload, destroy or neutralize the freight
without any obligation to compensate for damages. The shipper is likewise liable for expenses and
damage caused by having tendered this freight for carriage or transportation.

Article 692. Value of the Freight in the Case of its Partial or Total Loss
1. If, according to the rules of this Chapter, the carrier is obligated to
compensate damages sustained
by partial or total loss of the freight, then the damages shall be calculated according to the price of the
freight in effect at the place and ti me of handing over of the freight.
85
2. The value of the freight is determined according to commodity exchange price, and if no such price
exists, then according to the market price; and if no market price is available, then the value shall be
determined by analogy to freight of the same kind and value.
3. Transportation costs, customs duties and other si milar expenses shall be compensated [paid back] either in full, in case of total loss of the frei ght, or in part in the case of partial loss.
4. If the time period for delivery of the freight is exceeded and the entitled person proves that damage
was thereby caused, then the carrier shall be bound to compensate for this damage only to the extent of
the value of the freight. The compensation of amou nts in excess of this value may be claimed only if,
under Article 694, a special interest in this carriage ex isted, or if the [special] value of the freight was
indicated.

Article 693. Compensation fo r Damage to the Freight
1. In case of damage to the freight, the carrier sh all pay compensation equivalent to the amount by
which the value of the freight was diminished, which shall be calculated according to the value of the
freight as determined under Paragraphs (1), (2) and (3) of Article 692.
2. Compensation for damage may not exceed the amount which:

84 In other words, before returning the compensation he re ceived for loss of the freight, the entitled person (shipper or
consignee) may set off his own claims for expenses.
85 Although not entirely clear, it appears that the price used to determine value for compensation will be the price at the
time and place of handing over the goods to the carrier (the beginning of the journey) and not at the time and place of
projected or actual delivery of the goods to the consignee.

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110
a.
Ought to have been paid for total loss of the freight, provided that as a result of the damage the
freight is totally devalued.
b. Ought to have been paid for loss of value of part of the freight, provided that as a result of the
damage, only a part of the freight is devalued.

Article 694. Indication of Special Interest in the Bill of Lading
1. The shipper, on the basis of payment of a stipulat ed markup, may indicate in the bill of lading his
special interest in this carriage in the event of loss or damage to the freight or overrunning of the time
period for delivery.
2. If a special interest in the carriage has been so ex pressed, then independently from the [right to
receive] compensation for damages as provided in Articles 692 and 693, additional damages may be
claimed in the amount of th e special interest expressed.

Article 695. Claim of Interest on Secured Compensation for Damages
1. The person entitled to the freight may demand that interest be paid on damages “secured” for him
at the annual rate of five percent. The interest be gins to accrue from the date of presentation of the
claim to the carrier, or, if a clai m was not presented, then from the date of filing of a lawsuit.
2. If the damages are stipulated in a currency that is not effective in the country [where payment is
sought], and the payment is demanded, then the rate of exchange shall be determined according to the
exchange rate in effect on the date and at the place of payment of compensation for damages.

Article 696. Non-contractual Claims in Carriage
1. If a non-contractual claim arises on the grounds of loss, damage or overrun of time occurring
during a carriage regulated under this Chapter, then th e carrier may resort to those rules of this Chapter
that exclude his liability or define or limit the amount of damages.
2. If a non-contractual claim arising out of the loss, da mage or overrun of time is asserted against any
person, then this person may resort to those rules of this Chapter that exclude his liability or define or
limit the amount of damages.

Article 697. Release of the Carr ier from Liability Not Allowed
A carrier may not resort to those rules of this Chap ter that exclude or limit his liability or release him
from the burden of proof, if the damage is caused through his fault.

III. Claim 86 and Lawsuit

Article 698. Concept. Content
1. If the consignee accepts the freight without inspect ing it together with the carrier and does not
assert against the carrier any claims of a general natu re with respect to loss or damage, then it shall be
presumed until proven otherwise that the recipient r eceived the freight in the condition indicated in the
bill of lading. A complaint must be asserted on the ve ry day that the freight is handed over to him if
the matter concerns externally vi sible shortages or damage, and in the case of shortages or damage
which are not externally visible, then no later than se ven days after the delivery of the freight. In the
case of shortages or damage which are not externally visible, the complaint shall be made in writing.
2. If the consignee and the carrier jointly inspected the condition of the freight, then proof
contradicting the results of the examination shall be allowed only if the matter in dispute concerns
externally invisible shortages or damage and the cons ignee did not assert a written demand within seven
days after receipt of the freight.
3. A claim for damages on the grounds of overrun of time may be asserted only if the consignee
submits to the carrier a written claim within twen ty-one days from the receipt of the freight.
4. The days of the freight’s dispatching, examinat ion and delivery to the consignee shall not be
counted in computation of the time periods defined under this Article.

86 “Reklamation” in Georgian , and in German as well.

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111
5.
The carrier and the consignee shall assist each other in carrying out the required inspections and in
establishing the necessary facts.

Article 699. Prescription Period on Rights Arising Out of the Carriage
The prescription period on rights arising out of a carriage regulated by
this Chapter is one year. In case
of [intentional misconduct] or gross negligence the period of limitation is three years. The limitation
period begins to run:
a. in case of partial loss, damage or overrunning of the time of delivery of the freight – from the
day of its dispatching;
b. in case of total loss of the freight – from the twenty-first day after expiration of the agreed
period of time for the carriage, or, if no such period was stipulated –
then from the sixtieth day
after receipt of the frei ght by the consignee;
c. in all other cases – upon the lapse of three months from the day of execution of the contract of
carriage.

Article 700. Suspension [Tolling ] of the Limitation Period
The limitation period is suspended [tolled] on the basi s of a written claim, as of the day on which the
carrier rejects the claim and returns the attached docume nts. If the claim is acknowledged in part, then
the limitation period on the part in dispute continues to run. The burden of proof with respect to
acceptance of the complaint and response to it, as well as the burden of proof of return of the
documents, is on the person who resorts to them.
87 Further claims regarding the same subject matter
shall not suspend the running of the limitation period.

IV. Carriage by Connecting Carriers

Article 701. Liability in the Case of Carriage by Connecting Carriers
If under one contract the carriage is performed by a number of different, connecting carriers, then each
of them shall be liable for the performance of the entire carriage. The second and each subsequent
carrier by receiving the freight and the bill of lading shall become a party to the contract.

Article 702. Obligation to Te nder the Appropriate Documents
1. The carrier accepting the freight from the preceding carrier shall be obligated to tender a document
confirming receipt of the freight da ted and signed by him. He must indicate his name and address in
the second original of the bill of lading. Where ne cessary, the subsequent carrier enters in the bill of
lading the terms provided for under paragraph (2) of Article 676 and the confirmation of receipt of the
freight.
2. The relations among the connecting carrier s shall be regulated by Article 677.

Article 703. Claim for Compensation of Damage from Connecting Carriers
Claims for damages on the grounds of the loss or da mage of the freight or overrun of the time for
transportation, except counterclaims and countersuits, may be asserted only against the first carrier, the
last carrier, or the carrier who was carrying the freigh t when it was lost or damaged or the time period
was overrun. One and the same action may be brought against several carriers.

Article 704. Right of Recourse in th e Case of Compensation for Damages
If, under this Chapter, a carrier has already paid compensation for the damages, he shall have the right
of recourse [against the other carriers] in the following cases:
a. If the carrier who caused the loss or damage of the freight is obligated to compensate by
himself the loss that he caused alone or that was caused by several carriers;
88

87 Presumably this means that the burden of proof rests on the part of the carrier-who seeks to prove that the statute of
limitations has run out.
88 Assumes that the carrier who paid th e compensation is not the carrier who was, for whatever reason, solely liable.

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112
b.
If the loss or damage to the freight has been cause d by two or more carriers, then each of them
must compensate for the damages according to his share of the liability;
and if these shares
cannot be determined, then each of them sha ll be liable proportionately to his share in the
[total] fee of the carriage.
c. If it cannot be determined which carrier is obligated to compensate the damage, then all the
carriers shall pay the compensation according to the proportion defined in subparagraph (b).

Article 705. Effects of In solvency of the Carrier
If one of the carriers is insolvent, then the amou nt to be paid by him but not yet paid shall be
distributed among the rest of carriers proportionately to their shares in the received fee of the carriage.

Article 706. Dispute Regarding th e Exercised Right of Recourse
The carrier against whom recourse is had under Ar ticles 704 and 705 may not claim that the carrier
who had the right of recourse paid the damages gr oundlessly, provided that the decision on payment
[of damages] was made by a court and the carrier [against whom recourse was sought] was properly
notified of the litigation and was afforded the opportunity to participate in the litigation.

Article 707. Mutual Agreemen t Among Connecting Carriers
The carriers may enter into an agreement on the issues different from those defined in Articles 704 and
705.
89

Article 708. Voidness of Unlawful Agreements
1. Except for the rules set forth under Article 70 7, any agreement that directly or indirectly
contravenes the rules of this Chapter shall be void . The voidness of such an agreement shall not entail
the voidness of other terms of the entire contract.
2. Any agreement by which the carrier waives claims ar ising out of the insurance of the freight, as well
as any other similar agreement by which the burden of proof is passed to another person, shall be
void.
90

CHAPTER THIRTEEN
MANDATE 91

Article 709. Concept
Under a contract of mandate the mandatary is bound to perform one or several actions mandated
(entrusted) to him for and on behalf of th e mandator at the expense of the latter.

Article 710. Remuneration for Mandate
1. The mandator is obligated to pay a remuneration to the mandatary only if stipulated by the contract
of mandate or prescribed by law.
2. An agreement on remuneration shall be implied if, having due regard for the circumstances of t
he
case, performance of the action is expected only by remuneration.
3. When the amount of remuneration is not agreed upon, then if some tariff
schedule exists, a tariff
rate shall be deemed to be the agreed remuneration, or, if no tariff schedule exists, then an ordinary
remuneration.

Article 711. Turning Over the Mandate to a Third Person

89 The translation is literal. It should be taken to mean that the carriers may enter into an agreement among themselves
allocating liability according to rules different from those rules set forth in Articles 704 and 705.
90 The translation is literal. A possible meaning is that the carrier may not disclaim liability to an insurer who acts as
the subrogee of the shipper.
91 See German Civil Code, §§ 662-676.

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113
1.
The mandatary shall perform the mandated task personally, except when he is [explicitly] permitted
to turn over the task to a third person, or when he is compelled to do so by circumstances. The
involvement of an assisting person shall be allowed.
2. If turning over of the mandated task to a third person is permitted, then the mandatary shall be
liable only for his fault in the selection of this person and in turning
over the task to him.

Article 712. Divergence From the Instructions Given by the Mandator
1. The mandatary is obligated to execute the instructions given by the mandator.
2. The mandatary may deviate from the instructions given to him by the mandator if, having due
regard to the circumstances, he may presume that the mandator would approve such deviation had the
mandator known the state of affair s. The mandatary shall be obligated to notify the mandator prior to
deviation from the instructions and to await his de cision, unless the delay threatens damage to the
mandator.
3. If execution of the instructions by the mandatary may inflict substantial damage on the mandator,
the mandatary may execute the instructions only after he notifies the mandator thereof and the
mandator does not change his instructions.

Article 713. Obligation to Furnish Information
1. The mandatary is obligated to furnish any necessa ry information to the mandator, and, on demand
of the latter, to keep him informed regarding the cour se of performance of the mandated task, and after
performance to submit a report to him.
2. An agreement by which the duties of the mandatar y defined under paragraph (1) of this Article are
limited or excluded in the future shall be made in writing.

Article 714. Obligati on to Keep Secrets
1. The mandatary is obligated not to disclose facts that become known to him within the scope of his
activity and in which mandator has a legitimate inte rest of confidentiality, unless a duty exists to
disclose the secret on the basis of applicable law, or the mandator gives permission to the mandatary to
disclose it.
2. The obligation not to disclose information [“facts”] shall remain effective after completion of the
contractual relation.

Article 715. Obligation to Return a Thing Transferred fo r Performance of the Mandated Task
1. The mandatary is bound to return to the mandat or everything he received for performance of the
mandated task and did not use for it, as well as everything he acquired in connection
with the
performance of the mandated task.
2. If the mandatary uses for his own purposes money that he ought to have returned to or used for
the benefit of the mandator, then the mandatary sh all be obligated to return such money with the
accrued interest.

Article 716. Presumption of Ma ndator’s Ownership of Property
Property which the mandatary has acquired on his own behalf and at the expense of the mandator, or
which was transferred to him by the mandator for pe rformance of the mandated task, shall be deemed
to be the mandator’s property in the mandatary’s relations with creditors.

Article 717. Duty to Compensate Expenses
1. The mandator must compensate the mandatary for necessary expenses incurred in the performance
of the mandated task.
2. The claim recognized under paragraph (1) of this Ar ticle shall not arise if the expenses are to be
paid from the remuneration.
3. The mandatary may demand from the mandator an advance payment for those expenses for which
he is to be compensated.

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Article 718. Compensation of Dama
ge Occurring Through No Fault
1. The mandator is bound to compensate any damage s which the mandatary sustains, even when there
was no fault on the mandator’s part, if the damage o ccurred as a result of significant danger associated
with performance of the mandated task in accordance with the mandator’s instructions.
2. The claim recognized under paragraph (1) of this Ar ticle shall not arise if the damage sustained was
to be paid from the remuneration, or if the da mage was caused by the [unauthorized, negligent etc.] action of the mandatary. If compensation of the damage from the remuneration is disputed, then the
burden of proof is on the mandatary [to prove th at the remuneration did not include allowance for
damages].

Article 719. Compensation for Damage Caused by Culpable Action
If the mandatary performs the tasks mandated to hi m gratuitously [for no pay], then he shall be liable
only for damages caused by intentional [misconduct] or gross negligence.

Article 720. Termination of a Contract of Mandate
1. The parties may terminate the contract of mandat e at any time. An agreement on renunciation of
this right shall be void.
2. If the mandatary terminated the contract at a time when the mandator was unable to secure his
interests otherwise, then the mandatary must comp ensate the damage thereby caused, except when the
mandatary had substantial grounds for the termination.
3. If the mandator terminates the contract, he shall be bound to compensate the mandatary for all
necessary expenses incurred during performance of th e mandated task, and, in the case the contract
was for payment, to pay remuneration for the work performed.

Article 721. Effect of Death of the Mandator
1. The contract is not terminated by reason of the de ath or legal incapacity of the mandator unless
otherwise agreed, or unless otherwise pro ceeding from the content of the mandate.
2. If the contract is terminated by reason of the death or legal incapacity of the mandator, the
mandatary shall be obligated to continue performan ce of the mandated task [nonetheless] if delay [in
performance of the task] may create a danger that threatens to inflict damage on the mandator or his
heirs until the heir or the statutory representati ve of the mandator [can] undertake the necessary
measures; during such time, the contractual relation shall be deemed extended.
3. If the contract is terminated by reason of the de ath or legal incapacity of the mandator, then the
contract shall be considered extended for the mand atary until he is notified of the grounds for
termination of the contract.

Article 722. Effect of Death of the Mandatary
1. The contract is terminated in the case of death of the mandatary unless otherwise agreed or unless
otherwise proceeding from the content of the mandate.
2. In case of death of the mandatary his heirs shall be obligated to notify the mandator thereof and to
undertake necessary measures for the protection of the mandator’s interests.

Article 723. Contract of Commission Agency
The Law on Entrepreneurs shall apply to a contract of commission agency.

CHAPTER FOURTEEN
ENTRUSTMENT OF PROPERTY

Article 724. Concept
Under a contract of property trust, the trustor transfers property to the trustee, who holds and manages
it in accordance with the interests of the trustor.

Article 725. Rights and Duties of the Trustee

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1.
The trustee shall be bound to manage the proper ty held in trust in his own name, but at the
expense and risk of the trustor.
2. The trustee enjoys the owner’s entitlement in relations with third persons. If the trustee, contrary to
the interests of the trustor, is not a cting in the same good faith as in managing his own affairs, he shall
be obligated to compensate the damage thereby arisen.

Article 726. Compensation fo r Expenses of the Trust
1. The trustor pays no remuneration to the trustee wi th respect to the management of the property
held in trust unless otherwise stipul ated by agreement of the parties.
2. All expenses in connection with the property he ld in trust shall be borne by the trustor.
3. The fruits of the property belong to the trustor.

Article 727. Form of a Contract of Property Trust
A contract of property trust shall be made in writing.

Article 728. Liability of the Trustee
In relations with third persons, the trustee shall be liable.

Article 729. Application of the Rule s Governing a Contract of Mandate
The rules governing a contract of mandate shall apply to a contract of property trust.

CHAPTER FIFTEEN
FREIGHT FORWARDING

Article 730. Concept
1. Under a contract of freight forwarding, the forwardi ng agent undertakes the obligation to carry out
activities in connection with trans portation of freight in his own name and at the expense of a client.
The client is obligated to pay an agreed commission.
2. The rules governing a mandate shall apply accordingly to a contract of freight forwarding, unless
otherwise provided for in this Chapter.

Article 731. Diligence Require d from a Forwarding Agent
The forwarding agent shall dispatch the freight and se lect the persons participating in the transportation
in accordance with the due care to be expected from a conscientious forwarding agent, and shall
protect the interests and execute th e instructions of the shipper.

Article 732. Duties of the Client
1. The client, at the request of the forwarding ag ent, shall timely provide him with appropriate
documents with respect to the freight and give the necessary instructions for drawing up the
transportation documents, furnish necessary in formation for performance of customs and other
operations and, where necessary, for payment of the customs duties on the freight. In addition, the
client shall hand over documents necessary to confirm the veracity of such information.
2. In the case of hazardous freight the client shall give a warning notice to the forwarding agent
precisely indicating the kind of danger and, wh ere necessary, instruct him on the appropriate safety
measures.
3. If the forwarding agent was not awar e of the danger associated with the hazardous freight, then this
freight may be unloaded, destroyed or neutralized at any time and place without giving rise to an
obligation to compensate damages.
4. The client is obligated, if so required by the kind of freight, to package the freight in accordance
with the requirements of the transportation.
5. If special markings are required for identification of the freight, they shall be marked in a manner
clearly displaying the markings until delivery of the freight.

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6.
The client shall be liable for the damage sustained by the forwarding agent as a result of
nonperformance of the duties defined in the preceding paragraphs of this Article, except when the
forwarding agent, under paragraphs (3) and (4) of th is Article, did not raise any objections with respect
to the absence or defectiveness of packaging or mark ings, although it was evident, or he had notice
thereof, when accepting the freight.

Article 733. Inspection of the Freight by Pieces
The client may, by paying special remuneration ther efor, demand that the forwarding agent inspect the
freight “by pieces” [piece by piece] at the time of its acceptance by the forwarding agent.

Article 734. Obligation to Insure the Freight
The forwarding agent shall be obligated to insure the freight only when
so instructed by the client. In
the absence of any special instructions, the forwardi ng agent shall be bound to insure the freight only
on the usual terms.

Article 735. Contract of In surance of the Forwarding
The forwarding agent shall be obligated to insure th e freight against damages that may be sustained by
the client by reason of the forwarding agent’s actions during performance of the order at the
customer’s expense, if the client does not reject it clearly and in writing. The forwarding agent shall
notify the client of the party with whom he has concluded the insurance contract [i.e., the insurance
company].

Article 736. Obligation of Timely Notice of Damage
On the grounds of the insurance contract concluded under Article 735, the client must take care of the
timely notification of the damage. If the notification of damage is sent to the forwarding agent, then he
is obligated to immediately dispatch it to the insurer(s).
92

Article 737. Effects of Non- Acceptance of the Freight
If at the place of destination the consignee does not accept the freight or acceptance is impossible on
other grounds, then the rights and duties of the forwarding agent shall be regulated by the rules
governing a contract of carriage.

Article 738. Impossibility of Inspection of the Freight’s Condition upon its Receipt
If the condition of the freight cannot be inspected in the presence of the parties, then, until proven
otherwise, the acceptance of the freight shall be de emed to be the proof that the freight was received
without shortage or damage, except when the consignee indicates the general character of the damage
to the person delivering the freight. If the matter concerns obvious shortage or damage, then this shall
be indicated immediately upon receipt of the freight, and if the matter does not concern such [obvious] shortage or damage, then no later than three days after the day of the receipt of the freight.

Article 739. Right to Tran sport the Freight by [the Forwarder’s] Own Means
1. Unless the parties agree otherwise, the forwarding ag ent has the right to transport the freight by his
own means. Exercise of this right shall not be prej udicial to the rights and interests of the client.
2. If the forwarding agent exercises this right, he sh all simultaneously acquire the rights and duties of
the carrier of the freight.

Article 740. Liability of the Forwarding Agent
Ordinarily, the forwarding agent shall be liable for du ties arising out of the contract of forwarding when
he or his assistants bear some fault.

Article 741. Damage Caused by a Third Person

92 It is not clear why the client should ha ve the burden of notice of loss or damage to the insurer if the freight is in the
possession of the forwarder, and the forwarder has arranged for the insurance.

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117
If the damage is caused by a third person participat
ing in the contract, then the forwarding agent, on
demand of the client, shall be obligated to assign his claim against the third person to the client, except
when the forwarding agent undertakes to exerci se the claim himself on the grounds of a special
agreement, at the expense and risk of the client.

Article 742. Compensation for Damage Caused by the Forwarding Agent’s Culpable Action
1. The forwarding agent may not have resort to rules th at exclude or limit his liability or that transfer
the burden of proof if the damage was caused thro ugh his intentional [misconduct] or gross negligence.
2. The same rule applies to non-contractual liability of the assistant if, under paragraph (1) of this
Article, the fault may be laid on him.

Article 743. Procedure of Payment of the Commission
The commission shall be paid after the forwarding agent hands over the freight to a transport
organization [carrier].

CHAPTER SIXTEEN
BROKERAGE
I. General Provisions

Article 744. Concept
A person who promises the paymen t of a commission for the services of a broker rendered for
conclusion [execution] of a contract shall be obligated to pay the commission only if the contract is
concluded as a result of these services. If the contract is concluded with a postponing condition,
93 then
payment of the commission may be demanded only after the occurrence of the condition
[contingency]. If the amount of the commission is not determined, then an ordinarily operative
commission shall be deemed to be the agreed commission. Any agreement entered into to the
detriment of the client in a manner contravening the first and second sentences of this Article shall be
void.

Article 745. Remuneration for the Services of the Broker
1. The parties may agree upon a commission for those se rvices of the broker provided for under the
[brokerage] contract that are not included in the brok erage services [to be provided], independently of
whether or not the contract [for which the main commission is to be paid] is executed.
2. The broker, under Article 744, may not stip ulate an advance payment or receive it.
3. The broker shall be compensated for his expenses only if this was agreed upon. This rule shall
likewise apply when the contract [for which the broker age services were secured] is not concluded. An
agreement stipulating compensation for those expenses that are not necessary for performance of the
brokerage contract shall be void.

Article 746. Exclusive Mandate
1. If the client is to be prohibited from using anot her broker for a certain period of time (exclusive
mandate), then the broker shall be obligated to pr omote the conclusion of the contract during this
period of time. If the client acts contrary to the ob ligation defined in the first sentence, then the broker
may claim damages if the contract is concluded by using another broker. The [brokerage] contract may
predetermine a one-time payment for damages in accordance with proof of the existence of the
damages. This amount may not exceed two percent of the contract price if the contract was intended
for brokering the conclusion of a contract of sale.
2. The client shall be entitled to conclude a contract with a third person [i.e., other than the intended
counter-party] without using the broker. At the same ti me, it may be agreed that the client is obligated
to pay the appropriate commission even if he conc ludes a contract without using the broker. The

93 See § 96.

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118
commission may not exceed two percent of the contract price if the contract was intended for
brokering the conclusion of a contract of sale.
3.
Any agreement entered into to the detriment of the client in a manner contravening these rules
shall be void.
4. An agreement on exclusive mandate shall be made in writing.

Article 747. Dissolution of the Brokerage Contract
1. The brokerage contract may be dissolved at any time without observing any periods of time if the
term of the contract was not fixed.
2. An exclusive mandate may be dissolved only on subst antial grounds. After the lapse of six months
it may be dissolved at any time.
3. The right to dissolve the contract may be excluded even when a period of more than six months
has elapsed, but [the exclusion against the right of dissolution] is required by the peculiarities of the
type and subject matter of the contract to be concluded by brokering.

Article 748. Payment of Commissi on to the Broker Not Allowed
1. Payment of a commission to the broker or compensati on of his expenses shall not be allowed if the
contract concluded with the third party concerns a th ing owned by the broker. The same rule applies
when the exercise of the client’s interests by the broker may be impeded by a danger that may arise
under extraordinary circumstances; in particular, when:
a. The broker is a legal person or company in which the third party is a pa
rtner and has a
pecuniary interest;
b. The third person is a legal person or company in which the broker is a p
artner and has a
pecuniary interest;
c. The broker is in official business or labor relations with the third person; or
d. The broker is the spouse of the third person.
2. The broker shall have the right to receive his commission or be compensa
ted for his expenses if he
notifies the client of these circumstances prior to entering into the contract with the third party.
3. The broker shall be deprived of the right to receive his commission or be compensated for his
expenses if he, contrary to the content of the contra ct, acted to the detriment of the client’s interests.
4. An agreement contravening the rules prescribed by paragraphs (1) and (2) of this Article shall be
void.

II. Brokerage In the Case of Apartment Rentals

Article 749. Apartment Broker
1. The general rules governing brokerage shall apply to a contract under which a person undertakes
the obligation to broker the conclusion of a rental agreement for an apartment (apartment broker),
unless otherwise proceeding from the brokerage contract on rental of an apartment.
2. The norms regulating the brokerage contract on rent al of an apartment shall not apply to those
contracts which pertain to mediation in providing accommodations during tourism and business trips.

Article 750. Remuneration Not Allowed
1. The apartment broker may not claim remuneration or compensation for expenses when:
a. The rental agreement provides for extension or al teration of an already existing rental relation
with respect to the same apartment;
b. The rental agreement is concluded on housing pr emises administered by the apartment broker.
2. An agreement entered into to the detriment of the client shall be void.

III. Loan Brokerage

Article 751. Loan Broker

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The general rules governing brokerage shall apply to
a contract under which a person undertakes the
obligation to broker the conclusion of a loan agr eement (loan broker), unless specific rules proceed
from the Articles 752 and 753.

Article 752. Form of the [Loan Brokerage] Contract
1. The contract shall be executed in writing.
2. The contract shall include the amount of commission of the loan broker by indicating the specific
interest rate of the loan; in addition, the contract sha ll include: the amount of the loan, its duration, rate
of interest, date of maturity, rate of exchange at repayment, duration of interest accrual, additional
expenses, the total amount to be repaid by the client, and the name and address of the lender. These
rules shall not apply when the brokering concerns a lo an secured by a mortgage of land or a loan made
for the purchase of a tract of land, as well as any loan which is to be used by the client for his
independent professional, entrepreneurial, departmental or employment activities.
3. The text of the [loan] contract shall not be associat ed with brokerage with respect to the issuance of
loan.
94 The loan broker shall hand over a copy of the [loan] contract to the client.

Article 753. Obligation to Pay Commission
1. The client is obligated to pay the commission only if he received the loan as a result of the broker’s
services. An agreement entered into to the detriment of the client shall be void.
2. The loan broker may not demand remuneration ot her than as defined in paragraph (1) of the
Article for the actions associated with brokerage of the loan.

Article 754. Broker for Sales
The Law on Entrepreneurs shall apply to a broker for sale.

CHAPTER SEVENTEEN
PUBLIC PROMISE OF REWARD. COMPETITION

Article 755. Concept
One who publicly promises a reward for performance of a certain action, in particular, for achievement
of some result, shall be obligated to pay the reward to the person who performs the action. The person
shall have the right to receive the reward even if he acted not by reason of the public promise of
reward.

Article 756. Withdrawal of th e Public Promise of Reward
1. The public promise of reward may be withdraw n prior to the performance of the announced
action. Withdrawal of the public promise of reward sha ll be valid if it is made public either through the
same medium as the initial promise or through a special notification.
2. The public promise of reward may indicate that the right to withdraw it is renounced. It shall be
presumed when in doubt that the promise is withdrawn if the [desired] action has not been performed
within a fixed period of time.

Article 757. Performance of the Ac tion by a Number of Persons
1. If the action for which the reward was announced is performed by a number of persons, then the
reward shall be granted to the person who performed it first.
2. If several persons simultaneously performed the ac tion, then each performer shall be rewarded
equally. If, because of the characteristics of the rewa rd, it cannot be divided, or if according to the
content of the public promise it is to be received by one person only, then the matter shall be settled by
drawing lots [lottery].

Article 758. Announcing a Prize

94 The sentence should be understood to mean that the terms of the loan agreem ent may not be influenced of the fact
that it is attained through a broker.

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1.
A person who publicly announces a prize for the best performance of a certain work shall be
obligated to pay the prize to the best performer of the work.
2. Announcement of a competition for a prize shall be effective only if it predetermines a certain
period of time for performance of the work.

Article 759. Alteration of the Condit ions of the Competition Not Allowed
Alteration of the conditions of the competition to th e detriment of the participants in the competition
[contestants] shall not be allowed.

Article 760. Decision on Winning the Competition
The person indicated in the announcement of the co mpetition, or if no such person exists, then the
person who has made the announcement, shall make a decision on whether or not the work submitted
within the time allotted meets the conditions of the competition, or which of the several works is the
best.

Article 761. Several Winners of the Competition
If the work for which the prize was announced is performed by a number of persons, then the
corresponding rules regulating a public promise of reward shall apply to
them.

Article 762. Procedure for Return of th e Works Submitted to the Competition
The person who announced the prize competition shall be obligated to return the submitted works to
the participants in the competition, unless otherw ise stipulated in the announcement of the prize
competition.

CHAPTER EIGHTEEN
BAILMENT

Article 763. Concept
Under a contract of bailment the bailee undertakes th e obligation to store a movable thing delivered to
him by the bailor.

Article 764. Compensa tion for Bailment
1. A bailment is gratuitous unless otherwise stipulated by agreement. If the bailee stores goods within
the scope of entrepreneurial activities, then a duty of compensation shall be implied.
2. If the amount of compensation is not determined, then if a tariff schedule exists a tariff rate shall be
deemed to be the agreed compensation, or, if no tari ff schedule exists then an ordinary compensation
shall be deemed to apply.

Article 765. Bailee’s Duty in Case of Gratuitous Bailment
If the bailment is gratuitous then the bailee is obligated to store the thing in the same good faith as he
would store his own thing.

Article 766. Transfer of the Thing to a Third Person Disallowed
1. The bailee has no right to transfer the thing to a third person for its storage without the consent of
the bailor.
2. If the transfer of the thing to the third person fo r storage is done with the consent [of the bailor],
then the bailee shall be liable only for his fault in the selection of third person or the place of the
storage.

Article 767. Use of the Ba iled Thing Not Allowed
A bailee has no right to use the thing bailed with hi m without the consent of the bailor, except when
use of the thing is necessary for preserving it.

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Article 768. Change of Proce
dure for Keeping the Thing
The bailee, if necessary, has the right to change the procedure for storing the thing. He shall noti
fy the
bailor thereof. The bailee shall also notify the bailor of any claims of third persons with respect to the
bailed thing.

Article 769. Compensation for Damage Caused by a Feature of the Thing
The bailor shall compensate the bailee for any damage sustained by reason of a feature of the bailed
item, except when he did not know and could not have known of the hazardous features of the thing.

Article 770. Time Period for Return of the Bailed Thing
The bailor may demand return of the bailed thing at any time, even when the time period of the
bailment was fixed.

Article 771. Obligation to Ta ke Back the Bailed Thing
1. The bailee may at any time demand that the bailor take back the bailed thing unless the time period
of the bailment was fixed.
2. The bailee may exercise this right only in a manne r that enables the bailor to deposit the thing
somewhere else, except when there are substantial grounds for returning
the thing.

Article 772. Place of Retu rn of the Bailed Thing
The thing shall be returned at the place indicated in the contract except when an agreement is reached
on returning it to another place. Transpor tation costs shall be borne by the bailor.

Article 773. Obligation to Hand Over the Fruit of the Bailed Thing
1. The bailee is obligated to hand over to the bailor the fruit received during the bailment.
2. The bailor is obligated to compensate the bailee for the necessary expen
ses of storage of the thing.

Article 774. Bailee’s Liability in Case of Intentional [Misconduct] or Gross Negligence
If a time period is fixed for taking back the bailed thing, then after expiration of this period the bailee
shall be liable only for intentional [misconduct] or gross negligence.

Article 775. Obligation to Pay Compensation
In the case of a bailment for hire [lucrative bailment], the bailor is obligated to pay the stipulated
compensation to the bailee upon termination of the contract.

Article 776. Warehouser’s Lien on the Bailed Thing
The bailee may refuse to return the bailed thing until he receives the compensation due and is
compensated for the expenses of storage.

Article 777. Peculiarities of Bailment of Generic Things
If a generic thing is bailed with the bailee on terms that the ownership of it is to be transferred to him,
and the bailee is obligated to return a thing of the same kind, quality
and amount, then the
corresponding rules governing a contract of loan shall apply.

Article 778. Peculiarities of Bailing a Thing with a Hotel
A hotel, health resort or guesthouse shall be liable for damages sustained by a guest if the property that
he brought to it is lost, destroyed or damaged. Th is rule shall not apply to money and valuables unless
they were bailed in a special manner.

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Article 779. Release from Liabilit
y by Reason of Force Majeure
Liability shall be excluded if the damage is ca used by force majeure, by a guest or a person
accompanying him, or by the features of the thing.
95

CHAPTER NINETEEN
WAREHOUSE BAILMENT

Article 780. Concept
The corresponding rules governing a bailment shall a pply to a contract of warehouse bailment unless
otherwise provided for in this Chapter.

Article 781. Obligation to Perform Duties of Storage in Good Faith
A warehouser (bailee) shall perform the obligations ar ising out of the bailment of goods in good faith
and with due diligence.
96

Article 782. Inspection of Quantity of Goods by the Warehouser
1. At the time of acceptance of the goods for storag e the warehouser is not obligated to inspect their
quantity, size, weight, type, quality or other features unless the rules of this Chapter stipulate otherwise.
2. If the goods handed over to the warehouser for storage are found to be damaged or
“disassembled” at the time of handing them over, an d this condition is visible by external inspection as
well, then the warehouser shall be obligated to notify the bailor thereof immediately. If he fails to
perform this obligation, then he shall co mpensate the bailor for the damages caused.

Article 783. Right to In spect the Bailed Goods
The warehouser shall permit the inspection of the baile d goods, the taking of samples and the exercise
of [any other] necessary actions by the bailor during the working hours.

Article 784. Obligati on to Give Notice
The warehouser is obligated to notify the bailor imme diately if he conveys the goods bailed for storage
to another warehouse, or if he finds out that the features of the goods have changed or there is a
danger that they may change. The warehouser shall notify the last holder of the warehouse receipt
known to him. If the warehouser fails to perform this obligation, he shall be obligated to compensate
the damage caused.

Article 785. Obligation to Compensate Damage
The warehouser shall be liable for damage caused by loss and/or deterioration of the goods bailed for
storage, except when such damage could not have b een avoided even by a conscientious warehouser.

Article 786. Peculiarities of Storage of Generic Things
1. In case of storage of generic things the warehouser has the right to mix them with other things of
same kind and characteristics only if the bailor consents thereto.
2. The bailors shall have the right of joint ownership to the goods created as a result of such mix. The
share of each bailor shall be determined proportiona tely to the quantity of the goods bailed by him.
3. The warehouser shall return the bailed goods to each bailor proportionately to his share without
consent from the other bailors.

Article 787. Sale of the Bailed Goods

95 Although not explicitly stated, this article appears to apply only to things bailed with an innkeeper. See German Civil
Code § 701(3), “Liability of Inkeeper,” which is very similar.
96 The Georgian word used for bailee is rooted in the word for storage and not in the word for bailment. Accordingly,
even though the same word is used in Georgian in Chapter 18 for bailee and in Chapter 19 for the person performing the
analogous function in warehouse storage, we have chosen to shift to a diff erent English word, “warehouser,” because its
use comports better with the subject of the chapter and is consistent with the etymology of the Georgian word.

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123
If the goods bailed for storage are perishing or chan
ging to such an extent that they may be devalued,
and the warehouser does not have enough time to notify or is unable to notify the entitled person, then
he is entitled to sell the goods.

Article 788. Warehouse Receipt
At the time of acceptance of the goods the warehouser shall be obligated to hand over a warehouse
receipt to the bailor.

Article 789. Particulars of a Warehouse Receipt
1. A warehouse receipt shall include:
a. The date of issuance and the registration number of the warehouse receipt;
b. The identity and addresses of the parties;
c. The place of storage;
d. The procedure for storage of the goods;
e. A description of the goods to be stored (quant ity, volume, or weight) and their quality; and in
case the goods are packaged, a description of the packaging;
f. The amount of the storage fee and other necessary expenses;
g. If the goods to be stored must be insured, then the amount of the insura
nce;
h. The duration of the contract;
i. The signature of the warehouser c onfirmed by the appropriate seal.
2. Failure to state the above terms completely in th e warehouse receipt shall not release the parties
from any liabilities. The parties have the right to enter other conditions in the warehouse receipt as
well.

Article 790. Warehouse Warrant
The holder of the warehouse receipt may, through a cer tificate of lien, pledge the goods bailed at the
warehouse for the securing of another obligation in such a manner that the goods may not be taken
from the warehouse (warehouse warrant).

Article 791. Negotiable Warehouse Receipt
If the warehouser issues a negotiable warehouse recei pt, this receipt may be transferred to a third
person by endorsement.

Article 792. Liability for E ndorsed Warehouse Receipt
1. If a warehouse receipt is issued by endorsement, the warehouser shall be liable before the holder of
the receipt for the accuracy of the conditions stated therein, except when the receipt clearly indicates
that the data is based on information su pplied by the bailor or a third person.
2. If the warehouser knew that the data was incorrect, th en he shall be liable even if he has made the
indication defined under paragraph (1) of this Article.
3. In cases of mixed storage, the warehouser may not make the indication referred to in paragraph (1).

Article 793. Presumption of A ccuracy of the Endorsement
1. When returning goods bailed for storage, the warehouser who issued a negotiable warehouse
receipt shall be obligated to hand the goods over only to the lawful holder of the warehouse receipt.
2. If a warehouse warrant is issued, th e warehouser must demand its return.
97
3. The warehouser is not obligated to examine the accuracy of the endorsement. The transfer shall be
confirmed by the appropriate inscription on the warehouse receipt.

Article 794. Loss of Warehouse Receipt

97 Presumably “its” refers to the negotia ble warehouse receipt, so that the holder of the receipt may not use it to remove
goods subject to a warehouse warrant. See Art. 790. This assumes that the warehouser’s participation in the issuance
of the warrant is necessary, so he had the opportunity to demand surrender of the warehouse receipt. See Art. 785(3).

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124
1.
If a warehouse receipt or warrant is lost or destro yed, its lawful holder shall have the right to apply
to a court and demand that the lost document be declared void and a new certificate [receipt or
warrant] be issued instead. The court shall consider the application under the procedure for special
proceedings.
2. On the grounds of the court judgement [followi ng the aforementioned process], the warehouser
shall issue the warehouse receipt or warrant anew.

Article 795. Pledging of the Bailed Goods
1. In order to pledge the goods bailed for storage with the warehouse, the owner must make a special
inscription (endorsement) on the warehouse warrant an d hand over it [in that form] to the interested
person.
2. The endorsement shall include the identities of the bailor and the creditor and the extent of the
obligation.
3. The warehouser shall be notified of the transfer of the warehouse warrant to the creditor, and he
shall make the appropriate notation.

Article 796. Transfer of the Lien to the New Holder of the Warehouse Receipt
1. Based upon the [accumulation of] storage expenses, the warehouser’s lien on the goods shall accrue
until [as long as] the goods are in his possession.
2. If the warehouse receipt is transferred by endorsemen t, then the right of lien shall exist with respect
to the new holder of the warehouse receipt.

Article 797. Demand to Take Back the Bailed Goods Not Allowed
The warehouser may not demand that the bailor take back the bailed goods until the agreed period of
time is expired, or, if no such period was fixed, then until the lapse of three months from the date of
bailment.

Article 798. Fixing an A dditional Period of Time at the Ti me of “Acceptance” of the Goods
98
1. If, after expiration of the storage period, the holder of the warehouse receipt is avoiding
reclamation of the goods from the warehouse, then th e warehouser shall fix an additional period of two
weeks for reclaiming of the goods. If the holder of the warehouse receipt fails again to take the goods
back within this period, then the warehouser shall have the right to sel
l the goods.
2. The sale proceeds, less the amount of expenses du e to the warehouser, shall be transferred to the
holder of the warehouse receipt.

CHAPTER TWENTY
INSURANCE
I. General Provisions

Article 799. Concept
1. Under a contract of insurance the insurer is bound to compensate the insured for damages
sustained by the occurrence of an insured contingen cy, in accordance with the [insurance] contract
terms. In the case of a firmly fixed insurance [payout] amount, the insurer is bound to pay the insurance
amount or to perform any other promised action.
2. The insured is obligated to pay the insurance premium.

Article 800. Obligation to Conc lude a Contract of Insurance
A person who publicly offers to conclude [execu te] a contract of insurance shall be obligated to
conclude this contract unless there is a substantial basis for refusal.

98 As is clear from the text, the article relates to the ware houser fixing an additional period of time for the bailor or
entitled person to claim (reclaim) the goods.

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125
Article 801. Compulsory Insurance
Compulsory insurance may be prescribed by law, to wh
ich the rules of this Chapter shall apply, except
to the extent that the rules of this chapter wo uld contravene the provisions of the compulsory
insurance law. Relations related to reinsurance sh all be regulated under legislative rules.

Article 802. Insurance Certificate (Policy)
1. The insurer is bound to deliver to the insured a signed document detaili
ng the contract of insurance
(insurance certificate – policy).
2. The insurance policy shall include:
a. The identities of the parties to the contract and their domiciles (place of residence or legal
address);
b. The object of the insurance and the name of the insured person;
c. Definition of the risk [cov erage] of the insurance;
d. The commencement and duration of the insurance;
e. The amount of insurance;
f. The amount of the insurance premium and the place and time of its payment.
3. If the object of the insurance is the life of a pers on, then additional data shall be required on the
calculation of the estimated income of the person and on the conditions of distribution of this income.

Article 803. Types of Insurance Policies
If an insurance policy is issued to the bearer in th e form of a nominative or warranty policy, then the
insurer may assert against the holder of the policy all of those claims that he has against the original
insured. This rule shall not apply if the [new] holde r of the insurance policy notifies the insurer of the
transfer of rights in the insurance to him, and th e insurer fails to assert its claims immediately.

Article 804. Effect of Loss of the Insurance Policy
1. If the contract requires that the insurer perfor m its obligation only upon tender of the insurance
policy, but the policy was lost or destroyed, then the insured may demand performance from the
insurer only if the insurance policy has been declared invalid [i.e., because of its loss] under the
procedure for special proceedings.
2. If the insurance policy is lost or destroyed, the in sured may [also] demand a copy from the insurer.
The expense of issuance of the copy shall be borne by the insured.

Article 805. Rights of an Insurance Agent
1. If an insurance agent (representative) is authorized to conclude a contract of insurance, he may alter
the terms of the insurance, extend its du ration or dissolve the contract as well.
2. An insurance agent who brokers the conclusion of a contract of insurance shall have the right to
execute such a contract.

Article 806. Time of Commen cement of the Insurance
1. The insurance [coverage] commences at 24:00 hours on the day of execution of the contract and
ends at 24:00 hours on the last day of the period fixed under the contra
ct.
2. If a contract of insurance is concluded for a term of more than five years, then either party may
dissolve the contract three months after from giving notice of the termination.

Article 807. Effect of Increas e in the Insurance Premium
If the insurer increases the insurance premium, the insured may terminate the contract by giving one
month’s notice for dissolution of the contract. This right shall not apply where the increase of the
insurance premium is insignificant.

Article 808. Obligation to Communicate Information
1. At the time of execution of the contract the insured shall inform the insurer of all circumstances
known to him that are material to the occurrence of the danger or contingency specified in the

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126
insurance contract. Circumstances that might influe
nce the decision of the insurer to repudiate the
contract or to conclude it on altered terms shall be deemed material.
2. Any circumstance about which the insurer clearly and unequivocally inquires of the insured shall
also be deemed material.
3. If, contrary to the rules under paragraph (1) of this Article, the insurer is not advised of a material
circumstance, then it may repudiate the contract. Th is shall be equivalent to the situation when the
insured intentionally avoided informing th e insurer of [material] circumstances.
4. The contract may not be terminated if the insurer knew of the concealed circumstances or if there
was no fault of the insured in the failure to communicate them.

Article 809. The Effect of Comm unicating Incorrect Information
1. The insurer may also repudiate the contract when notice with respect to material circumstances
includes incorrect data.
2. The contract may not be repudiated if the insurer knew of the inaccuracy of the data, or if there
was no fault on the part of the insured in communi cating the incorrect data. The insurer may dissolve
the contract within one month af ter communication of such data.

Article 810. Dissolution of a Contract of Insurance Because of Failure to Communicate
Information
If the insured was to reply to written questions re garding the circumstances of a danger, the insurer
may dissolve the contract on the basis of failure to communicate data which, though not inquired
about, were intentionally withheld by the insured.

Article 811. Period for Dissolution of the Cont ract on the Grounds of Failure to Communicate
Information
1. Within one month after the failure to communicate information defined un
der this Chapter, the
insurer may dissolve the contract. This period begins to run from the moment at which the insurer
became aware of the breach of the obligation of notification.
2. The insured shall be notified of the dissolution of the contract.

Article 812. Dissolution of the Contract after Occurrence of th e Contingency Specified in the
Contract of Insurance
If the insurer dissolves the contract of insuran ce after the occurrence of a contingency specified
therein, the insurer shall not be released from perf ormance of its duty if the circumstance with respect
to which the obligation of notification was br eached had no effect on the occurrence of the
contingency and on the performance of the insurer’s duty.

Article 813. Obligation of Notice with Respect to Increased Danger
1. The insured is bound to immediately notify the insur er upon increase of a danger that arose after
execution of the contract, provided the danger would have materially affected the [decision to execute] the contract.
2. In any case within paragraph (1) of this Article, the insurer has the right to either dissolve the
contract upon one month’s notice or to demand a pr o rata increase in the insurance premium. If the
insured has intentionally caused the increase of da nger, then the insurer may dissolve the contract
without observing the notice period.

Article 814. Obligation of Notification upon Occurrence of the Contingency Specified in the
Contract of Insurance
1. Upon becoming aware of the occurrence of the co ntingency specified in the contract of insurance
the insured shall be obligated to notify the insurer immediately.
2. After occurrence of the contingency specified in the contract of insurance the insurer may claim
from the insured any kind of information necessary for determining the extent of the contingency and
of the obligation [to compensate the insured].

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127
3.
The insurer may not resort to an agreement by which he is released from liability if the insured fails
to provide required notifications but the interests of the insurer have not been substantially impaired
[by the lack of notifications].
4. The insurer shall perform his duty after the contin gency specified in the contract of insurance is
ascertained and the amount of compensation is determined.

II. Insurance Premium

Article 815. Obligation to Pay the Insurance Premium
1. The insured is obligated to pay the insurance prem ium only after receipt of a document confirming
the insurance.
2. If the insured interest is lost, the insurer ma y demand payment of the portion of the insurance
premium that corresponds to the duration of the risk assumed [in providing the coverage]. The insurer
may demand compensation according to the services [it] rendered.
99

Article 816. The First Periodic Payment of the Insurance Premium
The insurer has no liability until the first periodic insurance premium
or a single insurance premium is
timely paid.

Article 817. Overdue Insurance Premium
1. If the insurance premium is not timely paid, the insurer may in writing set a two-week period for
payment. In addition, he shall indicate the e ffects of expiration of this term [without payment].
2. If, after expiration of the term, the contingency specified in the contract of insurance occurs, and
by that time the insured has exceeded the time pe riod allotted for payment of the premium or the
interest, then the insurer shall be released from his duties.

Article 818. Dissolution of the Contract Be cause of Overdue Payment of the Insurance
Premium
If the insured has not paid the insurance premium on time, the insurer may give one month’s advance
notice regarding dissolution of the contract, and then may dissolve the contract after the lapse of this
period without payment.

Article 819. Termination of Pa yment of the Insurance Premium
The insured may terminate payment of the insurance premium if, after execution of the contract, it is
found that the economic position of the insurer has d eteriorated to such an extent that there is a real
danger of nonperformance of the contractual oblig ations of the insurer upon occurrence of the
contingency specified in the contract.

III. Insurance against Damages a. Content of the Contract

Article 820. Obligation of Mone tary Compensation for Damages
In policies of insurance against damages, the insurer shall compensate t
he damages in money.

Article 821. Limits of Co mpensation for Damages
The insurer shall compensate the damage only within the limits of the amount of insurance.

99 The clause may mean that if the insured property is “lost” through an uninsured event, then the insurer is entitled to
make the demands stated (Cf. “interest” in § 822). Alternatively, it may apply where the insured becomes uninterested
in continuing the insurance.

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128
Article 822. Insurance Estimation
1.
If it is found that the amount of the insurance si gnificantly exceeds the value of the insured interest
(insured value), then in order to avoid excessive in surance either the insured or the insurer may demand
reduction of the amount of the insurance, with [c orresponding] reduction of the insurance premium
upon reduction of the coverage.
2. If the insured, with intent to receive illegal income, concludes the contract by increasing the
insurance, then the contract shall be deemed void.
100 The insurer shall retain the insurance premiums
paid prior to voidness of the contract if he was not aware of the voidness at the moment of execution
of the contract.

Article 823. Peculiarities of Property Insurance
The value of the property shall be deemed to be the amount of the property insurance, unless
otherwise established by the circumstances of the matter.

Article 824. Profit Insurance
Insurance shall extend to profits lost because of a cont ingency specified in the contract of insurance, if
so determined by the agreement.

Article 825. Insurance of Unity of Things
If the unity of things is insured, the insurance shall extend to each of the things in it.

Article 826. The Amount of Insurance Compensation
The insurer is not obligated to pay to the insured an amount in excess of the damages sustained, even if
the amount of the insurance to be provided in case of the occurrence of the contingency specified in
the contract exceeds the insured value.

Article 827. Underinsurance and Double Insurance
1. If the amount of insurance is less than the insured value at the moment of the occurrence of the
contingency specified in the contract of insurance (underinsurance), then the insurer shall compensate
the damage according to the proportion of the amount of the insurance and the insured value.
101
2. A person who has simultaneously insured one and the same interest with several insurers shall be
obligated to notify each insurer thereof. The notice shall include the identity of each insurer an
d
respective amount of insurance.
3. If one and the same risk to the said interest is under insurance coverage by several insurers and the
combined amounts of insurance exceed the insured va lue, or, if because of other reasons the sum of
the amounts which would have been paid by each in surer in the case of nonexistence of other contracts
exceeds the amount of the total damage (double insur ance), then the insurers shall be liable before the
insured as joint obligors within the limits of the amount under each respective contract of insurance,
but the insured has no right to receive an aggreg ate amount exceeding the actual damage [other-
insurance clause].

Article 828. Voidness of Double Insurance
If the insured has entered into double insurance wi th the intent to receive illegal profit, then each
contract concluded for such purpose shall be void.

Article 829. Fault of the Insured in Occurrence of the Contingenc y Specified in the Contract of
Insurance

100 i.e., if he over-insures with bad intent. 101 The rule provides that payment will no t be made up to the policy limit, but only up to the amount reflecting the
proportion by which the insured value exceeds the amount of insurance,
i.e., Insurance
= proportion of loss paid.
Insured Value

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129
The insurer shall be released from performance
of his obligation if the insured has caused the
contingency specified in the contract of insur ance [to occur] by intent or gross negligence.

Article 830. Obligation to Exec ute the Insurer’s Instructions
1. In case of the occurrence of the contingency specified in the contract of insurance, the insured is
obligated to avoid or reduce the damage as far as possible and, in this respect, to execute the
instructions given by the insurer.
2. The insurer is obligated to compensate expenses incurred according to his instructions.

Article 831. Compensation of Damage ca used by War or Other Force Majeure
The insurer shall be liable for damage caused by war or other force majeure circumstances only if this is
stipulated by special agreement.
102

Article 832. Claim for Damages Asserted Against a Third Person [Subrogation] 1. When the insured may assert a claim for damages against a third person, then this claim shall be
transferred to the insurer if he compensates the in sured against the damage. If the insured renounces
his claim against the third person or the right to securi ty on this claim, then the insurer shall be released
from the obligation to compensate the [insured for the] damage to the extent of that amount which he
[the insured] could have received in connection with th e exercise of the right or assertion of the claim
in order to compensate his own expenses.
2. When the right of the insured with respect to compensation for damages concerns family members
residing with him, then the transfer of the right [to the insurer] shall be excluded if a family member has
caused the damage intentionally.

Article 833. Effects of Alienati on of the Insured Property
If the insured property is alienated, then the rights and duties of the insured shall pass to the acquirer.

Article 834. Obligation to Notify on Alienation of the Insured Property
The insurer shall be immediately notified of the aliena tion of the insured property. If the insured or the
alienator failed to immediately notify the insurer thereof, then the insurer shall be released fro
m the
obligation to compensate provided the contingenc y specified in the contract of insurance occurred
more than two weeks after the moment at which th e insurer ought to have been notified of the
alienation.

Article 835. Termination of the Insurance in Case of Alienation of the Property
1. The insurer has the right, upon giving one mont h’s notice for dissolution of the contract, to
terminate the insurance relation with the insured. The right to dissolve the contract shall be lost if the
insurer does not exercise this right within one mo nth from the moment that he became aware of the
alienation of the insured property.
2. The acquirer has the right to dissolve the contract of insurance. He may dissolve it only either
immediately or at the end of the current period of the insurance. The right to dissolve shall be
extinguished if the acquirer does not exercise it within one month from the acquisition; and, if the
acquirer was not aware of the insurance, then the right to dissolve shall be effective until one month
elapses from the moment at which the acquirer became aware of the insurance relation.
3. If the contract of insurance is dissolved on the grou nds of these rules, then the alienator shall be
bound to pay the insurance premium [due] to the in surer, but not in excess of the amount which he
ought to have paid during the term of the insurance up to and including the moment of dissolution of
the contract. In such case the acquirer shall not be liable for payment of the insurance premium.

b. Insurance for the Benefit of Another Person

102 Agreement in this sense may be a provision within a c ontract; a separate contract is not evidently required.

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130
Article 836. Conclusion of a Contract of In
surance for the Benefit of Another Person
The insured may enter into a contract with the insu rer for the benefit of another person. The naming
of this person shall not be required.

Article 837. Rights of An other Person under the Contract of Insurance
1. In the case of insurance for the benefit of another person, the rights arising out of the contract shall
belong to this person. The right to demand the in surance policy [certificate] shall belong only to the
insured.
2. The person entitled to receive the insurance proceeds [beneficiary] may enjoy his rights without
agreement with the insured, [but] may demand exercise of his rights through a court only if he holds
the insurance policy.

Article 838. Rights of the Insured
1. The insured on his own behalf may enjoy the rights that under the contract of insurance belong to
the beneficiary.
2. If an insurance policy is issued, the insured ma y receive the compensation from it without the
consent of the beneficiary [but] may transfer the right to this person only if he holds the insurance
policy.
3. The insurer shall be obligated to pay to the insured compensation for the benefit of the beneficiary
only if the insured proves that the benefici ary consented to the contract of insurance.

c. Civil Liability Insurance
Article 839. Concept
Under a contract of civil liability insurance, the insurer is bound to release the insured from the
obligations put on him [the insured] as a result of his liability to a third person arising during the period
of insurance.

Article 840. Claim of Direct Compensation for Damage
The insurer, within the limits of his obligation, sha ll be bound to compensate the damage directly to the
person who sustained the damage, if he presents the claim to the insurer
.

Article 841. Litigation and Extrajudicial Expenses
The insurance covers both court and extrajudicial ex penses incurred for defense against the claim of
the third person if, under the circumstances of the matter, such expenses are necessary.

Article 842. Release of th e Insurer from Liability
The insurer shall be released from liability if th e insured deliberately caused the circumstance which
created the liability to the third person.

Article 843. Liability in Case of Compulsory Insurance
1. If the insurer is entirely or partially released from the obligation to
the insured, its liability to the
third person shall be effective in those cases prescr ibed by law with respect to compulsory insurance.
2. If the insurer satisfies the claim of the third pers on, then the claim of the third person against the
insured shall pass to the insurer.

IV. Life Insurance

Article 844. Concept
1. Life insurance may concern [cover] the insured or another person.
2. If the contract of life insurance is concluded for the benefit of another person, then the written
consent of this person or his statutory representative shall be required.

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131
Article 845. Refusal to Conclu
de the Contract Not Allowed
103 [Repudiation of the Contract] If, at the time of execution of the contract, the insured breached his obligation to communicate
[required] information, then the insurer may not re pudiate the contract after the lapse of five years
from the date of execution of the contract. Repudiati on of the contract shall be allowed if the failure to
disclose was intentional.

Article 846. Dissolution of the Contract in the Case of Periodic Payment of the Insurance
Premium
If the insurance premium is to be paid periodically, the insurer may dissolve the insurance relation at
any time, but only [to take effect at] the en d of the current period of the insurance.

Article 847. Transfer of the Right to Compensati on to a Third Person
1. In the case of “accumulated insurance,” the insured may transfer the right to receive benefits to a
third person or substitute the third person with an other person, unless otherwise stipulated in the
contract.
104
2. The third person who has the right to receive bene fits may exercise the right only upon occurrence
of the contingency specified in the contract of insurance, unless the insured gave another instruction in
this regard.

Article 848. Non-Enti tled Third Person
1. If, in case of “accumulated” insurance, the righ t of the third person does not correspond to the
obligation of the insurer, then the insured shall retain this right.
2. If, in the case of accumulated insurance, the third person does not exercise his right to receive the
benefit, then the insured shall retain this right.

Article 849. Release of the Insurer from the Obligation to Compensate Damage
1. When the contract of insurance is concluded on the condition of compensation upon another
person’s death, then the insurer shall be released from its obligation if the insured intentionally caused
the death of such person by acting illegally.
2. If in the case of life insurance a third person has the right to receive the benefit, then this right shall
not be recognized if he, by acting illegally, intenti onally caused the death of the person whose life was
insured.

Article 850. Release from Payment of Co mpensation in the Case of Suicide
1. The insurer shall be released from its obligation to pay life insurance benefits if the person whose
life was insured commits suicide.
2. The heir of the insured may claim return of the insurance premiums paid.

Article 851. Substitution of the Contract of Insurance
1. The insured, at any time prior to the end of the current insurance period, may demand substitution
of the contract of insurance with a premium-free contract of insurance.
2. If the insured claims such substitution, then fr om such moment the amount of insurance or the
benefit shall be substituted with such amount that corresponds to the obligation of the insurer, having
regard to the age of the person covered by the insurance, provided the reserve of accumulated
premiums is regarded as a single premium.

Article 852. Deductions at the Termination of the Contract

103 The title in Georgian may be unclear. The title in brackets is ours. 104 The meaning of the words literally tr anslated as “accumulated insurance” seem s closest to the American concept of
whole-life insurance.

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132
If the contract of life insurance is terminated by re
ason of repudiation, dissolution or appeal [dispute],
then the insurer shall be bound to return the amount of the insurance premium received under the
contract. The insurer may make appropriate deductions.

Article 853. Effects of Forced Execution
1. If a court judgment based on an insurance claim is entered through a forced execution against
assets, or if legal proceedings are carried out in co nnection with the bankruptcy of the insurer, then the
person who is specifically named as the beneficiary shall be entitled to subrogate the insured in relations
under the contract of insurance. If the person entitled to the benefits participates in the contract [i.e. as
a named party or beneficiary], then he sh all satisfy all requirements of a creditor,
105 or secure [a share] of the bankruptcy mass to the extent of the amount which the insured could have received from the
insurer upon dissolution of the contract.
2. If the person entitled to the benefit has no interes t in receiving the benefit, or if he is not
designated by name, then such right shall accrue to the spouse and the children of the insured.

V. Accident Insurance

Article 854. Concept
1. A contract of accident insurance may be conclude d for an accident [affecting] both the insured and
another person.
2. If the contract of accident insurance is concluded not by the person covered but for his benefit,
then the rules governing life insurance shall apply to such contract.

Article 855. Effects of Injury to Health
If the insurer’s obligation depends upon injury intenti onally caused to the health (bodily injury), then
the absence of intent shall be presumed until proven otherwise.

Article 856. Effects of Causin g the Accident by Intent
1. The insurer shall be released from performance of his obligation if, in the case of a contract
concluded for the benefit of another person, the pe rson entitled to the benefit intentionally causes the
accident by illegal action.
2. If another person has the right to receive the benefi t, he shall be deprived of this right if he
intentionally causes the accident by illegal action.

Article 857. Obligation to Notify of the Accident
If the obligations are to be performed for the benefi t of the person entitled to the benefit [i.e., the
third-party beneficiary or claimant], then this person shall be bound to make a declaration on the
accident. This rule shall apply to the obligations of communicating information and handing over
documents as well.

Article 858. Right of Recourse Disallowed
The insured has no right of recourse against the person who is liable fo
r the damage.

CHAPTER TWENTY-ONE
BANKING
I. Settlement Account

Article 859. Concept

105 While ambiguous, the phrase is best interpreted in context as requiring the beneficiary to meet the requirements for a
recognized creditor in the insuran ce company’s bankruptcy proceeding.

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133
1.
Under a settlement account contract, a credit instit ution is obligated to make payments from the
account of its customer within the limits of the am ount available on the account, and to enter in the
account incoming amounts.
2. Subject to the instructions given by the account ho lder, the same operations may be effected in
cash.
3. An agreement of the parties may bind the account holder to pay the service costs.

Article 860. Obligation to Prov ide a Statement of Account
1. The credit institution is obligated to keep an accounting ledger for both cash and non-cash
settlements [transactions].
2. The credit institution is obligated to provide th e account holder with information on the balance in
his account (statement of account) within the period s specified in the contract; and the account holder
is entitled to demand at any time information on the balance in the account and the entries on credit
and debit operations.

Article 861. Withdrawal of Money from the Account
The credit institution is obligated to make withdrawals of monetary sums from the account subject to
the permission or instruction of the holder of this account. Otherwise, the credit institution shall be
obligated to credit back to the assets of the account holder the damages sustained and the incorrectly
transferred sum.

Article 862. Effects of Cancellati on of the Account Holder’s Order
1. The account holder has the right to cancel an order given to the credit institution until the transfer
is actually made. Otherwise, the credit institution is obligated to notify the appropriate persons of the
[account holder’s] refusal of performance.
106
2. In case of timely cancellation of the order the cred it institution is obligated to reinstate the amount
on the account of the account holder.

Article 863. Obligati on to Keep Secrecy
1. Credit institutions are obligated to keep secret the facts related to the account, or other facts made
known to them in the course of business relations with the account holder, except in those cases
prescribed by law or except wh ere the matter concerns ordinary banking information that is not
prejudicial to the account holder’s interests.
2. The credit institution’s obligation of secrecy shall remain in effect after termination of the contract
as well.

Article 864. Termination of th e Settlement Account Contract
1. Either party may terminate the settlement account at any time.
2. The credit institution may terminate the contract only in a manner that enables the account holder
to otherwise receive settlement account services, except when there are important grounds for the
termination.

Article 865. Check Payment
Where a relevant agreement has been made, the credit institution is obligated to pay checks signed by
the account holder within the limits of the assets in the account in accordance with the Law on Checks.
In this case the rules governing a contract of non-cash settlement shall apply.

Article 866. Collection of Checks
Under a settlement account contract, the credit inst itution is obligated before the account holder,
without any additional agreement, to collect checks presented by the latter by timely presenting such

106 It appears that the bank is to notif y the transferee of the account holder’s refu sal to perform, even though the stop-
payment order has been received after the transfer was made.

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checks to a credit institution [from whose account th
e check is issued], and in the case of non-payment
of the check, to undertake necessary measures for securing the check.

II. Bank Credit

Article 867. Concept
Under a bank credit contract, the lender makes ava ilable or is obligated to make available to the
borrower a credit for consideration in the form of a loan.

Article 868. Interest Rate on Bank Credit
1. By agreement of the parties the rate of interest for the credit may be either fixed or variable.
2. If the variable interest rate stipulated in the agr eement and its amount may be set by the lender, he
shall do so on a fair basis. He shall also be obligated to tie the loan interest rate to the variation of the
market interest rate.
3. Variation of the interest rate shall be tied to the discount rate fixed by the National Bank of
Georgia or to the interest rate fixed at the Interbank Credit Auction.
4. The maximum and minimum amounts of variability of the interest rate and the minimum interval
of variation shall be determined at the ti me of execution of the credit contract.
5. The lender is obligated to notify the borrower of the interest rate in an acceptable manner.
6. If the annual percentage rate is not indicated, th en only the annual percentage rate prescribed by
law shall apply. If the imposition of costs is not accounted for at the [time of] computation of the
annual interest rate, then such costs shall not be compensated.

Article 869. The Interest Ra te Prescribed by Law
1. If the borrower delays the repayment stipulated in the bank credit contract, then the amount of
arrears shall be subject to accrued interest at the combined rate of 3 % plus the interest (or discount)
rate fixed at the Interbank Credit Auction for the corresponding period.
2. If the lender terminates the bank credit contract on the grounds of delay in repayment of the credit,
then the right to demand the interest rate prescribed by law shall arise. These rules shall not apply to
the lender’s or the borrower’s right to prove the exis tence of more or less damage in individual cases.

Article 870. Providing Additional Security
1. If tangible or personal security is agreed upon at th e [time of] issuance of the credit, then in the case
of underpayment of the loan the lender may claim that additional security be [provided.] 2. The lender, on demand of the borrower, shall be ob ligated to return any security that exceeds the
limit of the agreed repayment.

Article 871. Termination of the Agreement
1. If an interest rate is fixed for a certain period for the credit, the borrower may terminate the credit
contract if the obligation to pay interest ends prior to the stipulated [loan] repayment date, and no new
agreement on the interest rate is concluded. The time period for termination is one month.
2. If the borrower is a consumer and the credit is not secured by a mortgage, then the right of
termination shall arise six months after issuance of th e credit. The time period for termination shall be
three months.
3. After the expiration of ten years the right of termination shall apply in any case. The time period
for termination shall be six months.
4. The borrower may terminate a loan borrowed on variab le interest rate terms at any time, with three
months’ notice of termination.

Article 872. Compensation for Damage Sustai ned Due to Early Repayment of the Credit
[Prepayment] If the borrower repays the credit before completion of the credit relation, then the lender may claim
corresponding compensation for damage. At the same time, the damages shall take into account the

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value of saved expenditures, as well as the benefit
which the creditor would have received by using the
loan currency otherwise [i.e., other than by lending it to the borrower who repaid early], or if the
borrower intentionally prevented the receipt [of such benefit].

Article 873. Termination of the Credit Relati on in Case of Repayment in Installments
The lender may terminate the credit relation if the st ipulated repayment is to be made in installments
and the borrower has missed the deadline for two consecutive periods of payment. The termination
shall be effective if the borrower fails to repay [t he amount due] after being given an additional two-
week grace period.

III. Deposit Account

Article 874. Concept. Liability of the Directors of the Credit Institution
1. When money is deposited with a credit institution, the institution obtains the right of ownership to
it, and is obligated to return the amount received when due in the same currency.
107
2. If the maturity date is not fixed, the monetary amount may be claimed back at any time.
3. An appropriate rate of interest shall accrue on a deposit.
4. The depository and the directors (man agers) of the credit institution shall be obligated to provide
the depositor with information on the liquidity and solvency of the bank.
5. A person who culpably provides false information or refuses to provide necessary data shall be
obligated to compensate the depositor for any loss caused by the providing of false information or by
the failure to provide information.
6. Likewise, the bank directors (managers) who publicize false information on the liquidity and
solvency of the bank through advertising brochures or otherwise shall be
jointly liable.

Article 875. Passbook
At the [time of] issuance of a passbook, the credit inst itution is entitled to issue it in a nominative as
well as bearer form. If the bearer is not entitled [to possession of the passbook], the credit institution
shall be released from liability only if it did not a ct intentionally or with gross negligence in the issuance
of the passbook.

IV. Documentary Letter of Credit. Collection of Commercial Documents

Article 876. Concept
1. By issuing a documentary letter of credit, the credit institution (the issuing bank) shall be obligated,
at request and order of its customer (the account party), to pay the monetary amount to the third
person (the beneficiary) in exchange for the said docu ment by order of the latter, or to pay the bill of
exchange presented by the beneficiary, to perf orm acceptance, or to commission another bank to
perform this operation provided the credit terms are met.
2. The customer is obligated to pay the agreed consideration.

Article 877. Order for Collection
By the order for collection, the credit institution authorized for the collection operation (bank)
undertakes the obligation to issue negotiable securities by the order of the customer (ordering party), in
exchange for acceptance and/or, where necessary, in exchange for payment by the payor.

Article 878. Usages of In ternational Transactions
Unless otherwise agreed, the rights and duties of th e parties shall be determined in accordance with the
recognized practices of international transactions c oncerning documentary letters of credit and orders
for collection.

107 Compare Art. 777. Arguably, the de posit may be classified as a bailment.

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V. Banker’s Guarantee

Article 879. Concept
By virtue of a banker’s guarantee, a bank, other cred it institution or insurance organization (guarantor)
at the request of another person (principal) undertak es a written obligation to pay a monetary amount
to the principal’s creditor (beneficiary) in acco rdance with the undertaken obligation and upon the
written demand of the principal.

Article 880. Consideration for Banker’s Guarantee
1. The banker’s guarantee shall secure the due perfor mance of the principal’s obligation before the
beneficiary.
2. The principal shall pay the agreed consideration to the guarantor for issuance of the banker’s
guarantee.

Article 881. Independence of the Guarantor’s Obligation fr om the Primary Obligation
The guarantor’s obligation before the beneficiary defi ned under the banker’s guarantee in their relations
shall not depend for performance upon the primary obligation for which i
t is issued, even when the
guarantee includes a reference to this obligation.

Article 882. Retraction of Ba nker’s Guarantee Not Allowed
The banker’s guarantee may not be retracted by th e guarantor unless otherwise stipulated in the
guarantee.

Article 883. Transfer of the Beneficiary’ s Claim to Another Person Not Allowed
The beneficiary’s claim against the guarantor ar ising out of the banker’s guarantee may not be
transferred to another person unless otherwise stipulated in the guarantee.

Article 884. Effectiveness of the Banker’s Guarantee
The banker’s guarantee shall be effective from the da y of its issuance unless otherwise stipulated in the
guarantee.

Article 885. The Form of Presenting the Claim
1. The beneficiary’s claim [demand] for payment of the monetary amount due under the banker’s
guarantee shall be presented to the guarantor in a written form, with the documents indicated in the
guarantee enclosed. In the demand or in the enclos ure the beneficiary shall indicate the incident of
breach by the principal of the primary obligation fo r the securing of which the guarantee was issued.
2. The beneficiary’s demand shall be presented to the guarantor before the expiration of the
guarantee’s term.

Article 886. Obligation of the Guarantor upon Receipt of the Beneficiary’s Claim
1. Upon receipt of the beneficiary’s claim the guarantor shall immediately notify the principal thereof
and shall hand over the copy of the claim to him with all the enclosed documents.
2. The guarantor shall consider the beneficiary’s claim with the enclosed documents within a
reasonable time and shall exercise reasonable diligence in order to establish whether or not the claim
and enclosed documents meet the conditions of the guarantee.

Article 887. Guarantor’s Refusal to Satisfy the Beneficiary’s Claim
1. The guarantor shall refuse to satisfy the beneficiar y’s claim if the claim and the enclosed documents
do not meet the conditions of the guarantee, or if they are presented to the guarantor after the
expiration of the period of time stipulated in th e guarantee. The guarantor shall immediately notify the
beneficiary of the refusal to satisfy his claim.
2. If prior to satisfaction of the beneficiary’s cl aim the guarantor becomes aware that the primary
obligation secured by the banker’s guarantee has al ready been performed in the relevant part, is

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terminated on other grounds, or is void, then he
shall immediately notify the beneficiary and the
principal thereof. The repeated demand of the bene ficiary presented after such notification from the
guarantor shall be subject to satisfaction by the guarantor.

Article 888. Limits of th e Guarantor’s Obligation
The guarantor’s obligation to the beneficiary stipulated under the banker’s guarantee shall be limited to
payment of the amount for which the guarantee is issued.

Article 889. Grounds for Terminatio n of the Guarantor’s Obligation
1. The guarantor’s obligation to the beneficiary shall be terminated:
a. By payment to the beneficiary of the amount for which the guarantee was issued;
b. Upon expiration of the period of time for which it was issued;
c. Upon the beneficiary’s renunciation of his rights arising out of the guarantee and the return of
the guaranty to the guarantor.
2. The guarantor who has become aware of the termi nation of the guarantee shall immediately notify
the principal thereof.

Article 890. Right to Demand Co mpensation with Recourse
1. The guarantor’s right to demand compensation, by the procedure of recourse, from the principal
for the amount compensated to the beneficiary under the banker’s guarantee shall be determined by the
agreement between the guarantor and the principal in performance of which the guarantee was issued.
2. The guarantor has no right to demand from the prin cipal payment of any amount that was paid to
the beneficiary in contradiction to the terms of the guarantee, or because of breach of the guarantor’s
obligation to the beneficiary, unless otherwise stip ulated in the agreement between the guarantor and
the principal.

CHAPTER TWENTY-TWO
SURETYSHIP

Article 891. Concept
1. Under a contract of suretyship, a surety undertakes th e obligation to answer for the performance of
a third person’s obligation to the creditor of the third person.
2. The suretyship may be used for future and contingent obligations as well.

Article 892. The Form of Suretyship
1. The validity of the suretyship shall require the written application of the surety and an indication in
the document of suretyship (contract) of the maxi mum amount of the quantitatively determined
liability of the surety.
2. If one declares the undertaking of the suretyship with in the scope of his professional activities, then
observance of this form is not required.

Article 893. Grounds of th e Surety’s Obligation
The existence of a corresponding principal obligation is “definitional” [fundamentally required as the
basis] for the obligation of the surety. A transact ion concluded by the principal debtor after the
suretyship has been undertaken shall not increase the surety’s liability, and the suretyship sh
all not
extend to relations arising out of this transaction.

Article 894. The Surety’s Refus al to Satisfy the Creditor
The surety may refuse to satisfy the creditor until the creditor attempts forced execution against the
principal debtor.

Article 895. Joint Liab ility of the Surety

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If the surety undertakes the liability [jointly with th
e principal debtor] or in another equivalent form,
then the claim may be asserted ag ainst him even without the attempt of forced execution on the debtor,
if the principal debtor exceeded a period for paym ent and warning was given to him with no effect, or
if the insolvency of the debtor is evident.

Article 896. Liability of Co-sureties
If several persons are sureties for the same obligation, then they shall be liable as joint obligors, even
when they did not undertake the suretyship jointly.

Article 897. Liability for the Obligations Undertaken by Previous Sureties
A surety who has undertaken, in the face of the cred itor, to perform obligations assumed by previous
sureties shall be jointly liable with them in the same manner as, ordinarily, a surety is liable jointly with
the principal debtor.

Article 898. The Limits of the Surety’s Liability
1. In any case, the surety shall be liable only to the extent of the maximum amount indicated in the
document of suretyship.
2. Unless there is another agreement to the contrary, the surety shall be liable to the extent of the said
maximum amount:
a. For the corresponding amount of the principal debt , in particular, including when the principal
debt was changed [increased] because of the faul t of the principal debtor, or because payment
was overdue. The surety shall be liable for contractual penalties or for the total amount of
damages that were foreseen up to the end of the contract, only if these liabilities are stipulated
by special agreement;
b. For expenses related to termination of the contract and for court expenses that are to be
compensated by the principal debtor, provided that the surety had the possibility to avoid these
expenses by satisfying the creditor;
c. For the interest to be paid by the principal debt or according to the contract, provided this was
directly agreed upon [in the surety agreement].

Article 899. The Surety’s Right to Counterclaim
1. The surety may assert counterclaims [against the cred itor] belonging to the principal debtor. If the
principal debtor dies, the surety may not benefit from the limited liabi
lity of the heir.
2. The surety shall not be deprived of the right to counterclaim [against the creditor] on the grounds
that the principal debtor renounced the counterclaim.

Article 900. The Surety’s Refus al to Satisfy the Creditor
The surety may refuse to satisfy the creditor until th e principal debtor has [been afforded] the right to
dispute the transaction that gave rise to his obligation.

Article 901. Reduction of the Surety’s Liability
If the creditor, to the detriment of the surety, reduces the liens or other means or advantages of security
[that he has against the principal debtor], then the surety’s liability shall be reduced by an amount
corresponding to the above-mentioned reduction [of security].

Article 902. Effect of Overdue Pa yments by the Principal Debtor
1. If the principal debtor has exceeded the period fo r payment, then at any time upon demand of the
surety, the creditor shall provide him with inform ation regarding the status of the principal debt.
2. If the creditor fails to perform one of these actions , he shall lose his claims against the surety to the
extent of the amount of loss [to the surety] caused by his [creditor’s] nonperformance.

Article 903. Termination of the Contract in Case of Suretyship for an Unlimited Time

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1.
If the period of the suretyship is not limited, th en the surety shall be obligated to observe a three-
month period for termination of the contract [i.e., three month notice period].
2. In the case of a fixed-term suretyship, then after the lapse of five years, the contract may be
terminated by observing a three-month period [of notice].
3. In the event of unilateral termina tion, the surety shall be bound to perform obligations undertaken
before the termination.

Article 904. Grounds for Release from the Obligation of Suretyship
1. If the surety undertakes the suretyship of the mandate of the principal debtor, or if under the rules
governing the management of affair s of another person without mandat e, he is granted the power of
attorney with respect to the principal debtor, then he may demand release from the suretyship if:
a. The economic [“property”] status of the princi pal debtor has substantially deteriorated;
b. After establishing the suretyship, collection of payment from the principal debtor has been
substantially complicated because of a change of the place of residence or domicile [of the
debtor];
c. The creditor has against the surety a document containing an order of forced execution.
2. If the performance of the principal obligation is not yet due, the debtor may provide the surety with
[additional] security instead of a release.

Article 905. Effect of Satisfaction of th e Creditor by the Surety [subrogation] If the surety satisfies the creditor, the creditor’s claim against the principal debtor shall pass to the
surety [subrogation]. The counterclaims of the princi pal debtor arising out of his relation with the
surety shall remain inviolate.

CHAPTER TWENTY-THREE
CURRENT ACCOUNT 108

Article 906. Concept. Content
1. Under a current account agreement, the parties undertake the responsibility to enter demands and
payments arising out of [their] business relations into an account, and to deem them inviolable until the
account is [settled and/or] closed.
2. The current account balance is subject to payment wi thin an agreed term. If at the settlement of the
account the party entitled to the remainder of the sum does not claim payment, then it shall be entered
in the current account.
109
3. Closing of the account shall give rise to a demand for the balance that, for purposes of
performance, substitutes the claim placed on the current account.
4. The account shall be settled once a year unless stipulated otherwise.

Article 907. Cancellation of Current Account Agreement
In case of doubt, the current account agreement ma y be cancelled and the account closed at any time.

Article 908. Interest on Payments Made
Interest at the interest rate prescribed by law sha ll be paid on the scheduled payments unless otherwise
stipulated in the contract.

Article 909. Personal or Tangible Security for a Claim Entered in the Current Account

108 Also known in U.S. law usage as “open account.” 109 It appears that no distinction is made between settlement and closing. Article 906(2) clearly anticipates a settlement
and then rolling the balance over into the next open period, if the entitled party does not demand payment of the balance
at the time of settlement. Subparagraph (3) addresses final cl osing of the account, as opposed to an interim settlement.

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1.
If personal or tangible security has been given for a claim entered in the current account, then the
creditor may demand satisfaction of the existing acco unt balance in his favor from this security, even
after the account is closed.
2. The rule defined in paragraph (1) of this Article shall likewise apply when there is joint liability for
the claim.

Article 910. Attachment
[If a creditor of one of the parties to the current account agreement procures the attachment of the
balance sum in the current account, which sum belong s to the debtor, then any additional debt arising
out of a new transaction made after the attachment sha ll not be considered in favor of the creditor. A
transaction that is made on the basis of claims existing before the [attachment] shall not be deemed to
be a new transaction].
110

CHAPTER TWENTY-FOUR
OBLIGATIONS ARISING OUT OF SECURITIES TRANSACTIONS
I. Obligations Arising out of Bearer Securities Transactions

Article 911. Concept
1. If a person issues a document by which he promis es payment to the holder of the document, then
the holder may demand payment in accordance with the promise, except when he did not have the
right [of demand].
2. The validity of the signature affixed to the issued document may be made dependent upon
observance of a special form indicated in the docume nt. The signature may be affixed in any technically
possible manner [i.e., in writing, by machine].

Article 912. Countercl aims of the Issuer
The issuer of the document may assert against the holder of the security only such counterclaims that
relate to validity of the forming [of the document or relationship], the document itself, or that the issuer
has against the holder personally.

Article 913. Procedure of Transfer of Rights
1. The right defined in the document shall be transferred in accordance with the rules governing the
transfer of movable things. It may be transferred by a contract concluded with a third person as well.
2. A person who acquires a document that was lost in some manner shall be deemed to be the holder
by lawful title, except when he ac ted intentionally or with gross neg ligence [bad faith] when acquiring
the document.

Article 914. Rights of the Issuer
1. The issuer may challenge any holder [on the ground s that] the security was not issued by him. In
addition, he may assert against the holder any counterclaims arising from the document.
2. If the issuer used a technical method for affixing the signature to the document, then he may not
defend himself against the holder by stating the he himself had no right
to use this method, except
when the acquirer knew of the counterfeit or acted with gross negligence [bad faith].
3. If the document is transferred to the ownership of the holder, the issue
r may not assert against him
any counterclaims arising from the issuer’s direct re lations with the former holder of the document,
except when the present holder acted intentionally to the detriment of the issuer when acquiring the
document.

110 The gist of the article appears to be that the creditor of an account party who is entitled to receive the balance in the
account may attach that balance, but in doing so the creditor will cut off his right to add new claims to the debt secured
by the lien, except to the extent that the new claims aris e out of transactions that are based in obligations which
preexisted the attachment.

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141
4.
If the counterclaim did not arise out of direct relations [with the holder], then it may be asserted
only against a holder who acquired ownership of th e document through alienation, and who acted
intentionally or with gross ne gligence in the acquisition.

Article 915. Obliga tion of the Issuer
1. The issuer shall be bound to perform his obligati on only when the document is tendered to him.
2. The debtor who performs his obligations to the holder of the document shall [thereafter] be
released from his obligations, unless he acted intenti onally or with gross negligence, and he is able to
prove the bad faith of the holder.
3. The debtor who is released from his obligation to the holder of the document shall acquire the right
of ownership of the document handed over to him.

Article 916. Re-registratio n of the Bearer Security
Only the issuer may re-register the bearer security in the name of a certain person. At the same time,
the issuer is not obligated to re -register the bearer security.

Article 917. Replacement of Secu rity Unusable for Circulation
When a damaged bearer security is no longer usable fo r circulation, the holder may demand issuance of
a new bearer security in return for surrender of the damaged document, if the identification of its
content and essential distinguishing marks is still po ssible. Expenses related to the exchange shall be
borne by the holder and paid in advance.

Article 918. Revocati on of a Security
1. A lost or destroyed security may be revoked by court judgement unless otherwise stipulated in the
security.
2. An issuer is obligated to provide the former holde r, upon request of the latter, with information
required for consideration of the case on revocation in court and for prohibition of payment. He is
also obligated to issue the corresponding certificate. Expenses of issuance of the certificate shall be
borne by the former holder and paid in advance.

Article 919. Issuance of a New Bearer Document
The person who has procured the revocation of the bearer promissory note may, regardless of the
exercise of the claim arising out of the document, demand from the issuer the issuance of a new bearer
document in place of the revoked one. This pers on shall compensate the expenses of issuance in
advance.

Article 920. Limitation Period on Claims
The limitation period on claims arising out of securiti es is thirty years from the date of the maturity of
the obligations stipulated in the documents.

Article 921. Issuance of Prom issory Notes of Small Value
If the issuer has issued promissory notes or other similar documents of
small value in which the
creditor is not specified, and the circumstances of th e matter indicate that the issuer is willing to pay to
the holder, then the rules of paragraph (1) of Articl e 911, Articles 913-915 and Article 920 shall apply.

II. Obligations Arising out of Negotiable Securities

Article 922. Concept
1. A promissory note by which the issuer promises payment to the person named [in the note] upon
presentation of the note may be issued in the form of a negotiable security.
2. The signature may be affixed in any technically possible manner.

Article 923. Transfer of Righ ts. Types of Endorsement

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1.
The right defined in the note may be transferred by endorsement and tender of the note.
2. The endorsement is made on the note or on its enclosure. Use of a technical device is allowed.
3. The endorsement does not require indication of the indorsee, and it may be comprised of the
signature only (blank endorsement). Any holder by lawf ul title may fill in the blank endorsement in his
name or on behalf of another, issue the blank not e, or make a subsequent endorsement of the note
himself to a specified person.

Article 924. Procedure of Using a Note Acquired by Endorsement
If a negotiable promissory note is acquired by endo rsement, then Article 914 shall accordingly apply.

Article 925. Payment in the Case of Subsequent Endorsements
1. The holder of a negotiable security confirmed by subsequent endorsements may demand payment
in exchange for surrender of the signed document, except when he is not entitled thereto.
2. Payment to a non-entitled person who confirmed his right through subsequ
ent endorsements shall
release the debtor [from further liability] unless the debtor acted intentionally or with gross negligence.
3. A debtor who has performed his obligation to the endorsee shall become the owner of the
document handed over to him.

Article 926. Claims Gu aranteed in Writing
If not only small claims are guaranteed in writing in negotiable securities, then the rules governing
revocation and the issuance of substituting docume nts for bearer promissory notes shall apply
accordingly.

Article 927. Limitation Period on Claims
The rules governing limitation of the claim period fo r bearer promissory notes shall apply accordingly
to the limitation period on claims arising out of negotiable promissory
notes.

III. Personal Securities

Article 928. Concept
1. A document drawn up in the name of a specified person may be issued on the condition that the
debtor shall be bound to pay only upon surrenderin g of the document to him by the named person.
2. Unless otherwise stipulated, the right defined in th e document shall be transferred under the rules
prescribed for transfer of this right.
3. If the document is lost or destroyed, it shall be revoked under the procedure of special [judicial] proceedings, unless otherwise predetermined. This rule shall not apply i
n case of the loss of documents
of small value.

Article 929. Instruction on the Promised Payment
If a document made out to a specified person cont ains the instruction that the promised payment may
be made to any bearer, then any kind of tran saction between the debtor and the holder of the
document, including payment, shall be valid, unle ss the debtor acted intentionally or with gross
negligence.

CHAPTER TWENTY-FIVE
JOINT ACTIVITY (PARTNERSHIP) 111

111 Use of the term partnership is avoided, and the more cumbersome “joint activity” used instead, for two reasons.
First, the drafter consistently uses the Georgian term for “joint activity” instead of the synonymous term for
“partnership”. Second, the entrepreneur ial form in the Law of Georgia on Entrepreneurs known as a “Society of Joint
Responsibility” is also called a General Partnership, and we do not want to create confusion between the Joint Activity
form of partnership recognized in the Civil Code, and the “Society of Joint Responsibility” recognized in the Law of
Entrepreneurs.

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143
Article 930. Concept
Under a contract of joint activity (partnership), two or more persons undertake to act jointly for the
accomplishment of common economic or other objects by the means stipulated in the contract,
without forming a legal person.

Article 931. Form of a Cont
ract of Joint Activity
1. A contract of joint activity may be concluded either orally or in writing.
2. If the contract is concluded in writing, it shall include:
a. The names and addresses of the participants;
b. Information on the type and object of the joint activity;
c. The rights and duties of the participants;
d. The structure and functions of administration bodies;
e. The procedure and terms of distribution of income and loss among the participants;
f. The procedure of withdrawal [avoidance] from the contract;
g. The duration of the activity; [and] h. Procedures for dissolution of the contract and distribution of the remaining property.

Article 932. Obligation of Contribution
1. The participants shall make the contributions stip ulated in the contract. If the amount of the
contributions is not specified in the contract, then a ll participants shall be bound to make contributions
of equal value.
2. The contribution may be made both in property and by rendering services.
3. Unless otherwise stipulated in the contract, the co ntributions shall be in the common ownership of
the participants. Everything acquired on the grounds of the right under common ownership, as well as
received as compensation for destruction, deteriorati on or seizure of common property, shall also be
under the common ownership of the participants.

Article 933. Transfer of Share to a Third Person Disallowed
1. A share, in the form of the property or the right, may not be transferred to a third person without
the consent of the rest of the participants. Ref usal to consent shall be allowed only for legitimate
reasons.
2. The rest of the participants shall have the first option to purchase the share transferable to the third
person.

Article 934. Obligation of Jo int Management of Affairs
1. Unless otherwise stipulated in the contract, the [par ties] to the contract [participants] shall jointly
manage and shall represent the partnership [joint a ctivity] in relations with third persons. The consent
of each participant shall be required for conclusion of any transaction. If the contract stipulates that a
majority of votes shall be sufficient to make decision s, then this majority shall be determined according
to the total number of participants and not according to the amount of contribution.
2. If the contract binds one or several contractual pa rticipants to manage the affairs [of the joint
activity], so that each of them has the right to a ct independently, then each of them may dispute the
other when concluding a transaction. In case of such a dispute, the transaction shall not be made.
3. If the contract binds one of the c ontractual participants to manage the affairs of the joint activity,
then in case of doubt he shall represent the joint activity in relations with third persons, and the
transactions made by him shall be valid.
4. A participant may be deprived of his authority to manage the affairs of the joint activity by a
majority of votes, [but] only if he grossly breaches the obligations put on him by the [joint activity] contract. A participant in the joint activity may refuse to participate in the management of the affairs [of
the joint activity]. Such person may demand from the governing board information that he needs at any
time.
5. Unless otherwise proceeding from the contract, the rights and duties of the managers shall be
determined in accordance with the rules governing mandate.

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Article 935. Procedure for Distribution of Income
1.
Unless otherwise stipulated in the contract, the in come shall be distributed among the participants
proportionately to their shares.
2. Each participant may demand that all participants perform the obligations arising out of the joint
activity in good faith.

Article 936. Transfer of Claims to Third Persons Not Allowed
The claims of the participants against each other aris ing out of the contract of joint activity may not be
transferred to third persons.

Article 937. Joint Liabilit y of the Participants
1. The parties to the contract shall be jointly liable fo r debts accrued as a result of the joint activity. In
their relations with each other the amount of liability shall be determined according to the shares of the
participants, unless otherwise stipulated in the contract.
2. The participants in the joint activity shall be obliga ted not to disclose confidential information made
known to them in the course of the joint activity.

Article 938. Repudiation of Joint Activity Contract
1. If the contract does not directly specify the duration of the joint activity, then each of the
participants may refuse to participate in the joint activity at any time. Withdrawal from the contract
shall not be allowed when and under circumstances which would be prejudicial to the joint activity.
2. If by agreement of the participants a time period is fixed for the joint activity, then withdrawal from
the contract shall be allowed only on legitimate grounds.
3. Withdrawal by one of the participants terminates the joint activity. The contract may provide for
withdrawal by one of the participants without termina tion of the joint activity [however]. In such case
the share of the withdrawing participant shall be di stributed among the rest of the participants. The
withdrawing participant shall be paid for his share in money. At the same time, attention must be paid
to any transactions not performed by the time of withdrawal. If at the moment of withdrawal the
common property [of the joint activity] fails to pay its common debts, then the withdrawing participant
shall be obligated to pay to the rest of the partic ipants the [additional] sum corresponding to his share.
The obligation of the withdrawing participant to the creditors existing at the moment of withdrawal
shall remain unaltered.
4. Any agreement that excludes or limits the participan t’s right to withdraw from the contract shall be
void.

Article 939. Grounds for Termin ation of the Joint Activity
1. The grounds for termination of the joint activity are as follows:
a. Expiration of the agreed duration of the joint activity;
b. The decision of the participants;
c. The institution of bankruptcy proceedings ag ainst the property of the joint activity;
d. The impossibility of accomplishment of the objects of the joint activity.
2. Unless otherwise stipulated in the contract, the grou nds for termination of the joint activity also are:
a. The death of one of the parties to the contract;
b. The institution of bankruptcy proceedings agai nst the property of one of the participants;
c. Dissolution of the contract;

Article 940. Procedure for Termin ation of the Joint Activity
1. Upon termination of the joint acti vity, transactions not yet performed shall be completed, an
inventory shall be drawn up, and the remaining prope rty shall be distributed among the participants
proportionately to their shares.

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2.
At the time of distribution of th e property, the debts accrued during the joint activity shall be paid
off. If the [joint activity] property is not adequate for payment of the debts, the parties to the contract
shall be obligated to pay the debts proportionately to their shares.

CHAPTER TWENTY-SIX
LIFETIME ANNUITY

Article 941. Concept
A person who undertakes the payment of a lifetime annu ity (the patron) shall be obligated to pay it to
the recipient of the annuity (the a nnuitant) during the recipient’s lifetime, unless otherwise stipulated in
the contract. The lifetime annuity ma y be established in money or in kind (dwelling, nourishment, care
or other necessary aid).

Article 942. Form of the Contract
A contract of lifetime annuity shall be concluded in writing. In the case of a transfer of immovable
property, the contract shall be notarized.

Article 943. Amount of Annuity
The amount of the annuity shall be determ ined by the agreement of the parties.

Article 944. Time Period s for Annuity Payments
The periods of time for annuity payments shall be determined having regard to [the] nature and
objectives [of the annuity], by agreement of the parties.

Article 945. Alienation of the Transferred Property Disallowed
1. During the annuitant’s lifetime the patron has no right to alienate, pledge or otherwise encumber
the transferred property without th e written consent of the annuitant. Attachment of this property
because of the patron’s debts shall not be allowed.
2. When the annuitant transfers the immovable property to the patron, he shall have a right of lien in
this property.
112

Article 946. Dispute Rega rding Annuity Payment
The payment of a lifetime annuity may be disputed by other persons who were legally entitled to
receive the annuity from the patron, but could not receive it because the patron pays the lifetime
annuity [to someone else]. In the case of dissolution of the contract, the property shall be returned to
the annuitant.

Article 947. In-Kind Pa yment of the Annuity
Under a contract of annuity paid in kind, the parties may take into account the substitution of the in-
kind annuity with money.

Article 948. The Risk of Accidental Loss or Deterioration of the Transferred Property
The accidental loss or deterioration of property tran sferred to the patron shall not release him from
[liability for] payment of the annuity.

112 Though the statute says “right of lien,” it should be underst ood to be an actual lien. The existence of such a lien is
presumed by the first subparagraph of the article.

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Article 949. Repudiation of the Co
ntract of Lifetime Annuity
1. Both the patron and the annuitant may repudiate a contract of lifetime annuity if the relations
between the parties have become intolerable as a resul t of the breach of contractual obligations, or if
other substantial reasons greatly complicate or make impossible its continuation.
2. Upon termination of the contract the immovable property transferred [to the patron] shall be
returned to the annuitant, and the patron shall not be compensated for expenses incurred before the
termination, unless otherwise stipulated in the contract.

Article 950. Effects of Death of the Patron
1. If the patron dies, the obligation of patronage sh all pass to those of his heirs who received the
transferred property.
2. In the case of the heir’s refusal of this obligat ion, then the property shall be returned to the
annuitant. The contract shall be terminated thereupon.

CHAPTER TWENTY-SEVEN
GAMBLING. WAGERING

Article 951. Concept
1. Gambling or wagering shall not give rise to the ri ght to [make a] claim. This rule shall extend to
loans and advances intentionally given for gambling or wagering, as well as to trading on the exchange
or other similar transactions with respect to supply of securities that have the nature of gambling or
wagering.
2. The performance given on the grounds of gamb ling or wagering may not be claimed back.

Article 952. Lottery
Contracts of lottery or similar games shall give rise to an obligation if they (raffling, casting or drawing
of lots) are sanctioned by the state.
TITLE TWO
STATUTORY OBLIGATIONS
113
CHAPTER ONE
RIGHTS IN COMMON

Article 953. Concept
If a right belongs in common to a number of persons , then the rules of this Chapter shall apply unless
otherwise prescribed by law.

Article 954. Equality of Shares
Unless otherwise specially established, each shareholder shall be entitled to an equal share.
114

Article 955. Right to Fruit
1. Each shareholder is entitled to the part of the fruit proportionate to his share.
2. Each shareholder shall have the right to use the common thing in such manner as not to encroach
on the use by the rest of the shareholders.

Article 956. Administration of a Thing Held in Common
1. The shareholders shall jointly administer a thing held in common.
2. Each shareholder shall have the right to undertake necessary measures for storage of the thing,
even without the consent of the rest of the shareholders.

113 Relationships of obligation arising by operation of law. 114 “Share” here means interest or portion, not a security.

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Article 957. Decision Making on Admini
stration of a Thing Held in Common
1. Decisions on the administration and use of a thing held in common in accordance with its
peculiarities may be made by a majority of votes. The majority of votes shall be determined according
to the shares.
115
2. Each shareholder may, according to [fairness], claim that the thing be administered and used in the
interests of all shareholders, unless this is regula ted by agreement or by decision of the majority.
3. The right of an individual shareholder to a share of use [of the thing] may not be impaired without
his consent.

Article 958. Transfer of the Proc edure for Administration of the Common Thing to a Successor
in Title
If the shareholders determined the procedure for administration and use of the common thing, then
this procedure shall apply to their successors as well.

Article 959. Procedure for Disposition of a Thing Held in Common
Each shareholder may dispose of his share, while disposition of the common thing shall take place only
jointly. In case of sale of a share, the rest of the shareholders shall have a priority right to purchase the
share.

Article 960. Expenses of Maintena nce of a Thing Held in Common
Each shareholder is obligated before the other shareholders to bear the expenses related to the thing
held in common, proportionately to his share.

Article 961. Revocation of the Right in Common
1. Any shareholder may demand revocation of the right in common at any time.
116
2. If the right to demand revocation is excluded fore ver or for a certain period of time, nevertheless
the revocation may be demanded if there is a legitimate reason for it.
3. An agreement which contrary to these rules excludes or limits the right to demand revocation sh
all
be void.

Article 962. Agreement on Revocation
If the shareholders have excluded the right to demand revocation for some period of time, then the
agreement shall be annulled by the death of a shareholder unless otherwise stipulated.

Article 963. Revocation of the Right in Common upon Partition in Kind
The right in common shall be revoked upon partition in kind if the common thing may be divided into
equivalent parts without decreasing its value. Equal shares shall be partitioned [distributed] among the
shareholders by drawing lots.

Article 964. Revocation of th e Right in Common by Sale
1. If partition in kind is excluded, then the right in common shall be revo
ked by sale of the common
thing, the pledged property or the [mortgaged] tract of land and by division of the proceeds. In the case
of a tract of land the rules governing foreclosure sa le at auction shall apply. If the alienation of the
common thing to a third person is unacceptable, then the thing shall be sold at auction among the
shareholders.
2. If the thing is not sold, then any shareholder may demand a repeated auction. At the same time, he
shall bear the expenses if the repeated attempt is also unavailing.

Article 965. Joint Liabilit y of the Shareholders

115 If all shares are equal, then in effect each shareholder has one vote of equal weight to each other shareholder’s vote.
See art. 954. If the share sizes vary , then each vote would be weighted.
116 That is, any shareholder may demand dissolution of the arrangement of holding rights in common property.

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1.
If the shareholders are liable as joint debtor s for an obligation to be performed by them
proportionately to their shares under Article 600, or if they have undertaken performance of such an
obligation, then upon revocation of the right in co mmon each shareholder may demand payment of the
debt from the [value of the] common thing.
2. If for the purpose of payment of the debt the sale of the thing is necessary, then the sale shall be
conducted according to Article 964.

Article 966. Satisfaction of a Claim Against a Co-shareholder
If a shareholder has against another shareholder a claim arising from the right in common, then upon
revocation of the right in common he may demand sa tisfaction of his claim from that part of the
common property to which the debtor is en titled [which belongs to the debtor].

Article 967. Liability of Shareholders Up on Revocation of the Right in Common
If, upon revocation of the right in common, the comm on thing is [transferred into the ownership of
one] of the shareholders, then each remaining share holder shall be liable, proportionately to his share,
in the same manner as a seller is liable for a defect in a thing or a ri
ght.

Article 968. Limitation Period on the Right to Demand Revoca tion of the Right in Common
The right to demand revocation of the right in common shall not be subject to limitation.

CHAPTER TWO
MANAGEMENT [PERFORMANCE] OF THE AFFAIRS OF ANOTHER WITHOUT MANDATE

Article 969. Management of the Af fairs of Another Conscientiously
A person (manager) who manages the affairs of another person (principal) without having a mandate or
other grounds to do so shall be bound to manage the affairs conscientiou
sly.

Article 970. Obligation to Compensate Damage
1. If the management is aimed at the elimination of a danger threatening the principal, then the
manager shall be liable only for [intentional misconduct] or gross negli
gence.
2. The manager who has sustained the damage in the co urse of eliminating a real danger to another
person or property while elimination of the danger wa s not his legal duty, shall be compensated for his
damages by the person who created the danger, or by the person whose property [or “good”] the
manager was trying to save.

Article 971. Obligation to Notify the Principal
The manager shall be bound to notify the principal as soon as possible that he has
undertaken
management of the [principal’s] affairs. The mana ger shall carry out the affairs until the principal
himself is able to act.

Article 972. Reporting on the Performed Work
The manager shall render an account of performance and hand over everything to the principal that the
manager received as a result of the management.

Article 973. Right to Compensa tion of Incurred Expenses
The manager has the right to demand compensation for expenses incurred, which were deemed
necessary having due regard to the circumstances of the matter.

Article 974. Claim for Compensation of Incurred Expenses Not Allowed
1. The manager may not claim compensation for expenses incurred if his management of the affairs
was either against the will of, or not in the interests of, the principal. If the manager could have known
of these facts, then he shall be bound to compensate the damage caused by the management.

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2.
This rule shall not apply if the will of the principal is contrary to th
e norms of law.

Article 975. Presumption of Management of Own Affairs
The rules of this Chapter shall not apply if the pe rson, while managing the affairs of another, was
presuming that they were his own affairs.

CHAPTER THREE
UNJUST ENRICHMENT

Article 976. Grounds for Clai m Against a Pseudo Creditor 117
1. A person who transferred something constituting performance of an obligation to another person
may claim from the pseudo cred itor (recipient) its return if:
a. the obligation, due to voidness or other grounds does not exist, will not arise, or was terminated
later;
b. a counterclaim has been asserted against the oblig ation such that that the assertion of the claim
is excluded for a long period of time.
2. The revendication claim [referred to in paragraph (1)] shall be excluded if:
a. the performance conformed with moral duties, or
b. the limitation period has elapsed, or
c. the recipient could presume that the person who gave performance was willing to transfer [the
benefit to him], regardless of whether or not the conditions under paragraph (1) of this Article
exist, or
d. demanding revendication in the case of a vo id obligatory contract would contravene the
protective function of the norms governing voidness [of contracts].

Article 977. Revendication of Tr ansferred Property Disallowed
1. A person who transfers something to another person not for performance of an obligation, but for
the purpose that the latter perform or not perform some action, may reclaim the transferred thing if the
transferee’s action does not correspond to the expected purpose.
2. Revendication shall be excluded if:
a. accomplishment of the purpose was impossible fr om the beginning and the transferor knew it,
or
b. the transferor prevented accomplishment of the purpose in bad faith.

Article 978. Revendication of a Thing Transferred Under Duress or Threats
A person who transfers something to another person not for performance of an obligation but because
he is under duress or threats, may reclaim it except when the recipient had the legal right to the thing.

Article 979. Limitations on the Right to Demand Revendication
1. The revendication claim shall extend to things acquired, and benefits received, as well as to
everything that the recipient has acquired as compensation for the destruction, deterioration or seizure
of the received thing.
2. If return is impossible due to the condition of the transferred thing, or if the recipient cannot return
the thing for some reason, then he shall compensate the total value of the thing. The value shall be
determined as of the time of orig in of the revendication claim.
3. The obligation to compensate shall not accrue if the recipient has not been enriched by the thing or
its value, either by use, alienation, perishing or deterioration of the thing or by other reason.
4. When the parties to a bilateral contract, on the grounds of its voidness, are bound to return
everything they have received from the contract, but one of the parties cannot return it because of the
grounds defined in paragraph (2) of this Article, th en this party shall not be obligated to return the

117 Translates literally from Georgian, “as if” creditor.

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[monetary value] if it follows from the essence of
the norm of law according to which the contract was
voided.
5. Perishing or deterioration of the object of the pe rformance, for which, if the contract were valid,
the party who had to perform would have been liabl e, shall always release the recipient from the
obligation to compensate.

Article 980. Procedure for Compen sation of Expenses and Loss
1. If the recipient incurred expenses or suffered property loss because he believed that he had
acquired the thing forever, then he shall be bound to return the thing [only] on condition that he be
compensated for these expenses and loss. This rule shall not apply if the transferred thing could not
reasonably have been considered to have been acquired forever.
2. The obligations of compensation under Articles 979 and 980 shall be performed simultaneously.
The expenses and risk of return shall be borne by the person who gave performance [and is demanding
return of the property or benefit].

Article 981. Obligation to Compensate Damage
1. If the recipient knew of the defective legal ground at the time of receipt, or if this was unknown to
him because of his gross negligence and he became aware of the defect later, or if the claim with
respect to [revendication of the] transfer is taken un der consideration in court, then the recipient shall
be liable from the time of receipt of information on the defect or from the time of submission of the
claim for consideration in court – under paragraphs (1) and (2) of Article 979, Article 980 and the rules
defined below.
2. If the recipient has not received the benefits that he could have received by the proper management
of the property, then he shall be bound by the obligat ion to compensate if there is fault on his part [that
is, if fruits were not realized and therefore cannot be returned to the claimant]. In the case of a
monetary debt, the interest shall be added to the sum [owed back]. The income derived from the thing
shall be returned [to the claimant].
3. In a case of perishing or deterioration of the transferred thing the recipient shall be liable to
compensate the damage [to the claimant] only if ther e is a fault on his part. The recipient may, under
the rules governing the management of the affairs of another without mandate, demand compensation
for the expenses that he incurred with respect to the object of the performance. Other expenses shall
not be compensated.
4. These rules shall not apply to the liability of a debtor exceeding a time period.

Article 982. Effects of “Encroachm ent” on Another’s Legal “Goods”
118
1. A person who encroaches on the legal goods of anothe r by their disposition, spending, use, joining,
mixing, processing or other method shall be obliga ted to compensate the damage thereby arisen to the
entitled person.
2. In case of a void disposition [of goods], the entitled person may demand from the encroacher
immediate compensation.

Article 983. Receipt of Performa nce by a Non-entitled Person
If a non-entitled person receives the performance belong ing to an entitled person, he shall be bound to
return the received performance to the entitled person.

Article 984. Release from Liability
1. If the encroacher was not aware of the defect in the legal entitlement because of gross negligence,
then he shall be released from liability [only] if by the time when the claim for damages is submitted for
consideration in court, the signs of enrichment no longer exist.
2. Expenses incurred by the encroacher with respect to the used good shall not reduce the extent of
his enrichment.

118 “Encroachment” = infringement, trespass. “Goods” may be understood to include tangible and intangible things.

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Article 985. Right to Claim Profits
1.
If the encroacher disregarded the legal entitlement of another person by intent, then the latter may
claim profits that exceed the [actual] property loss.
2. The encroacher must present information on the profits received by him through use of the other’s
property.

Article 986. Payment of Another’s Debt by Mistake
A person who, either intentionally or by mistake, pa ys the debts of another person may claim from this
person compensation for his expenses.

Article 987. Incurring Expenses on Another’s Property by Mistake
1. A person who, either intentionally or by mistak e, has incurred expenses with respect to another
person’s property may demand from this person compen sation for the expenses incurred, if the latter
was enriched thereby.
2. The existence of enrichment shall be determined as of the moment at which the thing is returned to
the debtor [the one who owed performance or delivery of the thing], or the moment at which [the non-
entitled person] receives the benefit [of the performa nce] as a result of an increase in value [to his
property].
3. The claim is excluded if:
a. The person against whom the claim is asserted is able to demand the withdrawal of the
expenses and withdraws them, or
b. The person asserting the claim has culpably dela yed notification of the claim for expenses, or
c. The person against whom the claim is asserted disputed the expenses before they were incurred.

Article 988. Effects of Performance Rendered on the Instructions of a Pseudo Creditor
1. A person who, in accordance with Article 976, transfers something to a third person on the
instruction of a pseudo creditor, may revendicate the performance from the pseudo creditor as if [the
creditor had received the performance]. If the instru ction of the pseudo creditor causes no doubt [i.e.
was not false or unlawful], then revendication may be exercised only against the third person.
2. A person who, pursuant to Article 976, transfers so mething to a new pseudo creditor after assertion
of a claim [of entitlement to the thing transferred], ma y revendicate it from the initial pseudo creditor as
if he transferred something to him. If the instruction of the initial pseudo creditor causes no doubt [i.e.
was not false or unlawful], then revendication may be exercised only against the new pseudo creditor.
3. Articles 979 and 980 shall accordingly a pply to the obligation of compensation.

Article 989. Obligation of a Third Person to Return the Unjustly Received [Thing] 1. If, in the cases defined under Articles 976 and 988, the recipient who is bound to return the thing,
instead gratuitously transfers it to a third person, th en, if satisfaction from the [initial] recipient is
impossible, the third person shall likewise be bound to return the thing as if he has received something
from the creditor [i.e., the initial reci pient] without lawful grounds therefor.
2. Articles 979-981 shall accordingly apply to the compensation of damage.

Article 990. Effects of Gratui tous Disposition of the Thing by a Non-entitled Person
1. If a non-entitled person gratuitously disposes of the thing and this dis
position [would be] valid [if
performed by] the entitled person, then the person who has received the direct legal benefit as a result
of this disposition shall be bound to transfer the received thing to the entitled person.
2.
If there is fault [culpability], then the requirement s of Articles 984 and 985 shall apply accordingly.

Article 991. Effects of Unjust Enri chment at the Expense of Another
A person who was unjustly enriched at the expense of another by methods other than those defined in
this Chapter shall be bound to return the received [benefit].

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TITLE THREE
DELICTUAL OBLIGATIONS [TORTS] CHAPTER ONE
GENERAL PROVISIONS

Article 992. Concept
A person who causes harm to another person by un lawful, intentional or negligent action shall be
bound to compensate the latter for his harm.

Article 993. Effects of Disclosu re of the Harmful Information
1. A person who intentionally or negligently publiciz es or discloses facts causing property loss to
another person shall be bound to compensate the loss thereby arisen if these facts are evidently wrong.
2. The obligation to compensate the loss shall not accrue in the case of such statements made for the
protection of lawful public interests.

Article 994. Liability of a Minor for Harm Caused
1. A person under the age of ten years shall not be lia ble for harm that he causes to another person.
The parents or other persons [legally] obligated to care for the person under the age of ten years shall
be bound to compensate the harm caused by this pe rson to another by [the child’s] unlawful act. Their
liability shall be excluded when the persons respons ible for supervision [of the child] could not have
avoided the harm done.
2. A minor who has attained the age of ten years and older shall be liable for the harm that he caused
to another, except when he could not understand th e significance of his action when causing the harm.
If the property or income of this person is not adequate for compensation of the harm done, the
uncovered liability shall be placed on his representatives as well.

Article 995. Compensation for Harm Caused by a Mentally Ill Person
1. If a mentally retarded or menta lly ill person causes harm to another person by an unlawful act, he
shall not be obligated to compensate the harm.
2. If a person is charged with supervision of the wr ongdoer, then he shall be obligated to compensate
the harm except when it was impossible for him to avoid this harm.

Article 996. Compensation of Harm Caused in a State of Temporary Mental Disorder
A person who causes harm while in a state of tempora ry unconsciousness or temporary mental disorder
is not liable for the harm. If the person put himself into such a state
by using alcoholic drinks or in
some similar manner, he shall not be released from liability, unless he found himself in this state
through no fault of his own.

Article 997. Compensation of Harm Caus ed While Performing Official Duties
A person shall be bound to compensate the harm ca used to a third person by his employee’s unlawful
act when the latter was on duty. The liability shall not accrue if the employee acted without fault.

Article 998. Joint Liabil ity for Harm Caused
1. If several persons participate in the infliction of the harm, they shall be liable as joint obligors.
2. Not only shall the person who directly caused the harm be liable, but also the person who
supported or assisted him, as well as one who consciously benefited from the harm caused to another
shall be liable for the harm.

Article 999. Compensation of Harm Caused as a Result of Operation of Means of Transport
1. The possessor of a means of transportation used for the carriage of passengers or freight shall be
obligated to pay compensation if the operation of th e means of transportation caused the death, bodily
injury or disability of an individual, or damage to a thing.
2. The obligation to compensate, defined in paragra ph (1) of this Article, shall not apply when:

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a.
transported freight is damaged, except when a pa ssenger carries this freight with himself; or
b. the damaged thing was bailed for storage with the possessor of the transport.
3. The obligation to compensate for harm caused, define d in paragraph (1) of this Article, shall not
apply if the harm was caused by force majeure exce pt when the harm is caused during the operation of
a means of air transportation.
4. If a person operates a means of transportation wi thout the permission of the possessor, then he
shall be bound to compensate the harm caused instead of the possessor. At the same time, the
possessor shall be bound to compensate the harm caused if the operation of the transport [by the other
person] was made possible through his fault. The firs t sentence of this paragraph shall not apply when
the user is designated by the possessor for operation of the transport, or when this transport was
handed over to the user by the possessor.

Article 1000. Compensation of Harm Caused by Increased Danger Associated With a Structure
1. If there is an increased danger associated wi th some structure because of the energy power,
inflammable, explosive, poisonous or toxic substances produced by, put in or supplied through this
structure, then the possessor of the structure shall be obligated to pay compensation if the realization
of this danger causes the death, bod ily injury or disability of an individual or damage to a thing. The
same liability shall be put on possessors of inflamma ble, explosive, poisonous or toxic substances when
there is an increased danger associated with these substances.
2. If there is an increased danger associated with some structure or thing for reasons other than those
defined in paragraph (1) of this Article, the possessor of the structure or the thing shall be obligated to
compensate the harm analogously if the re alization of such danger caused the harm.
3. The obligation to compensate damages defined in paragraphs (1) and (2) of this Article shall be
excluded if the harm is caused by force majeure, except when the harm is caused by the breakdown of
electric power transmission lines, or by the malfunct ion of oil, gas, oil products, or water supply
facilities, [i.e., in such instances force majeure is not a defense].
4. The harm caused by the use of radioactive sub stances shall be compensated by their user.

Article 1001. Compensation of Harm Caused while Extinguishing Fire
The harm caused to other persons while extinguishin g a fire and preventing it from spreading over
neighboring apartments and structures shall be compen sated by the person through whose fault the fire
was set.

Article 1002. Prior Release from Obli gation to Compensate Harm Disallowed
The obligation to compensate for harm set forth under Articles 999 and 1000 may not be excluded or
limited beforehand if it relates to harm sustained by a person. The same rule applies to harm caused to
a thing, except when the release from or limitation of the liability was agreed upon between the person
liable for compensation of the harm on the one side , and a legal person of public law, public-law
foundation or enterprise on the other. Any agreements or provisions to the contrary shall be void.

Article 1003. Compensation of Harm Caused by an Animal
The possessor of an animal shall be bound to compen sate the harm caused to another by his animal. It
is of no importance if the animal was supervised, lost or it escaped. The obligation to compensate shall
not apply if the possessor of the animal undertook [all] necessary measures for the protection of third
persons.

Article 1004. Compensation of Harm Caused by Collapse of a Building
1. The owner of a building shall be bound to compensate the harm caused by collapse of the building
or by the ruin of its individual parts, except wh en the harm is not caused by improper maintenance or
defect of the building.
2. If the harm is caused by the throwing out, falling out or flowing out of a thing from the building,
then the liability shall be on the person who occupies the dwelling, except when the harm occurred by
force majeure of through fault of the victim.

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154

Article 1005. Liability of the State for Harm Caused by its Employee
1.
If a state employee [public servant] breaches his official duties before other persons by intent or
gross negligence, then the state or that body [“orga n”] in which the employee works shall be bound to
compensate the harm incurred. In the case of inte nt or gross negligence, the employee and the state
shall be liable jointly.
2. The obligation to compensate the harm shall not aris e if the victim, either by intent or by gross
negligence, did not try to avoid the harm through legal action.
3. The harm caused by illegal conviction of a rehabilit ated person; illegal criminal prosecution; illegal
application of enforcement measures in the form of detention or an order not to leave a place; or
improper imposition of an administrative penalty in the form of imprisonment or correctional labor,
shall be compensated by the state regardless of th e fault of officials of inquiry or preliminary
investigation agencies, the procurator’s office or th e court. In the case of intentional misconduct or
gross negligence, these persons and the state shall be liable jointly.

Article 1006. Compensation of Harm in Case of the Victim’s Death
1. In the case of the victim’s death the harm-doer shall compensate the harm by establishing an
annuity for those persons who were dependants of the victim. This obligation shall be effective until
expiration of the period for which the victim was obligated to pay annui
ty [i.e., support for his
dependents].
2. Instead of an annuity the victim may claim lump-sum compensation if there is a substantial ground
therefor.

Article 1007. Compensation of Harm Caused by a Medical Institution
The harm caused to a person’s health during his trea tment at a medical institution (outcome of surgical
operation or incorrect diagnosis, etc.) shall be compensa ted on a general basis. The harm-doer shall be
released from liability if he proves that there wa s no fault on his part in the occurrence of the harm.

Article 1008. Limitation Period on Claim for Damages
The limitation period on a claim for damages resulting from a tort is three years from the moment at
which the victim became aware of the harm or [the identity of] the person liable for compensation of
the harm.

CHAPTER TWO
PRODUCTS LIABILITY

Article 1009. Liability of the Manufa cturer of Substandard Products
1. The manufacturer of a substandard product shall be liable for harm cause
d by this product
regardless of whether or not he had a contra ctual relation with the victim, except when:
a. he did not put this product out for sale;
b. having due regard for the circumstances of the matter, it may be presumed that at the time
when the product was offered for sale it did not have the defect which caused the harm;
c. the manufacturer produced this product not for sale or any other commercial purpose, and not
within the scope of his professional activities;
d. the defect of the product did not violate standards in effect when it was offered for sale;
e. the defect could not be detected at the time it wa s offered for sale, taking into account the level
of scientific and technical development at that time.
2. The liability of the manufacturer of a product’s part shall likewise be excluded if the defect is caused
by the structure of the product with whic h this part was connected as a component.
3. The manufacturer’s obligation to compensate for harm shall be reduced or completely excluded if
the harm was caused by the fault of the victim or of a person who answers for the v
ictim.
4. The manufacturer’s liability shall not be reduced if the harm was caused by the defect of the
product and simultaneously by the action of a third person.

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155

Article 1010. Definition of a Substandard Product
1.
A product shall be deemed substandard if it fails to secure the reliability that was expected from this
product having due regard for all the circumstances.
2. A product shall not be deemed substandard sole ly on the basis that a better and more recent
product has been put on the market.

Article 1011. Definition of a Product
1. According to this Code, any movable thing – even when it is a part of another movable or
immovable thing, as well as electric power – shall be deemed to be a product. However, the products of
cattle-breeding, bee-keeping, fishing and farming not yet processed (natural agricultural products) shall
not be included in the above category. The same rule applies to the products of hunting.
2. According to this Code, a person who has manufactured a final product, a
principal element or part
of a product shall be deemed to be a manufacturer. Any other person who appears as a manufacturer in
his own name, trademark or other distinguishing ma rk shall also be deemed to be a manufacturer.
3. A person who puts a product out for economic purposes in the form of sale, renting out, leasing or
otherwise within the scope of his business and by obser ving the rules prescribed by this Code shall also
be deemed to be a manufacturer.
4. If the identity of the manufacturer cannot be estab lished, then each supplier shall be deemed to be
the manufacturer, except when such person, within one month following the presentation of a claim,
presents to the victim the personality of the manu facturer or the person who supplied the product to
him. This rule shall apply to imported goods when the identity of the initial [domestic] distributor
cannot be established even though the manufacturer’s name is known.

Article 1012. Burden of Proof
In cases of liability for harm caused by a substandard product, the burden of proof is on the victim.

Article 1013. Joint Liability of the Manufacturers of Substandard Products
If the obligation to compensate one and the same harm is put on several manufacturers, they shall be
jointly liable.

Article 1014. Compensation of Harm Caused by Injury to Health
The obligation to compensate for harm under Article 1009 shall extend to
harm that results from death,
bodily injury or disability.

Article 1015. Limitation Period on Claims
1. The limitation period on claims under Article 1009 is three years from the moment at which the
victim became aware or ought to ha ve become aware of the harm, defect or identity of the person liable
for compensation of the harm.
2. Any claim under Article 1009 sha ll be extinguished after ten years from the moment at which the
product that caused the harm was released for sale by the manufacturer.

Article 1016. Prior Release from Liability Disallowed
The manufacturer’s liability for substandard products may not be excluded or limited beforehand. An
y
agreement to the contrary shall be void.

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BOOK FOUR
INTELLECTUAL PROPERTY LAW
TITLE ONE
COPYRIGHT LAW

Articles 1018-1099. Repealed by the Law of Georgia “On the Amendments to the Civil Code of
Georgia” of June 22, 1999, No. 2114 – IIs.
TITLE TWO
INDUSTRIAL PROPERTY

Article 1100. Protection of Ri ghts in Inventions, Utility Models and Industrial Designs
1. The protection of rights in inventions, utility models and industrial designs shall be exercised by the
issuance of a patent under the Patent Law of Georgia.
2. The right to acquire a patent shall belong to the author of the invention, utility model or industrial
design, or to his successor in title.
3. The authorship right in invention, utility model and industrial design is inalienable and unlimited in
time.
4. During the effectiveness of the patent, the pa tentee shall enjoy the exclusive patent right.

Article 1101. Protection of Righ ts in [Artificial] Selection
Protection of the exclusive right in a species of plant or animal (achievement of [artificial] selection)
shall be exercised by the issuance of a certificate under the corresponding law.

Article 1102. Protection of Ex clusive Rights in a Trademark
The protection of exclusive rights in a trademark shall be exercised under the corresponding law, on
the grounds of registration of the trademark. The ri ght to obtain a trademark certificate shall belong to
the entrepreneur.

Article 1103. Right to Indicate a Geographicall y Distinctive Designation and Place of Origin
The right to indicate a geographically distinctive desi gnation and place of origin of the goods (services)
shall be regulated by corresponding law.

Article 1104. Protec tion of Tradename
This Code, the Law on Entrepreneurs and other legisl ative acts regulating industrial property shall
protect the exclusive right to a tradename.

Article 1105. Protection of a Trade Secret
1. An entrepreneur who possesses a trade secret (know-how), which consists of technological,
organizational or commercial information of extrao rdinary importance that justifies the taking of
necessary and adequate measures for keeping it in secrecy, shall have the exclusive right to this
information.
2. This Code and other legislative acts regulating ind ustrial property shall protect the exclusive right in
know-how.

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157
BOOK FIVE
FAMILY LAW
TITLE ONE MARRIAGE

CHAPTER ONE
PROCEDURE AND PRECONDITIONS OF SOLEMNIZATION OF MARRIAGE

Article 1106. Marriage Defined
Marriage is the voluntary union of a woman and a ma n for the purpose of creating a family, which is
registered with an agency of the State Register of Civil Status of Citizens.

Article 1107. Preconditions of Marriage
Marriage shall require:
a. [Attainment of the legal] age of marriage [consent];
b. The consent of the prospective spouses.

Article 1108. The Age of Marriage
1. The age of marriage shall be defined as eighteen years.
2. In exceptional cases marriage is allowed from the age of sixteen years, subject to the preliminary
consent of the parents or other statutory representatives.
3. In case of refusal of consent by the parents or other statutory representatives, a court, on the
petition of the prospective spouses, may grant the permission to marry provided there are legitimate
reasons therefor.

Article 1109. Consent of the Pr ospective Spouses. Engagement
1. Prior consent of the prospective spouses (engagement) shall not create the obligation to marry
thereafter.
2. An engagement shall not be grounds for bringing an action for forced marriage.
3. If a planned marriage is cancelled, gifts given in connection with the e
ngagement shall be returned
to the parties.

Article 1110. Marriage Ceremony
1. The marriage ceremony takes place after the expira tion of one month from the date at which the
prospective spouses file an application with an offi ce of the Register of Civil Status. The application
shall be effective for two months after the lapse of the one-month period.
2. In individual cases an office of the Register of Civil Status may reduce the one-month period,
provided there are legitimate reasons therefor.
3. In exceptional circumstances, such as the birth of a child, a real danger to the life of one of the
parties or the like, the marriage may be registered on the same day as the filing of the application.

Article 1111. Registration of Marriage
A marriage is registered with an office of the Regi ster of Civil Status at the place chosen by the
prospective spouses.

Article 1112. Filing of an Application for Marriage
The persons willing to marry shall personally file the a pplication with an office of the Register of Civil
Status. In the application they shall confirm that there are no impediments to the marriage defined
under Article 1120, that they know of the marital st atus of each other, and they know how many times
each party was married before and whether or not they have children.

Article 1113. Duties of an Office of the Register of Civil Status

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158
1.
The office of the Register of Civil Status that accepts the application of the prospective spouses
shall be bound to inform them of the procedure an d preconditions of marriage registration, as well as
to explain to them the rights and duties of spouse s and parents defined in this Code and to warn them
that they shall be liable for concealing any impediments to the marriage.
2. The office of the Register of Civil Status sha ll be bound to assure itself that there are no
impediments to the marriage of the prospective spo uses and that the prospective spouses know of the
state of health and the marital status of each other.

Article 1114. Registration of Marriage outside the Domicile of an Office of the Register of Civil
Status
At the request of the prospective spouses, and if legitimate reasons exist therefor, the marriage may be
registered outside the domicile of the office of the Register of Civil Status.

Article 1115. Marriage in a Festive Ceremony
By consent of the prospective spouses, the marriage is held in a festive ceremony.

Article 1116. Duty to Provide Info rmation on the State of Health
At the registration of the marriage the prospective s pouses shall declare that they know of the state of
health of each other.

Article 1117. Participation of Witnesse s at the Registration of Marriage
The registration of a marriage shall be carried out in the presence of two adult witnesses.

Article 1118. Procedure of Marriage of Foreigners
1. Marriage of foreigners in Georgia shall require an official certificate issued by the corresponding
bodies of their counties, verifying that there are no impediments to the marriage.
2. This rule shall not apply to stateless persons or to the citizens of those states where the above-
mentioned official papers are not issued.

Article 1119. Appeal Against Refusal of Registration
The refusal by an office of the Register of Civil Stat us to register a marriage may be appealed to a court.

Article 1120. Impediments to Marriage
1. Marriage shall not be allowed:
a. between persons at least one of whom is married;
b. between lineal ascendants and descendants [parents and children];
c. between a sister and a brother, regardless of whether they are siblings by blood or not;
d. between an adoptive parent and an adoptee;
e. between persons at least one of whom has been d eclared by a court to be a person without legal
capacity by reason of mental illness or mental retardation;
2. Subparagraphs (b), (c) and (d) of paragraph (1) of th is Article shall apply even if the relationship has
been dissolved by placement for adoption.

Article 1121. Procedure of Remarriage
1. In case of remarriage, a person shall be obligated to present at the registration of the marriage the
certificate of the termination of the former marriage.
2. In case of the death of either spouse, the registra tion of remarriage of the other spouse shall require
presentation of the death cer tificate of the decedent.

CHAPTER TWO
TERMINATION OF MARRIAGE

Article 1122. Terminatio n of Marriage; Grounds

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159
Marriage is terminated upon:
a. the death of either spouse;
b. the declaration of either spouse as dead, in a ccordance with the procedure prescribed by law;
c. divorce.

Article 1123. Divorce Not Allowed
1. Divorce is granted pursuant to court proceedings, and those cases within Articles 1124 and 1125 –
at an office of the Register of Civil Status.
2. During pregnancy of the wife, and within one yea r from the birth of the child, the husband has no
right to petition for divorce without consent of the wife.

Article 1124. Procedure of Divorce
1. Divorce at the office of the Register of Civil Stat us located according to the place of residence of
one of the spouses shall be allowed, subject to th e mutual consent of spouses who have no minor
children, and who file a joint application for divorce.
2. In the application for divorce, the spouses shall be obligated to confirm not only their mutual
consent, but also the fact that they have no minor children.
3. Divorce may be granted in the absence of one of the spouses, provided he or she has a legitimate
reason for non-appearance in the office of the Register of Civil Status, and a duly verified declaration in
his or her name confirming the consent to the divorce is presented.
119
4. Divorce shall be granted within one month from th e date of filing of the application for divorce by
the spouses, except in a case with in paragraph (3) of Article 1110.
5. The marriage shall be deemed terminated from the moment of registration of the divorce by the
office of the Register of Civil Status.

Article 1125. Divorce Granted upon Petition of One of the Spouses
At an office of the Register of Civil Status, a di vorce shall be granted on the petition of one of the
spouses if the other spouse:
a. is declared to be a missing person under the procedure prescribed by law;
b. is declared a person without legal capacity by re ason of mental illness or mental retardation;
c. has committed a felony and has been sentenced by a court to imprisonment for a period of not
less than three years.

Article 1126. Divorce in the case of a Dispute Between the Spouses
If there be a dispute between the spouses, or if they have a minor child, a proceeding for divorce shall
be carried out in a court.

Article 1127. A Proceeding for Divorce in a Court
1. A proceeding for divorce in a court shall be carried out in accordance with the procedure for
adversary proceedings prescribed by the Civil Procedure Code of Georgia.
2. The court shall undertake measures for reconciliation of the spouses. It
shall have the right to
postpone the proceeding and fix a period of time fo r reconciliation of the spouses that may not exceed
six months.
3. A decree of divorce shall be issued if the court re solves that the matrimonial cohabitation of the
spouses and the preservation of the family is no long er possible, in spite of the measures undertaken
for reconciliation.
4. When issuing the divorce decree, the court, wher e necessary, shall undertake measures for the
protection of the interests of minor children and, if relevant, the disabled spouse.

Article 1128. Court Decision on Custody and Child Support

119 In these family law articles we have resorted to the cu mbersome “he/she,” “him/her,” because it is necessary to be
clear where provisions relate to spouses of both sexes, or only to one or the other. Use of the generic “he” pronoun to
cover male, female and neuter (legal person) subjects would be inappropriate and lead to confusion.

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160
1.
If the spouses do not agree on the place of re sidence of the children of the marriage and the
expenses for child support, then the court shall be bound, simultaneousl
y with rendering the divorce
decree, to determine which parent shall be awarded the custody of which child, as well as which parent
shall be ordered to provide the child support and the amount thereof.
2. In a case within this Article, where necessary, an agency of guardianshi
p and curatorship shall be
called to participate in the proceeding.

Article 1129. Court Decision on Spousal Support
At the request of a spouse entitled to maintenance payments from another spouse, the court shall be
bound, simultaneously with the rendering of the divorce decree, to determine the amount of
maintenance that the other spouse shall be ordered to pay.

Article 1130. Court Decision on th e Partition of Community Property
1. At the request of either or both of the spouses, the court shall be bound, simultaneously with the
rendering of the divorce decree, to consider the i ssue of partition of property owned in common by the
spouses [community property].
2. If such partition concerns the rights of third pers ons, then the dispute with respect to partition of
the property may not be settled simultaneously with the divorce case.

Article 1131. Fee for Issu ing Divorce Certificate
Upon rendering the divorce decree, the court shall deter mine an amount from 50 to 200 Lari as the fee
to be paid by either or both of the spouses for i ssuing the divorce certificate. If the court deems that
both spouses must pay the fee, it shall determine the amounts to be paid by each spouse.

Article 1132. Execution of a Divorce Decree
1. A final judgment of divorce that has entered into legal force through registration of the judgment
with the office of the Register of Civil Status shall be executed upon the request of either or both of the
spouses not later than three years from the date of entry of the judgment into legal force through the
registration.
2. The marriage shall be deemed terminated from the moment of the registration of the divorce with
the office of the Register of Civil Status.

Article 1133. Right to Restoration of Premarital Surname
The spouse who changed his or her surname at the time of the marriage shall have the right to continue
bearing the same surname or, upon his or her reque st, the premarital surname shall be restored.

Article 1134. Application for Rest oration of the Former Surname
The spouse who wishes to bear the former surname shall file the corresponding application with the
office of the Register of Civil Status at the time of the registration of the divorce. The offices of the
Register of Civil Status shall make corresponding en tries on the restoration of the premarital surname.

Article 1135. Restoration of Marriage in the Event of Reappearance of a Spouse Declared Dead
or Missing
1. If a spouse reappears who was declared dead or mi ssing under the procedure prescribed by law, and
the marriage was terminated on those grounds, then, provided the court decree on the declaration of
death or missing status of this person is vacated, an office of the Register of Civil Status may restore
the marriage upon the joint application of the spo uses. If the divorce was granted in a court
proceeding, then the court shall vacate the di vorce decree on the spouses’ joint application.
2. The marriage may not be restored if the spouse of the person declared dead or missing has already
married another person.

Article 1136. Right to Reenter into Marriage
Divorced spouses shall have the right to reenter into marriage.

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Article 1137. Divorce to be Register
ed According to Place of Residence
A divorce shall be registered in the office of the Register of Civil Status according to the place of
residence of one or both of the spouses.

Article 1138. Registration of Divorce
1. An office of the Register of Civil Status register s the divorce on the grounds of the court decree of
divorce, upon application of either or both spouses.
2. In case of registration of the divorce on the app lication of one of the spouses, an office of the
Register of Civil Status shall notify the other spouse, provided that the address of the latter, as well as
the address of the office of the Register of Civi l Status that registered the marriage, is known.

Article 1139. Procedure of Divorce from a Sentenced Spouse
1. A spouse who wishes to divorce on the grounds sta ted in Article 1125 shall be obligated to present
to the office of the Register of Civil Status a duly authenticated, legally effective court judgment on
recognition of the other spouse to be a missing pe rson or a person without legal capacity, or the court
sentence or extract from the sentence that pronoun ces that the other spouse has been condemned to
imprisonment for a period of not less than three years.
2. The office of the Register of Civil Status shall give notice of the application to the imprisoned
spouse or to the guardian of the spouse without legal capacity. The notice shall fix the time period for a
notice in response, stating whether or not there is a dispute regarding the children, partition of
community property or the recovery of alimony payments in favor of the disabled spouse who is in
need of support. The time period for service of the response notice may not exceed three months.
3. If a notice is received stating that there is no such dispute, or if the response has not been received
within the fixed period, then the office of the Regi ster of Civil Status shall register the divorce.

CHAPTER THREE
VOIDNESS OF MARRIAGE

Article 1140. Voidness of Marriage – Grounds
1. A marriage may be declared void if the provisi ons prescribed by Articles 1107, 1108 and 1120 are
violated, and also if the purpose of registration of the marriage was not the creation of a family (sham
marriage).
2. Only a court may declare a marriage void.

Article 1141. Presumption of Validity of Marriage
If at [the time of] the marriage ceremony the spouses did not know of [the existence of] the
impediments that constituted the grounds for invalidity of their marriage, then the marriage shall be
terminated from the moment of finding of these im pediments in a court; nevertheless, until that
moment the marriage gives rise to all the lega l effects that follow from a valid marriage.

Article 1142. Invalidity of Marriage with an Underage Person
1. Marriage with a person who has not yet attained the age of marriage or who was not granted an
exception from the age of marriage [requirement], may be declared invalid if this is in the interests of
the spouse who entered into the marriage be fore attainment of the age of marriage.
2. A declaration of invalidity of marriage may be soug ht by the minor spouse, his or her parents or
guardian (curator), as well as by a guardianship and curatorship agenc
y.
3. If by the time of the proceeding the minor spouse has attained the age of marriage or is pregnant,
the marriage may be declared invalid only upon request of the spouse who was under-age at the time of
marriage, or who is pregnant.

Article 1143. Declaration of Invalidity of Ma rriage for the Reason of Impediments to the
Marriage

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162
1.
A marriage made in violation of the provisions unde r Article 1120 may be declared void by a court.
2. If by the time of the proceeding the impediment s to the marriage no longer exist, the court may
validate the marriage from the moment at which thes e impediments ceased to exist. A declaration of
invalidity of marriage for such reasons may be sought by the spouses and by the persons whose rights
have been impaired by solemnization of this marri age, as well as by guardianship and curatorship
agencies.
3. In a proceeding for declaration of invalidity of ma rriage with a mentally ill or mentally retarded
person the participation of his or her guardian shall be required.

Article 1144. Declaration of Voidne ss of a Marriage Made under Duress
1. If the entry into marriage was induced by force or duress, the spouse(s) may bring a legal action for
a declaration of the voidness of the marriage.
2. A finding of fact of entry into marriage under duress shall be made by a
court.

Article 1145. Declaration of Invalidity of a Sham Marriage
1. A marriage made with no intent to create a family may be declared void.
2. An action for declaration of voidness of a sham marriage may be brought by an office of the
Register of Civil Status, or, if one of the spouse s entered into the marriage with no intent to create a
family, then the other spouse may bring such an action as well.
3. A marriage may not be deemed to be a sham marriage if the registered persons have actually created
a family before the commencement of the court proceeding.

Article 1146. The Moment of Invalidity of a Marriage
1. A marriage declared void shall be deemed void from the day of its registration and shall not give
rise to marital rights and duties.
120
2. Property relations between persons whose marriage has been declared void shall be regulated by the
rules governing the common-property regime prescribed by this Code.
3. When entering a judgment on declaration of the in validity [or voidness] of a marriage, the court
shall have the right to award the spouse who did not know and could not have known of the
impediments to the marriage (the spouse in good faith)
121 alimony from the other spouse, in accordance
with Articles 1182 and 1186, and to apply the ru les prescribed by Articles 1158 and 1171 to the
partition of property acquired prior to the declar ation of invalidity [or voidness] of the marriage.
4. A declaration of invalidity [or voidness] of a marriage shall in no way impair the rights of a chi
ld
born of that marriage.

Article 1147. Compensation for Damages Sustained by the Putative Spouse
A putative (good faith) spouse who has sustained pr operty [economic] damage as a result of a marriage
which has been declared [void or] invalid has the right to claim these damages.

Article 1148. Only a Court May Invalidate [Void] a Marriage
No one may claim that a marriage is invalid [or void] unless so declared by a court.

Article 1149. Declaration of Invalidity [Voidne ss] of a Marriage after Death of the Spouses
Disallowed
In no event may a declaration of invalidity [or voidne ss] of a marriage be sought after the death of both
spouses.

120 Compare § 1141. Under that article, the invalidity of the marriage begins from the moment of discovery, not from
the moment of registration, and the legal consequences of marriage are deemed to have existed up to that point. Where
the rule indicates invalidity from the moment of marriage, wh ich cannot be made valid, we have tried to use the word
“void.” Where the law indicates that the marriage may be eith er validated or, as in § 1141, considered valid up to the
moment of its invalidation, we have tried to use the word “invalid” and its derivatives. In all of these articles, however,
the same Georgian word is used for the te rm that we have variably translated as “voidness” or “invalidity” according to
the context.
121 Known in American usage as “putative spouse.”

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163

Article 1150. Reentry into a Marriage
in the Case of an Invalid Marriage
Persons whose marriage has been invalidated [voided] may reenter into marriage under the usual
procedure, provided that the grounds for which the marriage was invalidated [voided] no longer exist.

CHAPTER FOUR
MARITAL RIGHTS AND DUTIES
I. General Provisions

Article 1151. The Role of Registration of a Marriage
Only a marriage registered with an office of the Regi ster of Civil Status shall give rise to the marital
rights and duties of spouses.

Article 1152. Equality of Spouses
In domestic relations the spouses shall enjoy equa l personal and property rights and shall bear equal
duties.

Article 1153. Discrimination Prohibited
When entering into a marriage and in domestic relations , no direct or indirect restriction of rights shall
be allowed and there shall be no direct or indir ect preference for origin, social and property status,
racial and ethnic background, sex, education, language, attitude to religion, kind and nature of activities,
place of residence and other factors.

II. Personal Rights

Article 1154. Right to Choose Surname
At the marriage ceremony the spouses may, as they wi sh, choose the surname of either spouse as their
common surname, or each spouse may either retain his or her premarital surname, or may add the
other spouse’s surname to his or her surname. The sur names may not be added if either or both of the
spouses [already] has a double [hyphenated] surname.

Article 1155. Joint Settlement of Domestic Affairs
The spouses shall jointly determine the childre n’s upbringing and other domestic affairs.

Article 1156. Freedom of Choice of Activity
Each spouse is free to choose hi s or her activity and occupation.

Article 1157. Freedom of Choi ce of Place of Residence
Each spouse is free to choose his or her place of residence unless to do so would contravene the
interests of the family.

III. Property Rights and Duties Prescribed by Law

Article 1158. Community Property of Spouses
1. Property acquired by the spouses during the marri age shall constitute property owned by them in
common (community property), unless otherwise stipul ated in a marital agreement concluded between
the spouses.
2. The community-property regime shall likewise arise if one of the spouses has been keeping the
household, has been providing care for the children, or was lacking an i
ndependent source of income
for other legitimate reason.

Article 1159. Administration of Comm unity Property by Mutual Agreement
The spouses shall have equal rights to the communi ty property. Possession, use and disposition of this
property shall be exercised by mu tual agreement of the spouses.

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Article 1160. Disposition of Communi
ty Property by Mutual Agreement
The disposition of community property of the spouses shall be exercised by mutual agreement of the
spouses, regardless of which spouse disposes of this property. A transaction made by one of the
spouses for disposition of the property may be render ed void upon request of the other spouse, only if
the spouse having disposed of the property had no suc h authority and it is proved that he or she knew
or ought to have known that he or she had no such right.

Article 1161. Separate Property of the Spouses
The following shall constitute the separate property of each spouse:
a. Property that this spouse owned before the marriage;
b. Property that is acquired during the ma rriage by inheritance or by gift.

Article 1162. Things of Individua l Use Acquired During Marriage
Things of individual use, except jewelry, shall be de emed to be the separate property of the spouse who
uses these things, even if they were acquired du ring the marriage at the common expense of the
spouses.

Article 1163. Recognition of Separate Prop erty of a Spouse as Community Property
The separate property of either spouse may be deemed to be community property of the spouses if it is
determined that this property has significantly increase d in value as a result of expenses incurred during
the marriage (re-planning, completion of construction, reconstruction etc.). This rule shall not apply if a
marital agreement between the s pouses stipulates otherwise.

Article 1164. Partition of Community Property
Community property may be partitio ned upon the request of either spouse, both during the marriage
and after termination of the marriage.

Article 1165. Fate of Things Required for Prof essional Activities upon Partition of the
Community Property
The partition of community property shall be effected by mutual agreement of the spouses, or, if no
such agreement has been reached – by a court. The court shall determine which thing shall belong to
which spouse. Things required for professional acti vities (musical instruments, medical equipment, a
book collection etc.) shall be transferred to the spouse who needs them for his or her professional
activities, even if they were acquired during the marriage at the common expense of the spouses.

Article 1166. Compensation in the Case of Disparity in Partition
If, in the partition of community property, one of the spouses receives things, the value of which
exceeds his or her share, then the other spouse shall be awarded corresponding compensation in either
monetary or other form.

Article 1167. Partition of Communi ty Property During Marriage
If the partition of community propert y is effected during the marriage, then the part of the property
that is not partitioned as well as the property acquired by the spouses thereafter shall be deemed to be
community property, unless otherwise stipulated in a marital agreement.
122

Article 1168. Partition of Community Property Taking into Account the Interests of Minor
Children
1. Community property shall be divided into equal shares between the spouses unless otherwise
stipulated in a marital agreement.

122 This clause appears to presume continuation of the marriage after partition and would not apply after a divorce.

Translated by IRIS Georgia May 2001
165
2.
The court may make an exception to the rule of part ition into equal shares, taking into account the
interests of minor children or the noteworthy interests of one of the spouses; in particular, the share of
one of the spouses may be increased if the minor childre n reside with him or her, or if he or she is a
disabled person, or if the other spouse has dissipa ted the community property to the detriment of the
interests of the family.
3. Based on such grounds, the court may award each spouse the property acquired by him or her
following de facto termination of the marriag e, or while they lived separate and apart.

Article 1169. Division of Community [common, joint] Debts of the Spouses
Liability for the community debts of the spouses shall be divided between the spouses proportiona
tely
to their shares in the community property.

Article 1170. Rule for Payment of the Debt of One of the Spouses
1. Payment of a debt of one of the spouses may be recovered from his or her property and/or from
him or her share in the community property which he or she would have received in the partition of
the community property.
2. Payment of the said debts may be recovered from the community property if the court finds that
the [benefits, revenue, property] obtained by unde rtaking the obligation have been used in the common
interests of the family.
3. In the event that compensation must be paid [to a third party] as a result of harm caused by the
offense [crime] committed by one of the spouses, then the compensation may be recovered from
community property only if the verdi ct finds that this property was acquired with the fruits of the
committed offense.

Article 1171. Limitation Period on Clai ms for Partition of Community Property
The limitation period on a claim for partition of th e community property of divorced spouses is three
years.

IV. Contractual Property Relations of the Spouses

Article 1172. Marital Agreement
The spouses may enter into a marital agreement that shall determine their property rights and duties
both during the marriage and in the event of divorce.

Article 1173. Formation of a Marital Agreement
1. A marital agreement may be made both prior to the registration of the marriage (pre-nuptial
agreement) and at any time following the registration (postnuptial agreement).
2. A prenuptial agreement shall be effect ive upon registration of the marriage.

Article 1174. Form of the Agreement
A marital agreement shall be made in writing and shall be notarized.
123

Article 1175. Making of a Marital Agreement by a Person with Limited Legal Capacity
A person with limited legal capacity may enter into a prenuptial agreement only with the consent of his
or her statutory representative.

Article 1176. Content of a Marital Agreement
1. A marital agreement may be made for both alread y available property and property to be acquired
in the future.
2. The community-property regime prescribed by statu te may be altered by a marital agreement of the
spouses.

123 “Marital agreement” is used when the drafter has not i ndicated “pre-nuptial” or “post-nuptial,” so applicability to
both should be assumed.

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166
3.
The spouses may either unite all their property so as to include therein the property acquired during
marriage as well (common property), or they may decline such unity, in whole or in part, and determine
the shared or separate ownership of the property by each spouse.

Article 1177. Rule of Bearing Family Expenses
The spouses shall have the right to determine in th e marital agreement the conditions regulating their
participation in incomes, the rule for bearing family expenses by each of them, and the property to be
transferred to each spouse in the event of termination of the marriage.

Article 1178. Limitation of Rights and Duties Stipulated by Marital Agreement
The rights and duties stipulated in the marital agreem ent may be limited for a certain period of time, or
conditioned upon the occurrence of certain contingencies.

Article 1179. Duties That May not be Altered by Marital Agreement
1. A marital agreement may not alter th e duty of reciprocal support of the spouses, parental rights and
duties towards children, child support obligations
124 and the right to take legal action in court in the
event of a dispute.
2. Likewise, a marital agreement may not include a clause that puts one of the spouses in hardship.

Article 1180. Termination of Marital Agreement
1. A marital agreement may be altered or terminated at any time subject to the mutual agreement of
the spouses.
2. Unilateral repudiation of a marital agreement shall not be allowed.
3. A marital agreement terminates upon divorce.

Article 1181. Alteration of Term s of Marital Agreement by Court
On the application of the interested spouse, and if there are legitimate reasons for it, a court may alter
those terms of the marital agreemen t that put one of the spouses in an extremely unfavorable position.

CHAPTER FIVE
DUTY OF RECIPROCAL SUPPORT OF THE SPOUSES

Article 1182. A Person Entitled to Receive Maintenance
The spouses are obligated to give material support to each other. In the event of refusal of such
support, and/or if there is no agreement between the spouses on providing support, the following
persons shall be entitled to receive support by a court ruling:
a. A disabled spouse who is in need of material support;
b. A wife during pregnancy and for a period of three years after the birth of a child.

Article 1183. Disabled Spou se’s Right to Maintenance
A disabled spouse who is in need of support from the other spouse shall retain the right to receive
maintenance after divorce, if he or she became disa bled before the divorce or within a period of one
year after the date of divorce.

Article 1184. Release from the Duty of Support by a Court
A court may release a spouse from th e duty of support, or alter this duty for a certain period of time, if
the spouses were married for only a short period of time, or if the spouse seeking material support
committed an indecent act against the spouse who pa ys the maintenance, or if the disability of the
spouse seeking material support has been caused by abuse of alcohol or narcotic drugs or by his or her
commission of an intentional offense.

124 See §§ 1128 and 1139(2). The Georgian word used for child support is very close to the English word “alimony,”
but it means child support as used, not support to the spouse.

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167
Article 1185. Determination of the Amount of Maintenance
1.
The amount of maintenance payable to the spouse sh all be determined in the form of a monetary
sum to be paid monthly, with due regard given to the material and marital status of the spouses.
2. In the event of a change in the material or marita l status of one of the spouses, then either spouse
may bring an action in a court for changing the amount of the maintenance.

Article 1186. Extinguishment of the Right to Receive Maintenance
The right to receive maintenance from a spouse shall be extinguished if the grounds defined in Articles
1182 and 1183 no longer exist, or if the spouse receiving the maintenance remarries.
TITLE TWO
RELATIONS AMONG PARENTS, CHIL DREN AND OTHER RELATIVES
CHAPTER ONE
ESTABLISHING THE PARENTAGE OF CHILDREN [FILIATION]

Article 1187. Grounds Giving Rise to the Ri ghts and Duties of Parents and Children
The reciprocal rights and duties of parents and thei r children shall arise from the parentage (filiation) of
the children, proved in accordance with the procedure prescribed by law.

Article 1188. Proof of Filiation of a Child in the Event of the Death of his Father
In the event of the death of the father, a child sh all be deemed to have been born of the married
parents, if he is born not later than ten months following the death of
the father.

Article 1189. Confirmation of Filiatio n Between a Child and Married Parents
The filiation between a child and married parents sha ll be confirmed by the documentary record of the
marriage of the parents.

Article 1190. Proof of Filiation Between a Child and Unwed Parents
1. Filiation between a child and parents not married to each other shall be determined by joint
application of the parents, filed with an office of the Register of Civil Status.
2. If the parents do not make a joint application, then paternity may be established in a court
proceeding on the application of one of the parents, the guardian (curator) of the child or the person
who provides maintenance for the child, as well as on the application of the child himself or herself,
having attained the age of majority.
3. When establishing paternity, the court takes into ac count the facts of cohabitation and a jointly kept
household of the mother and the defendant prior to the birth of a child, or the joint upbringing and
maintenance of the child, or an evidentiary document that certifies the recognition of paternity by the
defendant.
4. Upon establishment of paternity under the rules prescr ibed in this article, the children are entitled
to the same rights and duties with respect to the parents and their relatives as are children born of
married parents.

Article 1191. Recording of the Married Parents in the Register of Births
1. A married mother and father shall be recorded in the register of births on the appl
ication of either
one of them.
2. A person recorded as the mother or the father of a child may contest the record within one year
from the moment at which he or she learned or ought to have learned of the record. If [at the time of
registration] the person recorded as the mother or the father was a minor, then the one-year period
shall be computed from the moment of attainment of the age of majority.

Article 1192. Rule of Recordation of Unwed Parents
1. If the parents are not married to each other, then the record with respect to the mother of the child
shall be made on the application of the mother, and the record with respect to the father, on the joint
application of the spouses or by a court ruling.

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168
2.
If the mother has died, is declared legally incapable, is deprived of parental rights or her place of
residence cannot be located, then recordation of the father of the child shall be made on the application
of the father.