Civil Code of Georgia

Civil Code of Georgia
Document number	786
Document issuer	Parliament of Georgia
Date of issuing	26/06/1997
Document type	Law of Georgia
Source and date of publishing	Parliamentary Gazette, 31, 24/07/1997
Registration code	040.000.000.05.001.000.223
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Law of Georgia

Civil Code of Georgia

Book One

General Provisions of the Civil Code

Introductory Provisions

Article 1 – Concept; scope of application

This Code regulates property, family and personal relations of a private nature based on the equality of persons.

Article 2 – Civil legislation

1. The Civil Code, other acts of private law and their interpretations shall conform to the Constitution of Georgia.

2. If legal norms of the same rank are in conflict, the special and the most recent law shall apply. If general norms provided for in this Code are in conflict with special norms, special norms shall be applied.

3. Subordinate normative acts shall be applied to regulate civil relations only if they supplement the norms of a law. If such acts contravene the law, the law shall prevail.

4. Customary norms shall be applied only if they do not contravene universally accepted principles of justice and morality or public order.

Article 3 – Entry into force of a civil law

1. A law and subordinate normative acts shall take effect only after they are published in an official journal for general knowledge according to established rules.

2. Ignorance or misunderstanding of the law shall not serve as an excuse for not applying the law or for release from liability stipulated by law.

3. A law shall lose force if so expressly indicated by a new law, or if any former law contravenes a new law, or if a new law encompasses the relations regulated by the former law, or if the relations regulated by the former law no longer exist.

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 repeals a former law shall not reinstate the former law.

Article 4 – Inadmissibility of denying justice in civil proceedings

1. A court may not refuse to administer justice in civil 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 grounds that in its opinion a norm of the law is unjust or immoral.

Article 5 – Analogy of law and justice

1. To regulate a relationship that is not expressly provided by law the legal norm that regulates the most similar circumstance (analogy of law) shall be applied.

2. If an analogy of law cannot be used, then the relationship shall be regulated by the general principles of justice and the requirements of fairness, good faith and morality (analogy of justice).

3. Norms regulating special relationships (norms on exceptions) may not be applied by analogy.

Article 6 – Retroactive force of civil laws

Laws and subordinate normative acts shall not be retroactive except as expressly provided for in law. A law may not be given retroactive force if it is prejudicial to or disadvantages a person.

Article 7 – Objects of private law

An object of private legal relations may be a tangible or intangible good having tangible or intangible value, which has not been removed from circulation by law.

Article 8 – Subjects of private law

1. Any natural or legal person may be a subject of private law. This rule shall apply to both entrepreneurial and non-entrepreneurial persons of Georgia and of other countries.

2. Private law relationships between state bodies and legal entities under public law, on the one hand, and other persons on the other hand, shall likewise be regulated by civil laws, unless these relationships, in the interests of the state or the public, are to be regulated by public law.

3. Participants in a legal relationship shall exercise their rights and duties in good faith.

Article 9 – Purpose of civil laws

Civil laws ensure the freedom of civil circulation in the territory of Georgia, unless the exercise of such freedom prejudices the rights of third parties.

Article 10 – Independence of civil rights from political rights; imperative norms of civil law

1. The exercise of civil rights shall not depend on political rights regulated by the Constitution or by other laws of public law.

2. Participants in a civil relationship may exercise any action not prohibited by law, including any action not expressly provided by law.

3. Imperative norms of civil laws protect the freedom of others from the abuse of rights. Actions that contravene these norms shall be void except where the law explicitly defines other effects. Individual interventions through administrative acts shall be prohibited, unless such acts are applied on the grounds of a specific law.

Section One

Persons

Chapter One

Natural Persons

Article 11 – Capacity for rights

1. The capacity for rights of a natural person is the ability to have civil rights and duties that 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 on birth.

3. The capacity for rights of a natural person shall be terminated by his/her death. The moment of death shall be the moment in which the brain ceases to function.

4. A natural person may not be deprived of his/her capacity for rights.

Article 12 – Legal capacity

1. L egal capacity or the ability of a natural person to fully acquire and exercise civil rights and duties of his/her own will and with his/her action shall arise upon attainment of the age of majority.

2. A person who has attained the age of eighteen years shall be a person of the age of majority.

3. A person who has entered into marriage before attainment of the age of eighteen years shall be deemed to have legal capacity.

4. A person with legal capacity is deemed to be a person in need of psychosocial support (the ‘beneficiary of support’), or a person who has a fixed psychological, mental/intellectual disorders which, when interrelating with other impediments, may prevent him/her from participating in public life fully and effectively on equal terms with others if such a person meets the conditions under paragraphs 2 and 3 of this article; furthermore, these impediments, without appropriate advice and aid, significantly make it harder for the person to freely express his/her own will and to make an informed and conscious choice in an area defined by the court.

5. The court may also recognise a minor as a beneficiary of support within the limits when, under the legislation of Georgia, the consent of his/her legal representative is not required while the minor exercises his/her rights and duties.

6. A minor under the age of seven years (an underage) shall be a person with legal capacity.

Decision No 2/4/532,533 of the Constitutional Court of Georgia of 8 October 2014 – website, 28.10.2014

Law of Georgia No 3339 of 20 March 2015 – website, 31.3.2015

Article 13 – Inadmissibility of limiting legal capacity by an agreement

Legal capacity may be limited only where so provided by law. Legal capacity may not be limited by an agreement.

Article 14 – Limited legal capacity

1. A minor from the age of seven to eighteen years shall have limited legal capacity.

2. An adult over whom a court has established a custodianship shall also be deemed to be a person with limited legal capacity. A person with limited legal capacity and a minor shall be equal in their legal capacities.

3. Limitation of legal capacity shall cease when the grounds for limitation of a person’s legal capacity no longer exist.

Article 15 – Consent of a legal representative in cases of limited legal capacity

In order for the declaration of intent of a person with limited legal capacity to be valid the consent of his/her legal representative shall be required, except when the person with limited legal capacity acquires a benefit from the transaction.

Article 16 – Limitation of legal capacity by reason of use of alcohol or narcotic substances

1. A court may establish custodianship over an adult who abuses alcohol or narcotic substances and because of this puts his/her family in material hardship. He/she may conduct transactions to administer property or wages, pension or other income only with the consent of his/her custodian, except for minor everyday transactions.

2. Full restoration of limited legal capacity shall cause the cancellation of custodianship.

Article 17 – Right to a name

1. Every natural person shall have the right to a name that includes a given name and a surname.

2. Change of name shall be allowed. Change of name shall require the person’s application stating the grounds for change. An appropriate body shall consider the application according to established rules.

3. Change of name shall not serve as the basis to terminate or alter the rights and obligations acquired or assumed under the former name. The person shall be bound to undertake all necessary actions to notify his/her creditors and debtors of the change of his/her name.

Article 18 – Personal non-property rights

1. A person whose right to a name is contested or whose interests are prejudiced as a result of an unauthorised use of his/her name may demand that the wrongdoer cease or refrain from such action.

2. A person may protect in court, according to the procedures laid down by law, his/her honour, dignity, privacy, personal inviolability or business reputation from defamation.

3. If information defaming the honour, dignity, business reputation or privacy of a person has been disseminated in the mass media, then it shall be retracted in the same media. If such information is contained in a document issued by an organisation, then this document shall be corrected and the parties concerned shall be informed of the correction.

4. A person whose honour and dignity has been defamed by information disseminated in the mass media may disseminate information in answer to the defamation through the same media.

5. A person may exercise the rights described in paragraphs 1 and 3 of this article also when his/her image (photograph, film, video, etc.) has been disseminated without his/her consent. The consent of the person shall not be required when photo-taking (video recording, etc.) is connected with his/her public recognition, the office he/she holds, the requirements of justice 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 compensation for posing.

6. The values referred to in this article shall be protected regardless of the culpability of the wrongdoer. And, if the violation has been caused by culpable action, a person may claim damages. Damages may be claimed in the form of the profit accrued to the wrongdoer. In the case of culpable violation, the injured person may also claim compensation for non-property (moral) damages. Moral damages may be recovered independently from the recovery of property damages.

Law of Georgia No 222 of 24 June 2004 – LHG I, No 19, 15.7.2004, Art. 91

Article 18¹ – Right to obtain personal data

1. A person may have access to the personal data and records about him/her that are related to his/her financial/material status or other private matters, and obtain copies of such data except as otherwise provided for in the legislation of Georgia.

2. A person may not be denied information that includes personal data and records about him/her.

3. Any person, upon written request, shall transfer the personal data and records held by him/her to another person if that person presents a written consent of the person whose personal data is requested. In that case, the person shall protect the confidentiality of such data or information.

Law of Georgia No 5919 of 14 March 2008 – LHG I, No 7, 26.3.2008, Art. 39

Article 19 – Protection of personal rights after death

The rights referred to in Article 18 may also be exercised by a person who, although not the bearer of the name or the right to personal dignity himself/herself, nevertheless has an interest deserving protection. He/she may exercise the right to demand such protection of his/her name and dignity which determines the essence of the person and survives his/her death. It shall not be allowed to claim material compensation for moral damages for defamation of the name, honour, dignity or business reputation of a person after his/her death.

Article 20 – Place of residence

1. The place where a natural person chooses his/her ordinary dwelling shall be deemed to be the place of residence of the person. The person may have several places of residence.

2. The place of residence of a minor shall be the place of residence of parents having parental rights, and the place of residence of a ward shall be the place of residence of his/her guardian.

3. The place of residence of a person shall not be cancelled if he/she leaves this place under compulsion or for performance of a state duty for a certain period of time.

Article 21 – Declaring a person missing

1. Based on the application of an interested person, a court may declare a natural person missing if his/her whereabouts are unknown and he/she has not appeared at his/her place of residence for two years. Upon the entry into force of the court’s decision, the legal heirs of the missing person shall obtain the right to administer the property of the missing person as property held in trust and the right to receive benefits from it. From this property maintenance shall be paid to the missing person’s dependents and debts shall be paid.

2. If the missing person reappears or his/her whereabouts become known, the court decision on the administration of his/her property shall be vacated. He/she may not demand compensation for the benefits received by proper management of the property during his/her absence.

Article 22 – Declaring a person dead

1. A person may be declared dead by a decision of a court, if there has been no information at his/her place of residence on his/her whereabouts for five years, also if he/she went missing under circumstances threatening his/her life, or if his/her death may be presumed because of some unfortunate accident, and no such information has been obtained for six months.

2. A member of the armed services or any other person who went missing in connection with wartime operations may be declared dead by a decision of a court not earlier than two years after the day on which the wartime operations ended.

3. The day of entry into legal force of a court decision declaring a person dead shall be considered to be the day of his/her 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/her presumed death.

Article 23 – Effect of reappearance of a person declared dead

1. If a person who has been declared dead reappears or if his/her whereabouts become known, the court shall vacate its decision regarding the person’s death.

2. Regardless of the time of reappearance, the person may recover any remaining property that has been gratuitously transferred to another person following the declaration of his/her death.

3. A person who paid to acquire the property of a person who was declared dead shall return the property to him/her if it is proved that at the time of acquisition of the property the acquirer knew that the person declared dead was alive.

4. If the property of the person declared dead was transferred to and subsequently sold by the state, then after the vacation of the court decision declaring the person dead the proceeds of the sale of his/her property shall be returned to the person.

Law of Georgia No 2239 of 9 December 2005 – LHG I, No 54, 20.12.2005, Art. 360

Chapter Two

Legal Persons

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

I – General Provisions

Article 24 – Concept; types

1. A legal person is an organised entity created to accomplish a certain purpose that owns property, is independently liable with its own property, acquires rights and duties in its own name, enters into transactions and can sue or be sued.

2. A legal person may be organised as a corporation, based on membership, dependent or independent of the status of its members, and engage or not engage in entrepreneurship.

3. Legal entities under public law participate in civil law relations in the same manner as legal entities under private law. The procedures for their creation, organisation and operation shall be regulated by law.

4. The State and municipalities participate in civil law relations in the same manner as legal entities under private law. In this respect, the powers of the state or of a municipality shall be exercised by its organs (departments, institutions, etc.) without being legal persons.

5. A legal person whose purpose is entrepreneurial (commercial) activity or its branch shall be created according to the Law of Georgia on Entrepreneurs.

6. A legal person whose purpose is non-entrepreneurial activity shall be registered according to the procedures contained in this Code.

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Law of Georgia No 6989 of 1 5 July 2020 – website, 28.7.2020

Article 25 – Capacity for rights of legal persons

1. A legal entity under public law may engage in an activity corresponding to the objectives provided for in law or by its articles of association.

2. A legal entity under private law (entrepreneurial or non-entrepreneurial (non-commercial)) may engage in any activity not prohibited by law, regardless of whether or not this activity is provided for in its articles of association.

3. A legal person may engage in certain kinds of activities, the list of which is determined by law, only after obtaining a special license/permit or authorisation. The right of a legal person to engage in such activity shall arise from the moment the license/permit or authorisation is obtained.

4. The capacity for the rights of a legal person shall arise from the moment of its registration and shall cease to exist from the moment that the completion of its liquidation is registered.

5. A non-entrepreneurial (non-commercial) legal person may engage in an entrepreneurial activity of an auxiliary nature the profit from which shall be used for achieving the objectives of the non-entrepreneurial (non-commercial) legal person. The profit made from such activity may not be distributed to the founders, members, or donors of the non-entrepreneurial (non-commercial) legal person or to those having managerial and representative powers in such non-entrepreneurial (non-commercial) legal person.

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Law of Georgia No 3537 of 21 July 2010 – LHG I, No 47, 5.8.2010, Art. 304

Article 26 – Domicile of a legal person

1. The location of the administration of a legal person shall be deemed to be the domicile of the legal person. A legal person may have only one domicile (legal address).

2. Any other residence of a legal person shall be deemed to be the domicile of its branch.

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

II – Non-entrepreneurial (Non-commercial) Legal Persons

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Article 27 – Name of a non-entrepreneurial (non-commercial) legal person

1. A non-entrepreneurial (non-commercial) legal person shall have a name that includes the indication that it is a non-entrepreneurial (non-commercial) legal person.

2. The name of non-entrepreneurial (non-commercial) legal person may not include any graphic symbols that do not have any sound or verbal equivalent established by linguistic standards or the indications characteristic of the legal person or legal entity under public law specified by the Law of Georgia on Entrepreneurs and the Organic Law of Georgia on Political Associations of Citizens. The name may not include any addition that may mislead a third person and/or cause a mistake and/or misunderstanding of the form or activity of the entity.

3. The name of a non-entrepreneurial (non-commercial) legal person must not be the same as that of an already registered non-entrepreneurial (non-commercial) legal person.

4. A person who unlawfully uses the name of another legal person shall cease such use at the demand of the authorised person and compensate damages caused by such unlawful use.

4¹. When determining the name of a non-entrepreneurial (non-commercial) legal person, the rules established for company names by Article 16 of the Law of Georgia on Entrepreneurs shall additionally apply.

5. In the case of defamation of the business reputation of a legal person, the rules of Article 18 of this Code shall apply.

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Law of Georgia No 5017 of 1 July 2011 – website, 14.7.2011

Law of Georgia No 887 of 2 August 2021 – website, 4.8.2021

Article 28 – Procedure for the registration of non-entrepreneurial (non-commercial) legal persons and branches (representative offices) of foreign non-entrepreneurial (non-commercial) legal persons

1. Non-entrepreneurial (non-commercial) legal persons and branches (representative offices) of foreign non-entrepreneurial (non-commercial) legal persons shall be registered in the Register of Non-entrepreneurial (Non-commercial) Legal Entities.

2. The Register of Non-entrepreneurial (Non-commercial) Legal Entities is maintained by the Legal Entity under Public Law (LEPL) – National Agency of Public Registry of the Ministry of Justice of Georgia.

3. Non-entrepreneurial (non-commercial) legal persons and branches (representative offices) of foreign non-entrepreneurial (non-commercial) legal persons shall be registered according to the procedures contained in this Code as well as by the legislation of Georgia for registration of entrepreneurial entities and branches (representative offices) of foreign entrepreneurial legal persons.

Law of Georgia No 1902 of 28 December 2002 – LHG I, No 4, 22.1.2003, Art. 20

Law of Georgia No 179 of 24 June 2004 – LHG I, No 19, 15.7.2004, Art. 79

Law of Georgia No 3140 of 25 May 2006 – LHG I, No 18, 31.5.2006, Art. 134

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Law of Georgia No 1964 of 3 November 2009 – LHG I, No 35, 19.11.2009, Art. 253

Law of Georgia No 2458 of 25 December 2009 – LHG I, No 49, 30.12.2009, Art. 370

Law of Georgia No 2978 of 27 April 2010 – LHG I, No 24, 10.5.2010, Art. 144

Law of Georgia No 5017 of 1 July 2011 – website, 14.7.2011

Article 29 – Conditions for registration of non-entrepreneurial (non-commercial) legal persons

1. If the registration of a non-entrepreneurial (non-commercial) legal person is requested, the interested person shall submit to the registration authority the partners’ agreement and an application. The application shall contain the necessary details required under paragraph 2 of this article and under the Law of Georgia on Entrepreneurs for the registration of entrepreneurial legal persons.

2. If the registration of a non-entrepreneurial (non-commercial) legal person is requested, in addition to the data required by paragraph 1 of this article, its articles of association shall contain:

a) the object of the activity of the non-entrepreneurial (non-commercial) legal person;

b) the procedures for admitting, withdrawing and excluding members of the non-entrepreneurial (non-commercial) legal person if it is a non-entrepreneurial (non-commercial) legal person based on membership;

c) name of the body (person) making a decision on reorganisation or liquidation and the decision-making procedure;

d) the procedures for creating (electing) and the tenure of the management body (managing person) of the non-entrepreneurial (non-commercial) legal person.

2¹. The registration authority shall, in addition to the registration of a non-entrepreneurial (non-commercial) legal person , create within a single electronic portal an electronic address of a non-entrepreneurial (non-commercial) legal entity to which the procedures established by Article 18 of the Law of Georgia on Entrepreneurs shall apply.

2². A non-commercial (non-commercial) legal person may have a registered telephone number and/or e-mail address to which electronic messages can be sent. Sending an electronic message to a registered phone number and/or e-mail address shall be deemed as serving such message on a person concerned.

3. Other procedures for registration of non-entrepreneurial (non-commercial) legal persons shall be defined by the Law of Georgia on Entrepreneurs, the Law of Georgia on Creative Workers and Creative Unions, the Law of Georgia on Copyright and Related Rights, and the Organic Law of Georgia on Trade Unions.

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Law of Georgia No 1964 of 3 November 2009 – LHG I, No 35, 19.11.2009, Art. 253

Law of Georgia No 2458 of 25 December 2009 – LHG I, No 49, 30.12.2009, Art. 370

Law of Georgia No 2978 of 27 April 2010 – LHG I, No 24, 10.5.2010, Art. 144

Law of Georgia No 5017 of 1 July 2011 – website, 14.7.2011

Law of Georgia No 3827 of 30 November 2018 – website, 14.12.2018

Law of Georgia No 887 of 2 August 2021 – website, 4.8.2021

Law of Georgia No 3451 of 3 July 2023 – website, 25.7.2023

Article 30 – (Deleted)

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Law of Georgia No 1964 of 3 November 2009 – LHG I, No 35, 19.11.2009, Art. 253

Law of Georgia No 2458 of 25 December 2009 – LHG I, No 49, 30.12.2009, Art. 370

Law of Georgia No 2978 of 27 April 2010 – LHG I, No 24, 10.5.2010, Art. 144

Law of Georgia No 5017 of 1 July 2011 – website, 14.7.2011

Article 31 – Registration of changes made by non-entrepreneurial (non-commercial) legal persons and branches (representative offices) of foreign non-entrepreneurial (non-commercial) legal persons

1. The decision of an authorised person/body duly made and certified or the transaction made by authorised persons according to the procedures laid down by the legislation of Georgia shall serve as the basis for changing the registered records.

2. The changes made by non-entrepreneurial (non-commercial) legal persons and branches (representative offices) of foreign non-entrepreneurial (non-commercial) legal persons, which cause a change in their registration documents, shall require registration. A change shall be deemed to have been made from the moment the change is registered in the Register of Non-entrepreneurial (Non-commercial) Legal Entities.

3. Changes made in the registered records of non-entrepreneurial (non-commercial) legal persons/branches (representative offices) of foreign non-entrepreneurial (non-commercial) legal persons shall be registered according to the procedure laid down for the registration of entrepreneurial legal persons/branches (representative offices).

Law of Georgia No 179 of 24 June 2004 – LHG I, No 19, 15.7.2004, Art. 79

Law of Georgia No 3140 of 25 May 2006 – LHG I, No 18, 31.5.2006, Art. 134

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Law of Georgia No 1964 of 3 November 2009 – LHG I, No 35, 19.11.2009, Art. 253

Law of Georgia No 2458 of 25 December 2009 – LHG I, No 49, 30.12.2009, Art. 370

Law of Georgia No 2978 of 27 April 2010 – LHG I, No 24, 10.5.2010, Art. 144

Law of Georgia No 5017 of 1 July 2011 – website, 14.7.2011

Article 32 – Procedure for making decisions on the registration of non-entrepreneurial (non-commercial) legal persons and branches (representative offices) of foreign non-entrepreneurial (non-commercial) legal persons

1. On the matters defined by this chapter and the matters falling within the scope of its authority, the registration authority shall make decisions required by the Law of Georgia on Public Registry and the Law of Georgia on Entrepreneurs for registration and access to information.

2. Non-entrepreneurial (non-commercial) legal persons shall be dissolved in the accordance with the general rule established by the Law of Georgia on Entrepreneurs.

2¹. The procedure for dissolving non-commercial (non-commercial) legal persons that are established by the State or a municipality shall be approved by the Minister of Economy and Sustainable Development of Georgia.

3. If the registration of a non-entrepreneurial (non-commercial) legal person or of the branch (representative office) of a foreign non-entrepreneurial (non-commercial) legal person is requested, or when the alteration of the registered records is requested, the registration authority, except for the grounds defined by the legislation of Georgia for an entrepreneurial entity, shall make a decision on suspending the registration proceedings if:

a) the objectives of the non-entrepreneurial (non-commercial) legal person or of the branch (representative office) of the foreign non-entrepreneurial (non-commercial) legal person the registration of which is sought, contradict the applicable laws, recognised moral standards or the constitutional and legal principles of Georgia;

b) there are conditions provided for in Article 26(3) of the Constitution of Georgia.

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Law of Georgia No 1964 of 3 November 2009 – LHG I, No 35, 19.11.2009, Art. 253

Law of Georgia No 2458 of 25 December 2009 – LHG I, No 49, 30.12.2009, Art. 370

Law of Georgia No 2978 of 27 April 2010 – LHG I, No 24, 10.5.2010, Art. 144

Law of Georgia No 5017 of 1 July 2011 – website, 14.7.2011

Law of Georgia No 887 of 2 August 2021 – website, 4.8.2021

Article 33 – State control over the activities of non-entrepreneurial (non-commercial) legal persons

1. A decision to suspend or prohibit the activity of non-entrepreneurial (non-commercial) legal persons shall be made by a court in the cases and in the manner provided by an organic law of Georgia.

2. If a non-entrepreneurial (non-commercial) legal person has substantively engaged in entrepreneurial activity, a court, based on the application from the registration authority and/or the interested person, shall consider and make a decision to suspend or prohibit the activity of the non-entrepreneurial (non-commercial) legal person.

3. After the court makes a decision to prohibit the activity of a non-entrepreneurial (non-commercial) legal person, the registration authority shall revoke the registration of the non-entrepreneurial (non-commercial) legal person.

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Law of Georgia No 1964 of 3 November 2009 – LHG I, No 35, 19.11.2009, Art. 253

Article 33¹ – (Deleted)

Law of Georgia No 5282 of 11 July 2007 – LHG I, No 30, 30.7.2007, Art. 346

Law of Georgia No 1964 of 3 November 2009 – LHG I, No 35, 19.11.2009, Art. 253

Article 34 – (Deleted)

Law of Georgia No 179 of 24 June 2004 – LHG I, No 19, 15.7.2004, Art. 79

Law of Georgia No 3140 of 25 May 2006 – LHG I, No 18, 31.5.2006, Art. 134

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Law of Georgia No 1964 of 3 November 2009 – LHG I, No 35, 19.11.2009, Art. 253

Law of Georgia No 2978 of 27 April 2010 – LHG I, No 24, 10.5.2010, Art. 144

Law of Georgia No 5017 of 1 July 2011 – website, 14.7.2011

Article 35 – Management and representation of non-entrepreneurial (non-commercial) legal persons

1. A founder/member of a non-entrepreneurial (non-commercial) legal person may grant exclusive right to one person to manage the activities of a non-entrepreneurial (non-commercial) legal person and/or may establish joint management and/or representation by two or more persons.

2. Managerial authority means making decisions on behalf of a non-entrepreneurial (non-commercial) legal person within the scope of its authority, and representative authority means acting on behalf of a non-entrepreneurial (non-commercial) legal person in relations with third parties. Unless otherwise determined by the registration documents, a managerial authority shall include representative authority.

3. The organisational structure of a non-entrepreneurial (non-commercial) legal person shall be regulated by its charter (founders’/members’ agreement) that shall be duly certified.

4. The general rules established by the Law of Georgia on Entrepreneurs for persons authorised to represent entrepreneurs shall apply to the origination and termination of managerial and representative powers of a non-entrepreneurial (non-commercial) legal person.

5. The rules established by Article 17 of the Law of Georgia on Entrepreneurs for business letters and websites shall apply to non-entrepreneurial (non-commercial) legal persons. Law of Georgia No 179 of 24 June 2004 – LHG I, No 19, 15.7.2004, Art. 79

Law of Georgia No 617 of 26 November 2004 – LHG I, No 36, 8.12.2004, Art. 168

Law of Georgia No 1051 of 25 February 2005 – LHG I, No 9, 17.3.2005, Art. 59

Law of Georgia No 3140 of 25 May 2006 – LHG I, No 18, 31.5.2006, Art. 134

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Law of Georgia No 1964 of 3 November 2009 – LHG I, No 35, 19.11.2009, Art. 253

Law of Georgia No 2978 of 27 April 2010 – LHG I, No 24, 10.5.2010, Art. 144

Law of Georgia No 5017 of 1 July 2011 – website, 14.7.2011

Law of Georgia No 887 of 2 August 2021 – website, 4.8.2021

Article 36 – Transfer of assets owned by non-entrepreneurial (non-commercial) legal persons

The assets owned by a non-entrepreneurial (non-commercial) legal person may be transferred if the transfer serves the activity of the non-entrepreneurial (non-commercial) legal person, its organisational development, promotes the achievement of its objectives or serves charitable purposes.

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Article 37 – Compensation for damage

1. A non-entrepreneurial (non-commercial) legal person shall be liable for damages incurred to third parties as a result of an action performed by a person(s) with managerial and representative authorities in the course of his/her duties, which gives rise to the obligation to pay damages.

2. The person(s) vested with managerial and representative authority shall run the affairs in good faith. In case of nonfulfillment of the duties, he/she shall be accountable to the non-entrepreneurial (non-commercial) legal person for damages incurred. Waiver of a claim for damages shall be void if it is necessary to satisfy the claims of third parties.

3. A non-entrepreneurial (non-commercial) legal person shall be independent from the status of its member(s) or from that of its manager(s) and representative(s). The liability of the non-entrepreneurial (non-commercial) legal person shall be limited to its property. The members of a non-entrepreneurial (non-commercial) legal person or its manager(s) and representative(s) shall not be liable for the obligations of the non-entrepreneurial (non-commercial) legal person. Nor shall the non-entrepreneurial (non-commercial) legal person be liable for the obligations of its members or person(s) with managerial and representative authorities.

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Article 38 – Reorganisation of non-entrepreneurial (non-commercial) legal persons

1. The legal form of a non-entrepreneurial (non-commercial) legal person may not be changed, except when a change in its legal form transforms the non-entrepreneurial (non-commercial) legal person into a legal entity under public law.

1¹. A non-entrepreneurial (non-commercial) legal person shall be divided (by demerger, separation), combined (by merger, acquisition) and liquidated according to the procedures contained in the legislation of Georgia for liquidation/reorganisation of entrepreneurial entities.

2. Founders/members of a non-entrepreneurial (non-commercial) legal person shall determine the person entitled to receive the assets remaining after the liquidation of a non-entrepreneurial (non-commercial) legal person in the application for registration. When the non-entrepreneurial (non-commercial) legal person is liquidated, its assets may be transferred if:

a) the transfer promotes the achievement of its objectives;

b) the transfer serves charitable purposes;

c) the property is transferred to another non-entrepreneurial (non-commercial) legal person.

3. The assets remaining after the liquidation of a non-entrepreneurial (non-commercial) legal person may not be distributed to its founders/members or persons with managerial and representative authorities.

4. If the founders/members of a non-entrepreneurial (non-commercial) legal person do not identify the person entitled to receive the assets remaining after its liquidation, a court shall transfer the assets remaining after the liquidation of the non-entrepreneurial (non-commercial) legal person to one or several non-entrepreneurial (non-commercial) legal entities with the same or similar objectives as those of the liquidated non-entrepreneurial (non-commercial) legal person. If no such legal persons exist or can be found, a decision may be made on transferring the assets to the State. The court may distribute the assets after six months from the registration of the commencement of the liquidation proceedings.

5. Based on a final judgment of conviction in a criminal case, the liquidator(s) appointed by the court shall carry out the liquidation of a non-entrepreneurial (non-commercial) legal person. Liquidation and reorganisation procedures may not be initiated against a non-entrepreneurial (non-commercial) legal person from the moment of initiation of criminal proceedings until the entry into force of a judgment of conviction or until the termination of criminal proceedings.

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Law of Georgia No 1964 of 3 November 2009 – LHG I, No 35, 19.11.2009, Art. 253

Law of Georgia No 2978 of 27 April 2010 – LHG I, No 24, 10.5.2010, Art. 144

Law of Georgia No 5017 of 1 July 2011 – website, 14.7.2011

Law of Georgia No 651 of 30 May 2013 – website, 12.6.2013

Article 38¹ – (Deleted)

Law of Georgia No 1964 of 3 November 2009 – LHG I, No 35, 19.11.2009, Art. 253

Law of Georgia No 2978 of 27 April 2010 – LHG I, No 24, 10.5.2010, Art. 144

Law of Georgia No 5017 of 1 July 2011 – website, 14.7.2011

Article 39 – Non-registered unions (associations)

1. The matters related to the organisation and structure of a non-registered union (association) shall be determined by a mutual agreement of its members. A non-registered union (association) shall not be considered a legal person.

2. The membership dues paid by members and the assets acquired with those dues make up the common property of a non-registered union (association).

3. A non-registered union (association) may be represented by its members or duly authorised persons in court or in out-of-court relations.

4. Creditors’ claims may be fulfilled from the common property of a non-registered union (association). At the same time, the persons who acted on behalf of the non-registered union (association) shall also be liable as debtors both individually and jointly.

Law of Georgia No 179 of 24 June 2004 – LHG I, No 19, 15.7.2004, Art. 79

Law of Georgia No 3140 of 25 May 2006 – LHG I, No 18, 31.5.2006, Art. 134

Law of Georgia No 3536 of 25 July 2006 – LHG I, No 37, 7.8.2006, Art. 277

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Article 40 – (Deleted)

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Article 41 – (Deleted)

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Article 42 – (Deleted)

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Article 43 – (Deleted)

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Article 44 – (Deleted)

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Article 45 – (Deleted)

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Article 46 – (Deleted)

Law of Georgia No 3140 of 25 May 2006 – LHG I, No 18, 31.5.2006, Art. 134

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Article 47 – (Deleted)

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Article 48 – (Deleted)

Law of Georgia No 3140 of 25 May 2006 – LHG I, No 18, 31.05.2006, Art. 134

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

Article 49 – (Deleted)

Law of Georgia No 3140 of 25 May 2006 – LHG I, No 18, 31.5.2006, Art. 134

Law of Georgia No 3967 of 14 December 2006 – LHG I, No 48, 22.12.2006, Art. 336

III – Collective Investment Funds, Sub-funds of Investment Funds

Law of Georgia No 6814 of 14 July 2020 – website, 22.7.2020

Article 49¹ – Collective investment funds

1. The issues of organisation and structure of collective investment funds shall be determined by the Law of Georgia on Collective Investment Undertakings. A collective investment fund shall be an organisational formation that is not a legal person.

2. A collective investment fund shall be represented in court or out-of-court relations by a company managing its assets.

Law of Georgia No 6814 of 14 July 2020 – website, 22.7.2020

Article 49² – Sub-funds of investment funds (sub-funds)

1. An umbrella fund is an independent part of an umbrella fund (investment company or collective investment fund), the organisation and structure of which are determined by the Law of Georgia on Collective Investment Undertakings. A sub-fund of an investment fund shall not be a legal person.

2. A sub-fund of a collective investment fund shall be represented in court or out-of-court relations by a company managing the assets of the collective investment fund.

3. A sub-fund of an investment company shall be represented in court or out-of-court relations by a person authorised to represent the investment company or by an asset management company, provided he/she/it was appointed by the investment company.

Law of Georgia No 6814 of 14 July 2020 – website, 22.7.2020

Section Two

Transactions

Chapter One

General Provisions

Article 50 – Concept

A transaction is a unilateral, bilateral or multilateral declaration of intent aimed at creating, changing or terminating a legal relation.

Article 51 – Validity of a unilateral declaration of intent

1. The declaration of intent that requires acceptance by another party shall be considered valid from the moment it reaches the other party.

2. The declaration of intent shall not be considered valid if the other party rejects it in advance or contemporaneously.

3. The validity of the declaration of intent may remain unaffected by the death of the party to the transaction, or in a case provided for under Article 1293(4) of this Code, if this event occurred after the declaration of intent.

Law of Georgia No 3339 of 20 March 2015 – website, 31.3.2015

Article 52 – Interpretation of a declaration of intent

In interpreting the declaration of intent, the intention shall be determined by a reasonable deliberation, and not only from the literal meaning of the wording.

Article 53 – Non-existence of a transactions 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 the rules and prohibitions laid down by law or that contravenes the public order or principles of morality shall be void.

Article 55 – Invalidity of a transaction by reason of abuse of influence

A transaction that has been made by one party’s undue influence over the other party when their relationship is based on exceptional confidence shall be void.

Law of Georgia No 6151 of 8 May 2012 – website, 25.5.2012

Article 56 – Sham and fraudulent transactions

1. A transaction that has been made only for the sake of appearances, without intent to create legal implications (sham transaction), shall be void.

2. If, by making a sham transaction, the parties intended to hide another transaction, then the rules applicable to hidden transactions shall apply (fraudulent transactions).

Article 57 – Invalidity of a transaction when the declaration of intent lacks seriousness

1. The declaration of intent that has been made not seriously (humorously), under the presumption that the lack of seriousness of the declaration would be understood, shall be void.

2. A recipient of the declaration of intent shall be paid damages resulting from the fact that he/she trusted the seriousness of the declaration, provided he/she did not know and could not have known of its lack of seriousness.

Article 58 – Voidance of a transaction due to minority or mental disorder

1. The declaration of intent made by a minor shall be void.

2. The declaration of intent made by a person during loss of consciousness or temporary mental disorder may be deemed void.

3. The declaration of intent made by a person with mental disorder while concluding a transaction shall be void when it is inconsistent with the correct perception of reality if the person does not benefit from this transaction, even if the court has not recognised him/her as a beneficiary of support.

Decision No 2/4/532,533 of the Constitutional Court of Georgia of 8 October 2014 – website, 28.10.2014

Law of Georgia No 3339 of 20 March 2015 – website, 31.3.2015

Article 58¹ – Conclusion of a transaction by a beneficiary of support

1. If a beneficiary of support concludes a transaction without having received the support defined by the court decision, the validity of the transaction shall depend on whether the supporter approves it or not, except when the beneficiary of support benefits from the transaction.

2. The procedure established under Articles 64 and 66 of this Code shall apply to the conclusion of a transaction by a beneficiary of support without having received the support defined by the court decision.

Law of Georgia No 3339 of 20 March 2015 – website, 31.3.2015

Article 59 – Transaction made without observance of the form

1. A transaction shall be void if made without observance of the form provided by law or the contract, or without permission, if permission is required for the transaction.

2. A voidable transaction shall be void from the moment of its execution if it is rescinded. Rescission shall be declared to the other party to the contract.

3. An interested person shall have the right to rescind.

Article 60 – Conversion of transactions

If a void transaction meets the requirements established for another transaction, then the latter transaction shall be applied, provided that the parties, upon detecting that the first transaction is void, wish the second transaction to be valid.

Article 61 – Significance of confirmation when transactions are void

1. An indisputably void (null and void) transaction shall be deemed void from the moment of its making.

2. If a person making an indisputably void transaction confirms it, then his/her action shall be considered as the making of a new transaction.

3. If a person having a right to rescind confirms the transaction, by doing so he/she shall forfeit the right to rescind.

4. If the parties confirm an indisputably void bilateral transaction, then they are bound, when in doubt, to transfer to each other everything that would have accrued to them if the transaction had been valid initially.

5. The confirmation shall become valid only when the contract or the transaction does not contravene the principles of morality and the requirements of public order.

Article 62 – Invalidity of parts of a transaction

Invalidity of part of a transaction shall not cause the invalidity of its other parts, if it can be presumed 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 – Transactions made by a minor

1. If a minor makes a bilateral transaction (contract) without the required consent of his/her legal representative, then the validity of the transaction depends on 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 capacity, he/she may decide the validity of his/her own declaration of intent.

Article 64 – Repudiation of a transaction made by a minor

1. Before a contract made by a minor is approved, the other party may repudiate the contract.

2. If the other party knew of the minority of the person, then he/she may repudiate the contract only if the minor deceived him/her by claiming that consent from the legal representative had been obtained.

Article 65 – Emancipation of a minor

1. A contract made by a minor without the consent of his/her legal representative shall be deemed valid if the minor has performed his/her part of the contract with the means transferred to him/her for this purpose or for his/her free disposal by the legal representatives or with these representatives’ consent by third parties.

2. If a legal representative gives the right to independently manage an enterprise to a minor who has attained the age of sixteen, then the minor shall acquire full legal capacity in the relations routine for this field. This rule shall apply to the establishment and the liquidation of an enterprise as well as to the commencement and completion of labour relations.

3. The permission to manage an enterprise requires the legal representative’s consent with the approval of the guardianship and custodianship authority.

Article 66 – Invalidity of transactions made without the required consent of the representative

A unilateral transaction made by a minor without the necessary consent of the legal representative shall be void. Such a transaction shall be void also if the legal representative gave his/her consent but the minor failed to present a written document confirming 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 consent of the legal representative.

Article 67 – Obligation of permission before the limitation of legal capacity

A transaction made before the limitation of legal capacity shall require permission if it is established that the grounds for which the legal capacity has been limited obviously existed at the time of making of the transaction.

Chapter Three

Form of a Transaction

Article 68 – Significance of form for the validity of a transaction

For a transaction to be valid the form of the transaction prescribed by law shall be observed. If no such form is prescribed, the parties may determine it themselves.

Article 69 – Form of a transaction

1. A transaction may be made verbally or in writing.

2. A transaction may be made in writing if so provided for in law or by agreement of the parties.

3. If the transaction is in written form, the signatures of the parties to the transaction shall be sufficient.

3¹. When a beneficiary of support concludes a written transaction, in addition to the parties involved, it shall be signed by a supporter. By signing it, the supporter confirms that he/she will provide the support defined by the court decision at the time of concluding the transaction by the beneficiary of support.

4. Restoration, reproduction or imprinting of a signature by mechanical means shall be allowed where this practice is customary, inter alia, when signing securities issued in large numbers.

5. When a transaction is in a written form the genuineness of the signatures of the parties to the transaction shall be certified by a notary or any other person determined by law in cases provided by law or by agreement of the parties.

Law of Georgia No 3879 of 8 December 2006 – LHG I, No 48, 22.12.2006, Art. 321

Law of Georgia No 3339 of 20 March 2015 – website, 31.3.2015

Article 70 – Entrusting the signature of a transaction to another person

A person who cannot sign a transaction due to illiteracy or long-term or permanent physical, mental, intellectual or sensory impairment, or in other cases provided for in law may entrust the signature of the transaction to another person. The signature of that person shall be officially authenticated. At the same time, the reason for which the person making the transaction was unable to sign the transaction shall be indicated.

Law of Georgia No 3709 of 15 October 2010 – LHG I, No 57, 25.10.2010, Art. 366

Law of Georgia No 1982 of 02 November 2022 – website, 11.11.2022

Article 70¹ – Concluding a transaction by a literate blind person

1. If a transaction is concluded in writing by a literate blind person, such person shall sign the transaction by himself/herself, without entrusting the signature of a transaction to another person, or shall entrust the signature of a transaction to another person in accordance with the procedure established by Article 70 of this Code.

2. In cases provided for by this article, a literate blind person shall sign a transaction by himself/herself , using a mechanical signature, facsimile or other appropriate technical means established by the legislation of Georgia. When a literate blind person signs a transaction using a facsimile, such person shall also present an identity document and a document on the validity of the facsimile, certified by a notary.

3. If a transaction involving a blind literate person is concluded in Braille, by agreement of the parties, the transaction concluded in Braille shall be attached to a transaction in large print.

Law of Georgia No 1982 of 02 November 2022 – website, 11.11.2022

Article 71 – Making a transaction by drawing up several documents

If a transaction is made by drawing up several documents of the same content, it shall be sufficient that each party sign a copy of the document that is intended for the other relevant party.

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.

Article 73 – Types of substantial mistakes

A mistake shall be deemed substantial when:

a) a person intended to make a different transaction than that to which he/she expressed his/her consent;

b) a person was mistaken about the content of the transaction that he/she intended to make;

c) the circumstances, which the parties consider to be the grounds for the transaction under the principles of good faith, do not exist.

Article 74 – Mistake with respect to the identity of a contracting party

1. A mistake with respect to the identity of a contracting party shall be deemed substantial only when the identity of the contracting party itself or the consideration of his/her personal characteristics is the principal basis for making the transaction.

2. A mistake with respect to basic characteristics of an object shall be deemed substantial only when these features are significant in determining the value of the object.

Article 75 – Mistake with respect to a right

A mistake with respect to a right shall be deemed substantial only if the right was the sole or principal basis for making the transaction.

Article 76 – Mistake with respect to the grounds of a transaction

A mistake with respect to the grounds of a transaction shall not be deemed substantial, except when the grounds were the subject of the agreement.

Article 77 – Consent of a contracting party in transactions made by mistake

The declaration of intent made by mistake shall not become 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 declaration of intent shall give rise to the right only to correct the mistake, not to rescind the transaction.

Article 79 – Validity of rescission

1. Rescission shall be declared within one month after the moment at which the grounds for rescission were detected.

2. If a transaction has become voidable and a mistake has been caused by the negligence of the person entitled to rescind, then he/she shall compensate the other party for damages caused as a result of the invalidity of the transaction. The obligation to compensate shall not arise if the other party knew of the mistake or it was unknown to him/her due to his/her negligence.

Article 80 – Mistakes caused by an intermediary

The declaration of intent that has been incorrectly communicated by an intermediary may become voidable under the same conditions that apply to the transactions made by mistake under Article 73.

II – Transactions Made by Deceit

Article 81 – Concept

1. If a person has been deceived into making a transaction, then he/she may demand avoidance of the transaction. Avoidance shall occur when it is evident that the transaction would not have been made without the deception.

2. If one party keeps silent with respect to the circumstances in the case of disclosure of which the other party would not have declared his/her intent, then the deceived party may demand avoidance of the transaction. The obligation to disclose shall exist only when the other party expected it in good faith.

Article 82 – Transaction rendered void by reason of deceit

When rendering a transaction void, it makes no difference whether by communicating wrong information the party intended to gain some advantage or to inflict harm on the other party.

Article 83 – Deceit by a third person

1. In the case of a deception by a third party, the demand for avoidance of the transaction may be made if the person benefiting from the transaction knew or ought to have known of the deception.

2. If both parties to the transaction have acted deceitfully, then neither of them may demand avoidance of the transaction or compensation for damages on the grounds of deception.

Article 84 – Limitation period for rescission

A transaction made by deceit may be rescinded within one year. The period shall be computed from the moment at which the party rightful to rescind becomes aware of the existence of the grounds for rescission.

III – Transactions Made by Duress

Article 85 – Concept

The use of duress (violence or threat) for the purpose of making a transaction shall entitle the person subjected to the duress to demand avoidance of the transaction even when the duress is exercised by a third person.

Article 86 – Nature of duress

1. Avoidance of a transaction shall be justified because of duress that by its nature may influence a person and inspire a fear of real injury to his/her person or property.

2. In assessing the nature of duress, the age, sex and life circumstances of persons shall be taken into consideration.

Article 87 – Duress against near relatives of a person

Duress serves as the basis for voiding a transaction also 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 constitute duress under Articles 85-87, except when the means and purpose do not coincide.

Article 89 – Period for rescission

A transaction made by duress may be rescinded within one year after the moment in which the duress ends.

Chapter Five

Conditional Transactions

Article 90 – Concept

A transaction shall be deemed conditional when it is contingent 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 coincide with the occurrence of the contingency.

Article 91 – Invalidity of unlawful and/or immoral conditions

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 that depends upon such a condition shall be void in full.

Article 92 – Condition dependent upon will

A condition shall be deemed to be dependent upon will when its occurrence or non-occurrence depends only on the will of the parties to a transaction. A transaction made with such a condition shall be void.

Article 93 – Positive condition precedent

1. If a transaction is made on the condition that some event will occur within a certain period of time, then the condition shall be deemed legally ineffective if this period of time has elapsed and the event has not occurred.

2. If no period of time is fixed, then the condition 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 precedent

1. If a transaction is made on the condition that some event will not occur within a certain period of time, then the condition shall be deemed fulfilled if this period of time has elapsed without the occurrence of the event. The condition shall be deemed fulfilled also when before the complete lapse of the period it is obvious that that the occurrence of the event is impossible.

2. If no period of time is fixed, then the condition shall be deemed fulfilled only when it is obvious that the event will not occur.

Article 95 – Inadmissibility of influencing the occurrence of a condition

1. A person who has made a transaction contingent upon a certain condition may not perform, before the occurrence of the condition, any action that may hinder the performance of his/her obligation.

2. If the condition occurs at a certain time and the person has already performed such action, then he/she shall compensate the other party for damages caused by such action.

Article 96 – Transactions with a condition of postponement

A transaction shall be deemed to be made with the condition of postponement if the creation of rights and duties stipulated by the transaction depends on a future or uncertain event or on an event that has already occurred but is yet unknown to the parties.

Article 97 – Transactions on a condition subsequent

A transaction shall be deemed to be made on a condition subsequent when the occurrence of this condition causes termination of the transaction and reinstates the state of affairs existing before the making of the transaction.

Article 98 – Significance of good faith with respect to the occurrence of a condition

1. If the party for whom the occurrence of the condition is unfavourable delays its occurrence in bad faith, the condition shall be deemed to have occurred.

2. If the party for whom the occurrence of the condition is favourable promotes its occurrence in bad faith, then the condition shall not be deemed to have occurred.

Chapter Six

Consent in Transactions

Article 99 – Concept

1. If the validity of a transaction depends upon the consent of a third party, both the consent and the refusal of it may be declared to either party to the transaction.

2. The consent need not be in a form that is prescribed for a transaction.

3. If a transaction, the validity of which depends upon the consent of a third party, has been made with the consent of that person, then the second and third sentences of Article 66 shall apply accordingly.

Article 100 – Consent granted in advance (permission)

Consent granted in advance (permission) may be revoked before making a transaction, unless otherwise agreed by the parties. Both parties shall be notified of the revocation of the consent (permission).

Article 101 – Subsequent consent (approval)

Subsequent consent (approval) shall be retroactive from the moment at which a transaction is made, unless otherwise established.

Article 102 – Administration of property by an unauthorised person

1. Administration of property by an unauthorised person shall be valid if it is done with the prior consent of the authorised person.

2. The administration shall become valid if approved by the authorised person.

Chapter Seven

Agency in Transactions

Article 103 – Concept

1. A transaction may be made through an agent as well. The power 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, in view of the nature of a transaction, it is to be made by a particular person, or when 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/her authority, and on behalf of the person represented by him/her shall give rise only to the rights and obligations of the principal.

2. If a transaction is made on behalf of another person, then the other party to the transaction may not use the absence of the agent’s authority, if the principal has created the circumstances that led the other party to the transaction to believe in the existence of such authority in good faith.

3. If when making a transaction an agent fails 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. The same rule shall apply when it does not matter for the other party with whom he/she makes the transaction.

Article 105 – Limited legal capacity of an agent

A transaction made by an agent shall be valid even if the agent had limited legal capacity.

Article 106 – Defect of the declaration of intent in agency

1. When a transaction is voidable by reason of a defect 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 the circumstances determined by the principal in advance, then this defect may give rise to the right to rescind only if the defect was caused by the principal.

Article 107 – Power of agency

1. Authority (power of attorney) shall be conferred by the declaration of intent made with respect to the person who is given the power of attorney or a third person with whom the agency is to be exercised.

2. The declaration of intent need not be in the form prescribed for making the transaction for which the power of attorney has been granted. This rule shall not apply when a special form is prescribed.

Article 108 – Obligation of notification upon changing the authority

Third persons shall be notified of alterations in or revocation of authority. If this requirement is not fulfilled, such alterations and revocation of authority shall not be valid with respect to third parties, except when the parties knew or should have known about it when making the transaction.

Article 109 – Grounds for termination of power of agency

A power of agency shall be extinguished by:

a) expiration of the term for which the authority was granted;

b) renunciation by the authorised person;

c) revocation of the authority by the grantor of the authority;

d) the death of the grantor of the authority;

e) performance;

f) recognition of a grantor of the authority as a beneficiary of support if the support was assigned to him/her to exercise representative authority or property disposal rights.

Law of Georgia No 3339 of 20 March 2015 – website, 31.3.2015

Article 110 – Obligation of agent upon extinguishment of authority

Upon extinguishment of his/her authority, an agent shall return the instrument of authority to the grantor. The agent may not retain the instrument.

Article 111 – Entering into a transaction without a power of agency

1. If a person enters into a transaction on behalf of another person without the power of agency, the validity of the transaction shall depend on the ratification of the principal.

2. If the other party demands ratification from the principal, then only he/she shall be notified of the ratification. The ratification may be given within two weeks after a demand; otherwise the demand for ratification shall be deemed to have been rejected.

Article 112 – Right to repudiate a contract

Before a contract is ratified, the other party may repudiate the contract, except when this party knew of the defect in the power of agency at the time the contract was entered into. Repudiation of the contract may be declared also to the agent.

Article 113 – Agent’s obligation when there is a defect in the power of agency

1. If a person who makes a transaction as an agent fails to prove his/her power of agency, then he/she shall, at the option of the other party, either perform the obligation assumed or pay damages, if the principal refuses to ratify the contract.

2. If the agent did not know of the defect in his/her authority, then he/she shall be bound to compensate only those damages that the other party sustained in relying upon the authority.

3. The agent shall not be liable if the other party knew or should have known of the defect in his/her power of agency. Likewise, the agent shall not be liable if his/her legal capacity was limited, except when he/she acted with the consent of his/her legal representative.

Article 114 – Inadmissibility of entering into a transaction with oneself

Unless otherwise provided by the consent an agent may not make a transaction on behalf of the principal and with himself/herself, either in his own name or as an agent of a third party, except when the transaction already exists for the performance of certain obligations.

Section Three

Exercise of Rights

Article 115 – Inadmissibility of abusing rights

A civil right shall be exercised lawfully. A right may not be exercised with a sole intention to inflict damages on another person.

Article 116 – Damage inflicted within the limits of necessary self-defence

1. An action exercised within the limits of necessary self-defence shall not be unlawful and the damages caused by it shall not be recovered.

2. Self-defence shall be deemed necessary if it is required to ward off a present unlawful assault on oneself or others.

Article 117 – Damage caused by extreme necessity

1. Any damages caused to ward off a danger that in the given circumstances could not be warded off by other means, provided that the damage inflicted is less significant than the damage avoided, shall be compensated by the one who inflicted the damage (extreme necessity).

2. In view of the factual circumstances under which damages have been inflicted, the liability to pay damages may be imposed on a third party in whose interests the one who inflicted the damages acted, or both the third party and the one who inflicted the damages be released from liability in whole or in part.

Article 118 – Self-help

If help from authorities cannot be obtained in good time, and without immediate intervention there is a danger that the realisation of the claim will be prevented or be considerably more difficult, then the action of a person who for the purpose of self-help removes, destroys or damages a thing, or who for the same purpose restrains the liberty of a responsible person who may escape, or overcomes the resistance to an action of a responsible person who has a duty to perform that action shall not be deemed unlawful.

Article 119 – Limits of self-help

1. Self-help may not extend further than is necessary to ward off danger.

2. If property is removed, it is necessary to immediately make a declaration on the attachment of the property.

3. If the liberty of a responsible person is restrained, he/she shall be taken before the relevant authorities without undue delay.

Article 120 – Obligation to pay damages

A person who does the actions provided for in Article 118 under the mistaken assumption that it was necessary to ward off an unlawful action, shall reimburse the other party damages caused at that time.

Section Four

Periods of Time

Chapter One

Computation of Periods of Time

Article 121 – Scope of the rules for computing periods of time

The rules prescribed in this chapter shall apply to the fixing of periods of time contained in laws, court decisions and transactions.

Article 122 – Beginning of a period of time

If a period commences on the occurrence of an event or at a point of time falling in the course of a day, then the day on which the event or point of time occurs shall not be included in the computation of the period.

Article 123 – End of a period of time

1. A period of time specified by days shall end on the expiry of the last day of the period.

2. A period of time specified by weeks, by months or by a duration of time comprising more than one month – year, half-year, quarter – ends on the expiry of the day of the last week or of the last month which corresponds to the day on which the event or the point of time occurs.

3. If a period of time specified by months lacks a specific day on which the period is due to expire, then the period ends on the expiry of the last day of that month.

Article 124 – Concepts

1. A half-year denotes a period of time of six months, a quarter year denotes a period of three months computed from the beginning of a year, and a half-month is understood to mean a period of fifteen days.

2. If a period of time comprises one or more full months and a half-month, then the fifteen days shall be counted last of all.

Article 125 – Computation of a period of time in the event of its extension

If a period of time is extended, the new period shall be computed from the expiry of the previous period.

Article 126 – Computation of a period of time by months

1. If a period of time is specified by months or years in such a manner that they need not run consecutively, a month shall be computed as thirty days, and a year as three hundred and sixty-five days.

2. The first day of a month shall be deemed to be the beginning 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.

Article 127 – Days off and holidays

If an action is to be performed on a certain day and that 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 non-business day at the place of performance of the action, then the next business day shall be used instead of that day.

Chapter Two

Period of Limitation

Article 128 – Concept; Types

1. The right to demand that another person perform or refrain from a certain action shall be subject to a period of limitation.

2. A period of limitation shall not apply to:

a) personal non-property rights, unless otherwise provided by law;

b) claims of depositors for deposits made with a bank or other credit institutions.

3. The standard period of limitation shall be ten years.

Article 129 – Period of limitation on contractual claims

1. The period of limitation on contractual claims shall be three years and on contractual claims relating to immovable property six years.

2. The period of limitation on claims arising out of obligations subject to periodic performance shall be three years.

3. In individual cases, other periods of limitation may be fixed by law.

Article 130 – Commencement of the period of limitation

1. A period of limitation shall commence from the moment at which the claim arises. The claim shall be deemed to have arisen from the moment at which the person became or ought to have become aware of the violation of the right.

2. In the case of sexual, economic, domestic or other forms of violence against a minor, the period of limitation on the right to file a claim for damages with a court shall be suspended until the minor attains the age of majority or until the minor applies to a court during the period of his/her minority.

Law of Georgia No 5013 of 20 September 2019 – website, 27.9.2019

Law of Georgia No 5913 of 21 May 2020 – website, 25.5.2020

Article 131 – Origination of a claim

If the origination of a claim depends upon an action of an obligee, then the period of limitation shall commence from the moment at which the obligee could have taken this action.

Article 132 – Suspension of running of the period of limitation

The running of the period of limitation shall be suspended:

a) if performance of an obligation is postponed by executive authorities or by the National Bank of Georgia on the basis of the Organic Law of Georgia on the National Bank of Georgia under the regime of a resolution of a commercial bank (moratorium);

b) if filing of a claim is prevented by extraordinary and, under given circumstances, unavoidable force majeure;

c) if a creditor or a debtor is in a unit of the defence forces of Georgia that has been put in a state of war;

c¹) if private mediation provided for by the Law of Georgia on Mediation is initiated;

d) in other cases provided by law.

Law of Georgia No 3607 of 31 October 2018 – website, 21.11.2018

Law of Georgia No 4596 of 18 September 2019 – website, 27.9.2019

Law of Georgia No 5667 of 20 December 2019 – website, 31.12.2019

Article 133 – Suspension of the running of the period of limitation during marriage

The period of limitation for claims between spouses shall be suspended for as long as the marriage exists. The same rule shall apply to claims between parents and children until the attainment of the age majority as well as to claims between guardians (custodians) and their wards during the whole period of guardianship.

Article 134 – Suspending the running of the period of limitation for a person with limited legal capacity and a beneficiary of support

If a claim has been brought by a person with limited legal capacity that has no legal representative, or a beneficiary of support who has not been provided with an appropriate support, or the claim is directed against such a person, then the period of limitation shall be deemed suspended until the person acquires full legal capacity, or until a legal representative or a supporter is designated for him/her.

Law of Georgia No 3339 of 20 March 2015 – website, 31.3.2015

Article 135 – Time during which the running of the period of limitation is suspended

The time, during which the running of the period of limitation is suspended, shall not be counted in computing the period of limitation.

Article 136 – The moment of suspending the running of the period of limitation

1. The period of limitation shall be suspended if the circumstances under Article 132 have arisen or continued to exist in the last six months of the period of limitation. If this period is less than six months, then at any time during the period of limitation.

2. From the day of eliminating the circumstances leading to the suspension of the period of limitation, the period of limitation shall continue to run for another six months; and if the period of limitation itself is less than six months, then until the period of limitation expires.

Article 137 – Interruption of the running of the period of limitation

The running of the period of limitation shall be interrupted if the obligor acknowledges the claim towards the obligee by paying an advance or interest, by providing security, or otherwise.

Article 138 – Interruption of the running of the period of limitation by bringing an action

The running of the period of limitation shall be interrupted if the rightful person brings an action for satisfaction of the claim or for its ascertainment, 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 obtaining a writ of execution. Articles 139 and 140 shall apply accordingly.

Article 139 – Duration of interruption of the period of limitation

1. Interruption of the running of the period of limitation on the grounds of bringing an action shall continue until the court decision takes effect or until the litigation is otherwise completed.

2. If the litigation is interrupted by agreement between the parties or by reason of the impossibility of its further continuation, then the running of the period of limitation shall be interrupted along with the agreement between the parties or upon completion of the last proceedings of the court. If one of the parties continues the proceedings, then the new limitation period that has begun after the interruption of the legal proceedings shall be interrupted again in the same manner as the running of the period of limitation is interrupted by the filing of a claim.

Article 140 – Renunciation of a claim

1. The filing of a claim shall not interrupt the running of the period of limitation if the claimant renounces the claim or if a court dismisses the claim by a final decision.

2. If the rightful person files a new claim within six months, then the period of limitation shall be deemed interrupted from the time of filing the first claim.

Article 141 – Computation of the running of limitation period anew

If the running of the period of limitation is interrupted, then the time elapsed before the termination shall not be counted and the period shall begin to run anew.

Article 142 – Period of limitation on claims confirmed by a court decision

1. The period of limitation on a claim confirmed by a court decision that has entered into legal force shall be 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 Article 129(2) shall apply to them.

143 – Period of limitation on real claims

If property with respect to which a real claim exists is transferred by succession of title to a third person, then the period of limitation which elapsed during possession by the predecessor in title shall apply to the successor in title also.

Article 144 – Rights of an obligor upon the lapse of the period of limitation

1. After the period of limitation expires, the obligor may refuse to perform an action.

2. If the obligor has performed the obligation after the lapse of the period of limitation, then he/she may not revoke the performance, even if at the time of performance he/she did not know that the period of limitation had elapsed.

3. The same rule shall apply to the acknowledgement and the security of an obligor.

Article 145 – Period of limitation on additional claims

The period of limitation on additional claims shall be deemed to expire simultaneously upon the lapse of the period of limitation on the principal claim, even if the period of limitation on additional claims has not elapsed yet.

Article 146 – Inadmissibility of altering the period of limitation by agreement of the parties

Periods of limitation and the rule of computing them may not be altered by agreement of the parties.

Book Two

Law of Things

Section One

Property

Article 147 – Concept

Property, according to this Code, is all things and intangible property, which may be possessed, used and administered by natural and legal persons, and which may be acquired without restriction, unless this is prohibited by law or contravenes moral standards.

Article 148 – Types of things

A thing may be either movable or immovable.

Article 149 – Immovable things

Immovable things shall include a plot 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. Any part of a thing that cannot be severed without either destroying the whole thing or such part or extinguishing their purpose (an essential component part of a thing) may be the object of separate rights only if so provided by law.

2. The essential component parts of a plot of land shall include buildings, structures and things firmly attached to the land and not intended for temporary use, which may also be stipulated by a contract.

Article 151 – Accessories

1. An accessory is a movable thing which, although not being a component part of the principal thing, is intended to serve the economic purpose of the principal thing and is in spatial relationship with the principal thing and, according to common usage is deemed to be an accessory.

2. A thing that is attached to land and may be severed from it without losing or substantially decreasing its commodity value shall also be deemed to be an accessory.

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 shall constitute intangible property.

Article 153 – Accessory and limited rights

1. A right that is connected to another right in such a manner that it cannot exist without the latter right is an accessory right.

2. A limited right is the one which is derived from a broader right and which encumbers the broader right.

Article 154 – Fruits of a thing and fruits of a right

1. Fruits of a thing shall be income, accrual and/or advantage derived from the thing.

2. Fruits of a right shall be income and/or advantage received as a result of the exercise of the right.

3. Income and advantage, the derivation of which is ensured by a thing or a right through a legal relation, shall also constitute the fruit of the thing or of the right.

4. Entitlement to a thing or a right makes it possible to receive the fruit of such thing or right within the scope and duration of such entitlement, unless otherwise provided by law.

5. If a person is obligated to return the fruits, he/she may claim the expenses incurred on the fruit, provided that such expenses arise from proper economic management and do not exceed the value of the fruit.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Section Two

Possession

Article 155 – Concept; Types

1. Possession of a thing shall be acquired by obtaining actual control of the object, coupled with the intention of doing so.

2. A person who, although exercising actual control of a thing, nevertheless is doing so in favour of another person from whom he/she has received the right to possess the thing shall not be deemed to be the possessor. Only the person who conferred the right to possess the thing shall be deemed to be the possessor.

3. If a person possesses a thing by virtue of a legal relation that either entitles or obligates him/her to possess the thing for a certain period of time, then this person shall be deemed to be a direct possessor, and the one who conferred the right to possess the thing or imposed the obligation on him/her shall be deemed to be an indirect possessor.

4. If one thing is jointly possessed by a number of persons, then those persons shall be deemed to be joint possessors.

5. If parts of one thing are possessed by a number of persons, then those persons shall be deemed to be the possessors of the individual parts.

Article 156 – Termination of possession

Possession shall be deemed terminated if the possessor cedes the thing forever or otherwise loses actual control of the thing.

Article 157 – Transfer of possession to heirs

Possession shall be 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 shall be presumed to be its owner.

2. This rule shall not apply if the nature of the ownership relation is identified through the Public Registry. The presumption of ownership shall not apply to the previous possessor if he/she lost this thing or it was stolen or otherwise dispossessed from him/her. Presumption of ownership shall operate in favour of the previous possessor only during the period of his/her possession.

Article 159 – Bona-fide possessor

A possessor shall be deemed to be bona fide if he/she possesses a thing lawfully or if he/she may be deemed to be entitled to possession based on the due diligence required in business relations.

Article 160 – Demand by a bona-fide possessor to restore a thing retained illegally

If a bona-fide possessor is dispossessed, he/she may recover the thing from the new possessor within a three-year period. This rule shall not apply when the new possessor has a better right to possess the thing. The right to return property may also be applied against the person having a better right to the thing if he/she has acquired it by duress or deception.

Article 161 – Demand by a bona-fide possessor to remove an unlawful disturbance

If a bona-fide possessor is not dispossessed of a thing but is otherwise obstructed in the exercise of his/her possession, then he/she may, as if he/she were the owner, demand that the obstruction be ended. In addition, he/she may claim damages sustained because of the disturbance of his/her possession. This rule of compensation for damages shall likewise apply when it is impossible to demand that the obstruction be ended.

Article 162 – Rights of a lawful possessor

1. A claim to return a thing may not be made against a lawful possessor. During lawful possession, the fruits of a thing and of a right shall belong to him/her.

2. This rule shall also apply to relations between direct and indirect possessors.

Article 163 – Duty of a non-entitled bona-fide possessor

1. A bona-fide possessor who did not have the right to possession originally or who has lost the right shall return the thing to the rightful person. Until the rightful person exercises this right, the fruit of the thing or of the right shall belong to the possessor.

2. The bona-fide possessor may claim from the rightful person reimbursement for the improvements made and expenses incurred by the possessor 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. The value of fruit not derived due to the possessor’s fault shall be deducted. The same rule shall apply to the improvements that enhance the value of the thing, provided the enhanced value still exists at the moment of the return of the thing.

3. The bona-fide possessor may refuse to return the thing until his/her claims are satisfied.

Article 164 – Duties of a mala-fide possessor

A mala-fide possessor shall return to the rightful person the thing and the benefit derived, the fruit of the thing or of the right. The possessor shall compensate for the fruit that the he has not received for a culpable reason. He/she may claim compensation for the improvements he/she made and the expenses he/she has incurred on the thing only if at the moment the thing is returned they result in the enrichment of the rightful person. Other claims against the mala-fide possessor shall remain unchanged.

Article 165 – Acquiring movable things by prescription

1. If a person has uninterruptedly possessed a movable thing for five years as his/her own thing, he/she shall obtain the right of ownership to it (acquisition by prescription).

2. Acquisition by prescription of a movable thing shall not be allowed if the acquirer has possessed the thing in bad faith or if he/she subsequently discovered that the thing did not belong to him/her.

Article 166 – Presumption of uninterrupted possession of things

If a person possessed a thing at the beginning and at the end of a certain period of time, he/she shall be presumed to have possessed the thing during the interval of the period as well.

Article 167 – Acquisition of immovable things by prescription

If a person is recorded in the Public Registry as the owner of a plot of land or of any other immovable property, while he/she did not in fact acquire title to it, he/she shall obtain title, provided the registration has existed for fifteen years and during that period the person possessed the property as his/her own.

Article 168 – Termination of possession of a thing by claim of the owner

Possession of a thing shall be terminated if the owner asserts a substantiated claim against the possessor.

Article 169 – (Deleted)

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Section Tree

Ownership

Chapter One

Subject Matter of Ownership

Article 170 – Concept; Subject matter of the right of ownership

1. An owner may, within the limits of legal or other, namely contractual restraints, freely possess and use any property (thing), exclude others from using the property, and administer it, unless doing so would violate the rights of neighbours or other third persons or unless such act constitutes abuse of rights.

2. Use of the property in such a way that damage is done only to others so that the priority of the owner’s interest is not evident and the necessity of his/her action is unjustified, shall be deemed to be an abuse of rights.

3. A person’s right to use shall also include the possibility of not using his/her thing. If non-use or non-maintenance of the thing is prejudicial to public interests, then the law may prescribe an obligation to use, maintain or keep the thing. In that case, the owner may be required to either perform the obligation by himself/herself or transfer the thing, in exchange for appropriate consideration, to another person.

Article 171 – Right of ownership of the essential component part of a thing

The right of ownership of a thing shall also extend to the essential component parts of the thing.

Article 172 – Demand for restoring a thing from defective possession and for removing a disturbance

1. An owner may recover a thing from its possessor, except if the possessor had the right to 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 end the disturbance. If the disturbance continues, the owner may seek a prohibitory injunction.

3. (Deleted – 11.12.2015, No 4625).

Law of Georgia No 3885 of 8 December 2006 – LHG I, No 48, 22.12.2006, Art. 327

Law of Georgia No 4625 of 11 December 2015 – website, 29.12.2015

Article 173 – Common property

1. Common (joint and shared) property shall arise by operation of law or on the grounds of a transaction. Each co-owner may assert a claim against third persons over the property under common ownership. Each co-owner may recover the thing only in favour of all co-owners.

2. A thing under common ownership, if so agreed by the co-owners, may be pledged or otherwise encumbered in favour of and in the interests of one of the co-owners.

3. Expenses on maintaining and keeping a thing under common ownership shall be borne equally by the co-owners, unless otherwise provided by law or contract.

4. Unless directly established by the legislation of Georgia, the pre-emptive right to the acquisition of any share of the common property may be determined by agreement among the co-owners.

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Law of Georgia No 4851 of 25 June 2019 – website, 2.7.2019

Chapter Two

Law of Neighbouring Tenements

Article 174 – Concept; Duty of mutual respect

The owners of neighbouring plots of land or other immovable properties shall, in addition to the rights and duties prescribed by law, hold each other in respect. All such plots of land or other immovable properties between which a reciprocal nuisance may arise shall be deemed to be neighbouring ones.

Article 175 – Obligation to tolerate neighbouring nuisances

1. The owner of a plot of land or any other immovable property may not prohibit the introduction of gases, steam, smells, smoke, soot, warmth, noise, vibrations and similar influences emanating from another plot of land to the extent that they do not interfere with the use of his/her plot of land, or interfere with it only to an insignificant extent.

2. The same rule shall apply to the extent that a material interference is caused by use of the other plot of land or other immovable property and cannot be prevented by measures that are deemed to be regular economic activities for users of this kind.

3. If the owner is bound to tolerate such a nuisance, he/she may demand from the owner of the other plot of land appropriate monetary compensation, where the nuisance exceeds the use regarded as customary in the location and is beyond economically permissible limits.

Article 176 – Unallowable encroachment

An owner of a plot of land may demand the prohibition of erection and utilisation of such buildings on neighbouring plots that impermissibly encroach on the right to use his plot of land and such encroachment is foreseeably evident beforehand.

Article 177 – Demand for elimination of danger

If a plot of land is endangered by the collapse of a building from a neighbouring plot, the owner may demand that the neighbour take the precautions necessary to avert the danger. It shall not be allowed to change the direction of or manipulate watercourses and groundwater running through several plots of land in such a manner that may reduce the amount of the water and/or deteriorate its quality. It shall not be allowed to interfere with the natural flow of rivers.

Article 178 – Right of the owner of a neighbouring plot of land to the fruit

1. The fruit of a tree or bush that falls onto a neighbouring plot of land shall be deemed to be the fruit of that plot.

2. The owner of a plot of land may cut off the branches or roots of a tree or of a bush that intrude from the neighbouring plot of land.

Article 179 – Monetary compensation for the obligation of tolerance

1. If when erecting a building the owner of a plot of land unintentionally encroaches on a neighbouring plot of land, then the owner of the neighbouring plot shall tolerate the encroachment, unless the latter objects to the encroachment before or immediately upon detecting it.

2. The encroaching neighbour shall pay monetary compensation annually in advance.

Article 180 – Right of way of necessity

1. If a plot of land lacks a connection to public roads, electricity, oil, gas and water supply lines that are necessary for its proper use, the owner may require that a neighbour tolerate the use of his/her plot to create the necessary connection. The neighbours on whose plots of land the right of way of necessity 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 right of way of necessity or transmission line shall not arise if an already existing connection to the plot of land was discontinued by the voluntary action of the owner.

Article 181 – Duty to mark boundaries

1. The owner of a plot of land may require from the owner of a neighbouring plot of land that the latter participate in erecting fixed boundary markers or in restoring an already existing boundary marker if it has been damaged or become unrecognisable. The expenses for marking boundaries shall be borne equally by the neighbours unless otherwise stipulated by either mutual agreement or another legal relation.

2. If exact boundary lines cannot be determined, then the boundary markers shall be established according to the actual possession by the neighbours. If actual possession cannot be exactly determined, then the disputed land shall be divided in equal parts between the plots of land. If such division results in an unjust outcome, then a court shall determine the boundary lines based on the application of one of the parties.

Article 182 – Right to use boundary installations

1. When two plots of land are separated by a fence or any other structure used as a boundary, the owners of the plots of land shall be presumed to have equal right to use the structure, unless the outward features of the structure expressly indicate that it belongs to one of the neighbours alone.

2. If both neighbours are entitled to joint use of the boundary structure, then each of them may use the structure so as not to obstruct joint use by the other neighbour.

3. The expenses of maintaining and keeping the structure shall be borne equally by the neighbours.

4. As long as one of the neighbours has an interest in the existence of the boundary structure, it may not be removed or altered without the consent of that neighbour.

Chapter Three

Acquisition and Loss of Ownership

I – Acquiring the Ownership of Immovable Things

Article 183 – Acquiring the ownership of immovable things by agreement

1. In order to acquire an immovable thing the transaction shall be made in writing and the acquirer’s ownership right shall be registered in the Public Registry.

2. An immovable thing owned by a child may be disposed of by his/her parent or other legal representative in the best interests of the child, on the basis of the consent of the court.

Law of Georgia No 3879 of 8 December 2006 – LHG I, No 48, 22.12.2006, Art. 321

Law of Georgia No 2799 of 23 March 2010 – LHG I, No 14, 30.3.2010, Art. 94

Law of Georgia No 5017 of 1 July 2011 – website, 14.7.2011

Law of Georgia No 5013 of 20 September 2019 – website, 27.9.2019

Law of Georgia No 5913 of 21 May 2020 – website, 25.5.2020

Article 184 – Abandonment of the ownership of immovable things

In order to abandon ownership or other rights to an immovable thing the rightful person shall declare it and register the declaration in the Public Registry. The declaration shall be submitted to the Office of Public Registry. Only after the submission shall the declaration on the relinquishment of the right become binding.

Article 185 – Protection of acquirer’s interests

Considering the acquirer’s interests, the transferor shall be deemed as the owner if he/she is registered with the Public Registry as such, except when the acquirer knew that the transferor was not the owner. (The normative content of Article 185, according to which ‘the transferor shall be deemed as the owner if he/she is registered with the Public Registry as such’, shall be recognised as unconstitutional when the record in the Registry has been appealed against and the acquirer is aware of this fact) – Decision No 3/4/550 of the Constitutional Court of Georgia of 17 October 2017 – website, 26.10.2017

II – Acquiring Ownership of Movable Things

Article 186 – Grounds for acquiring ownership of movable things

1. The transfer of ownership of a movable thing shall require the transfer of the thing by the owner to the acquirer on the grounds of a valid right.

1¹. An immovable thing valued at more than GEL 1000 and owned by a child may be disposed of by his/her parent or other legal representative in the best interests of the child, on the basis of the consent of the court.

2. The following shall be deemed to be a transfer of a thing: handing over the thing to the acquirer into direct possession; transfer of indirect 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.

Law of Georgia No 5013 of 20 September 2019 – website, 27.9.2019

Law of Georgia No 5913 of 21 May 2020 – website, 25.5.2020

Article 187 – Bona-fide acquirer

1. An acquirer shall become the owner of a thing even if the transferor 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 he/she knew or should have known that the transferor was not the owner. Such good faith shall exist before the transfer of the thing.

2. A bona-fide acquirer cannot become the owner of a thing if the owner has lost that thing, or it has been stolen, or the owner has otherwise been dispossessed of it against his/her will, or if the acquirer has received the thing free of charge. These restrictions shall not apply to money, securities and/or to things transferred at an auction.

Law of Georgia No 5667 of 28 December 2011 – website, 30.12.2011

Article 188 – Conditional ownership

1. If a transferor conditioned the transfer of ownership to an acquirer upon the prior payment of the price of a thing, then it is presumed that the ownership shall be transferred to the acquirer only after the price has been paid in full. If the acquirer delays the payment of the price, and the transferor repudiates the contract, then the parties shall return the performance already rendered bilaterally.

2. The condition defined in paragraph 1 shall also be deemed to be fulfilled if the transferor 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 ownership through securities

If, instead of the transfer of a thing, the transfer of securities is required in order to transfer ownership to the acquirer, then the ownership shall be deemed to have been transferred from the moment the transferor transfers the securities to the acquirer.

Article 190 – Acquiring the ownership of ownerless movable things

1. If a person takes possession of an ownerless movable thing, he/she acquires the ownership of the thing unless the appropriation is prohibited by law or unless the taking of possession injures the right of appropriation of another person.

2. A movable thing shall be deemed ownerless if the previous owner, in the intention of waiving ownership, gives up possession of the thing.

Article 191 – Finding

1. A finder of a lost thing shall immediately notify the person who lost the thing, the owner, the rightful person or, if their identities are unknown, the police or other local authority of the finding, and hand the thing over to them.

2. One year after notification of the finding, the finder shall acquire ownership of the thing, unless the owner has become known to the finder or the owner notified the police of his/her right. All other rights to the thing shall be extinguished simultaneously upon the acquisition of the ownership of the thing.

3. If rightful person recovers the thing, the finder may demand from him/her a reward (finder’s reward) in the amount of up to five per cent of the value of the thing. In addition, the finder may demand from the rightful person or from the appropriate authority, compensation for the expenses incurred in safekeeping the property.

4. If the finder relinquishes ownership, the competent authority may sell the thing after one year at an auction and receive the profits or, if the thing is of low value, gratuitously transfer or destroy it.

5. The one-year period shall not apply when animals, perishable items or things, the keeping costs of which are high, are found, and the proceeds of their sale shall be returned to the owner.

Article 192 – Treasure trove

If a thing that has lain hidden for so long that the owner can no longer be established (treasure trove) is discovered, one half of the ownership shall be acquired by the discoverer and the other half by the owner of the thing in which the treasure was found.

Article 193 – Acquiring ownership of essential component parts of a plot of land

If a movable thing is attached to a plot of land in such a manner that it has become an essential component part of it, then, under Article 150(2), the owner of the plot of land shall simultaneously be the owner of the thing.

Article 194 – Co-ownership of things created by 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 the movable things have merged, the previous owners shall become the co-owners of the new thing. The shares shall be determined 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 accessories as well.

Article 195 – Co-ownership of new movable things created by processing of material

If 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 shall be determined according to the value of the material and the costs of manufacturing, unless otherwise stipulated by agreement.

Article 196 – Extinction of rights upon the transfer of ownership

If ownership is transferred under Articles 193-195, all other existing rights to that thing shall be extinguished.

Article 197 – Claim for damages against the new owner

1. A person who loses ownership under Articles 193-195 or whose right is otherwise impaired may claim damages from the person who has become the owner. Claim for restoration of the initial state of affairs shall not be allowed.

2. The claim under paragraph 1 of this article shall not arise if the new owner has acquired the thing under a commutative contract from a third person.

III – Acquiring Ownership of Rights and Claims

Article 198 – Concept; Subject matter

1. A possessor of a claim or a right that can be assigned or pledged may transfer it to the ownership of another person. Claims and rights are transferred to a new owner in the same state in which they existed with the former possessor.

2. The former possessor shall hand over to the new possessor all the documents in his/her possession that are related to the claims and rights, as well as all information necessary for exercising those claims and rights.

3. The former possessor shall also hand over to the acquirer, at the acquirer’s request, a duly authenticated document on the assignment of these claims and rights. The expenses for authentication of this document shall be borne by the new possessor.

Article 199 – Assignment of claims

1. An owner 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 the law (assignment of claim). An agreement with the debtor on the inadmissibility of assignment of a claim may be made only if the debtor has a valid interest.

2. A claim shall be assigned under a contract concluded between the owner of the claim and a third party. In that case, the third party shall occupy the place of the original owner.

Article 200 – Rights of a debtor in the case of assignment of claim

Until a debtor is notified of the assignment of the claim, he/she may perform the obligation to the original owner of the claim.

Article 201 – Transfer of the means of security upon assignment of a claim

1. By assignment of a claim, both the means of security and other rights in connection with the claim shall be transferred to the new owner.

2. The debtor may assert against the new owner all the defences that he/she had against the original owner at the time he/she received notice of the assignment of the claim.

Article 202 – Order of priority of owners of a claim

If an owner of a claim has agreed to assign the claim with a number of persons, then the person with whom the owner of the claim first entered into relations shall be entitled before the debtor. If this cannot be determined, then priority shall be given to the person of whom the debtor was earliest notified.

Article 203 – Assignment of debt

1. A third person may also assume a debt by agreement concluded with the creditor (assignment of debt). In such case, the third person shall stand in the place of the original debtor.

2. The original debtor may disagree with this agreement between the creditor and a third person and pay the debt itself.

Article 204 – Consent by the creditor upon assumption of debt

If a debtor and a third person enter into an agreement on an assumption of debt, then the validity of the assumption shall depend upon the consent of the creditor. Exceptions to this rule shall be established by law.

Law of Georgia No 1901 of 23 December 2017 – website, 11.01.2018

Law of Georgia No 2117 of 29 November 2022 – website, 16.12.2022

Article 205 – Rights of a new debtor

The new debtor may assert against the creditor all the defences arising from the relations that existed between the creditor and the original debtor. He/she may not offset the claims that belonged to the original debtor.

Article 206 – Termination of a means of security upon assignment of debt

Immediately upon assignment of a debt any guarantee or pledge securing the claim shall be terminated, unless the guarantor or the pledger expresses his/her consent to continue the relationship. Exceptions to this rule shall be established by law.

Law of Georgia No 1902 of 28 December 2002 – LHG I, No 4, 22.1.2003, Art. 20

Law of Georgia No 5667 of 20 December 2019 – website, 31.12.2019

Law of Georgia No 2117 of 29 November 2022 – website, 16.12.2022

Article 207 – Assignment of claim by operation of law

The rules for acquisition of ownership of rights and claims shall apply accordingly to the assignment of claims by operation of law or on the basis of a decision made by a court or by a competent state body.

Chapter Four

Ownership of a Flat in a Block of Flats

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

I. General Provisions

Article 208 – Grounds for acquiring an object of individual ownership (a flat and/or a non-residential space)

To acquire an object of individual ownership (a flat and/or a non-residential space), it shall be necessary to sign a written agreement and register the acquirer’s ownership defined by such agreement in the Public Registry.

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 209 – Acquiring a rented flat

If a person acquires a rented flat, he/she shall take the place of the landlord.

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 210 – (Deleted)

Law of Georgia No 3879 of 8 December 2006 – LHG I, No 48, 22.12.2006, Art. 321

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 211 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 212 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 213 – (Deleted)

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 214 – (Deleted)

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Article 215 – (Deleted)

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 216 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 217 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 218 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 219 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 220 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 221 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 222 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 223 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 224 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 225 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 226 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 227 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 228 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 229 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 230 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 231 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Article 232 – (Deleted)

Law of Georgia No 5278 of 11 July 2007 – LHG I, No 29, 27.7.2007, Art. 322

Chapter Five

Limited Use of Property Belonging to another Person

I – Superficies

Article 233 – Concept

1. A plot of land may be transferred to another person for use for a fixed period of time in such a manner as to grant him/her the heritable and alienable right to erect on or beneath the plot some structure, as well as the right to lend or lease such right (superficies).

2. Superficies may extend to the part of a tract of land that is not necessary for building but allows for a better use of the structure.

3. The duration of superficies shall be determined by agreement of the parties and shall not exceed ninety nine years.

Law of Georgia No 2978 of 27 April 2010 – LHG I, No 24, 10.5.2010, Art. 144

Article 234 – Origin, acquisition and termination of the right of superficies. Ownership of superficies

1. The rules governing the acquisition of immovable things shall accordingly apply to the origin and acquisition of the right of superficies.

2. A structure erected under the right of superficies shall be deemed an essential component part of the right of superficies and shall be registered as the property of the person having the right of superficies.

3. Upon termination of the right of superficies, the structure erected under superficies shall become an essential component part of the plot of land.

Law of Georgia No 2978 of 27 April 2010 – LHG I, No 24, 10.5.2010, Art. 144

Article 235 – Transfer of superficies

If by agreement of the parties the consent of the owner of the plot of land is required to transfer or lease the right of superficies, the owner may withhold such consent only if there are significant grounds to do so.

Article 236 – Payment for the right of superficies

1. An owner of the right of superficies may be bound by contract to pay fee. This right of the owner of a plot of land shall be inseparable from the ownership of the plot of land.

2. The right of superficies may be unilaterally terminated by the owner in case of non-fulfilment of this obligation for two years, unless otherwise provided for under the agreement of the parties.

3. The parties may predetermine the superficies fee for a ten-year period. If economic conditions materially change, then the parties shall agree on a new fee.

Law of Georgia No 4336 of October 2015 – website, 20.10.2015

Article 237 – Registration of the right of superficies

The right of su 16 perficies shall be entered on the Public Registry only as ranking before all property rights of non-owners. This ranking may not be altered.

Article 238 – Termination of the right of superficies

1. Termination of the right of superficies shall require consent of the owner.

2. The right of superficies shall not be terminated with the collapse of a structure erected on the plot of land.

Article 239 – Termination of non-gratuitous superficies

1. In case of expiration of the non-gratuitous superficies, unless otherwise provided for under the agreement of the parties, the owner of the plot of land shall pay the superficiary an appropriate compensation in the amount of two thirds of the value of the structure erected on the plot of land.

2. The owner of the plot of land may, in return for paying the compensation, extend the right of superficies for the superficiary for a period for which the structure erected on the plot of land is presumed to exist, unless otherwise provided for under the agreement of the parties. If the superficiary declines the extension of the right of superficies, he/she shall lose the right to claim compensation as well.

3. The superficiary may not remove the structure or its component parts after the right of superficies expires.

Law of Georgia No 4336 of 16 October 2015 – website, 20.10.2015

Article 240 – Registration of the claim for compensation in the Public Registry

1. Following the termination of the right of superficies, the right to claim compensation arising from the superficies (if any) shall take the place of the right of superficies in the Public Registry and replace it in the same order.

2. If upon the expiration the right of superficies is still encumbered with a mortgage, then the mortgagee shall have a lien upon the claim for compensation.

Law of Georgia No 4336 of 16 October 2015 – website, 20.10.2015

Article 241 – Succession in title upon termination of superficies

If superficies is terminated, the owner of the plot of land shall become a party to a tenancy or lease agreement concluded by the superficiary.

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/her the right to use this thing as if he/she were the owner, and to exclude third persons from using it; provided, however, that unlike the owner, he/she has no right to transfer, mortgage or transfer the thing by inheritance (usufruct). The renting or leasing out of the thing shall require the consent of the owner. After the usufruct is cancelled, the owner shall become a party in the existing tenancy or lease relations.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 243 – Legal regulation of creating a usufruct

The rules governing the acquisition of immovable things shall apply to the creation of usufruct.

Article 244 – Kinds of usufruct

1. Usufruct is either onerous or gratuitous.

2. Usufruct may exist either for a fixed term or for the lifetime of its beneficiary (usufructuary). Usufruct shall be cancelled by the death of the natural person or liquidation of the legal person in whose favour the usufruct has been established.

Article 245 – Usufructuary’s rights and duties

1. Before the commencement of usufruct the parties may assess the condition of the things transferable by usufruct.

2. The usufructuary may not alter the purpose of use without the consent of the owner.

3. The usufructuary shall be entitled to the fruit of, and benefits from, the thing that are not derived from an ordinary economic use of the thing. In that case he/she shall compensate the owner for damages done to the thing as a result of such use.

4. The usufructuary shall not be liable for natural wear and tear of the thing. The usufructuary shall cover the current expenses, make repairs to the thing and take care of the normal economic maintenance of the thing.

5. The usufructuary shall insure the thing for the duration of the usufruct if so provided by law or by agreement of the parties. If the object of usufruct is a state-owned or municipality-owned immovable thing and the usufructuary is a legal entity under public law, or a municipality (where the object of usufruct is owned by other municipality), or a non-entrepreneurial (non-commercial) legal entity established by the State or a municipality, the thing need not be insured.

6. If the thing has been destroyed, damaged, or unexpected expenses have arisen for its maintenance, the usufructuary shall immediately notify the owner accordingly. The usufructuary shall tolerate the measures that the owner undertakes to cure the situation. The owner shall not be obligated to undertake appropriate measures. If the usufructuary itself undertakes these measures, then at the end of the usufruct the usufructuary may remove from the thing the objects attached to it by him/her as a result of such measures or demand from the owner proper compensation for those objects.

7. If the usufructuary transfers, within the limits of normal economic activities, individual objects, then objects acquired by him/her shall take the place of the transferred objects.

Law of Georgia No 1541 of 17 July 2009 – LHG I, No 21, 3.8.2009, Art. 124

Law of Georgia No 6989 of 1 5 July 2020 – website, 28.7.2020

Article 246 – Termination of usufruct

1. Upon the end of usufruct the usufructuary shall return the thing to the owner.

2. Usufruct shall be extinguished if both the usufruct and the ownership are in the hands of the same person.

III – Easements

Article 247 – Concept

1. A plot of land or any other immovable property may be used (encumbered) in favour of the

owner of another plot of land or of other immovable property so that the owner may use the plot of land in particular instances or so that certain actions may not be undertaken on this plot of land or so that the exercise of a right towards the other plot of land is excluded (easement). The rules for the acquisition of immovable things shall apply to the creation of easement.

2. Compensation may be determined in the form of periodic payments.

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Article 248 – Conditions of easement

1. An easement may exist only when it creates a benefit for the person entitled to use a plot of land.

2. When using an easement, the rightful person shall protect the interests of the owner of the used (servient) plot of land.

Article 249 – Duty of maintenance of an installation

If, in order to properly use an easement, there is an installation on the servient plot of land, then the rightful person shall maintain the installation. At the same time, the parties may determine that the owner of the servient plot of land maintain the structure to the extent that the interests of the rightful person require this.

Article 250 – Effect of division of a plot of land

If the plot of land of the rightful person is divided, then the easement shall continue to exist on each part separately. In such case, the use of the easement shall be permissible only if it does not become more burdensome for the owner of the servient plot of land.

Article 251 – Parts released from easement following division

Where the servient plot of land is divided, then, if the use of the easement is restricted to a particular part of the servient plot of land, the parts that lie outside the area of use shall be released from the easement.

Article 252 – Protection of the rights of the rightful person

If the rightful person is obstructed in the exercise of his/her rights, he/she shall have the same right to avoid the obstruction as if he/she were a bona-fide possessor.

Article 253 – Personal easement

1. An immovable thing may be encumbered with an easement for the benefit of a specific person under the conditions provided for in Article 247. Such encumbrance may be expressed in such a manner that the rightful person, excluding the owner, may use a building or a part of the building as a residence for himself/herself or share it with his/her family.

2. A personal easement restricted in the manner defined in paragraph 1 of this article may not be transferred to another person.

Chapter Six

Title to Property as a Security for a Claim

I – Pledge

Article 254 – Concept

1. A debtor’s or a third person’s movable things and/or intangible property that may be transferred to another person may be used as security for a monetary or non-monetary claim in such a manner that the creditor (pledgee) acquires the right to satisfy his/her claim by selling or, if the parties so agree, by taking possession of the pledged property (pledged item) if the debtor does not fulfil or improperly fulfils his/her obligation.

2. The pledgee has a pre-emptive right over other creditors to satisfy his/her claim at the expense of the pledged item.

3. A pledge may secure future or contingent claims.

3¹. In the case of pledged intangible property, the procedure established by Article 7 of the Organic Law of Georgia on Agricultural Land Ownership shall also be taken into account.

3². A pledger shall not pledge intangible property that is an asset included in a collateral pool as defined in Article 2(1)(b) of the Law of Georgia on Bonds Secured by Mortgages.

4. A pledge securing a non-monetary claim shall be valid only if it can be expressed in a monetary form.

4¹. A pledge may extend to a thing or part of a thing, the combination of things or their part and/or to intangible property or to the whole movable property.

5. The things and intangible property that the pledger will acquire in future (future property) may be used as security for a claim. Future property shall become security for a claim upon its acquisition and the priority of a pledge with respect to future property shall be determined by the time of its registration.

6. A transport vehicle defined under Article 53(1) of the Law of Georgia on Traffic and/or an auxiliary technical equipment of an agricultural machine, and a railway means of transportation may not be used as security for a claim proceeding from a loan/credit agreement to be granted/granted to a natural person (including to an individual entrepreneur).

(Article 254(6) was declared invalidated) – Decision No 1/4/1380 of the Constitutional Court of Georgia of 18 December 2020 – website, 22.12.2020

7. ( Deleted – 22.7.2021, No 808).

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 4323 of 9 March 2011 – website, 22.3.2011

Law of Georgia No 3315 of 21 July 2018 – website, 7.8.2018

Law of Georgia No 4851 of 25 June 2019 – website, 2.7.2019

Decision No 1/4/1380 of the Constitutional Court of Georgia of 18 December 2020 – website, 22.12.2020

Law of Georgia No 808 of 22 July 2021 – website, 26.7.2021

Law of Georgia No 2117 of 29 November 2022 – website, 16.12.2022

Article 255 – Types of a pledge

Pledge types shall be:

a) a possessory pledge;

b) a registered pledge.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 256 – Scope of a pledge

1. A pledge secures a claim and other additional claims relating to it (including interest and contractual penalties) as well as the expenses related to property maintenance, court and sale costs, unless otherwise provided by law or an agreement between the parties.

2. A pledge shall extend to the fruits derived from a pledged item, unless otherwise provided by agreement between the parties.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 4323 of 9 March 2011 – website, 22.3.2011

Law of Georgia No 5668 of 28 December 2011 – website, 16.1.2012

Article 257 – Possessory pledge

1. Possessory pledge in a movable thing arises by agreement of the parties and by transferring the thing into the possession of the pledgee or a third person designated by the pledgee.

2. If the thing is already in the possession of the pledgee or a third person designated by the pledgee, the agreement of the parties shall suffice for a pledge to arise.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 258 – Registered pledge

1. A registered pledge shall arise by entering into a written transaction and registering the pledge stipulated in the transaction with the Public Registry (except as provided for in paragraph 4 of this article). In this case, a movable thing need not be transferred to the pledgee’s possession.

2. The transaction shall indicate:

a) date of execution;

b) details of the pledger, the pledgee and a possible third person debtor;

c) description of the pledged item with general or specific characteristics so that it can be identified. If the pledged item is the entire movable property, it need not be described, unless otherwise determined by agreement of the parties;

d) a general or specific description of the secured principal claim and the maximum sum with which the secured claim is to be satisfied.

3. The procedure for registration of a pledge shall be determined by law.

3¹. Relations with respect to financial collaterals are governed by the Law of Georgia on Financial Collaterals, Mutual Setoffs and Derivatives .

4. For the pledge registered on vehicles and auxiliary equipment of agricultural machines specified in Article 53(1) of the Law of Georgia on Road Traffic to arise, the transaction shall be made in writing and the pledge stipulated in the transaction shall be registered with the Legal Entity under Public Law (LEPL) – Service Agency of the Ministry of Internal Affairs of Georgia (‘the Service Agency’). At the same time for the transaction to be valid the transaction or the signatures of the parties need not be authenticated if:

a) the parties to the transaction sign the transaction in the registration authority in the presence of an authorised person;

b) the pledgee and the Service Agency have signed a contract for registration of a pledge on the vehicle by using an electronic document system.

5. The Minister of Internal Affairs of Georgia shall determine the procedure for the registration by the Service Agency of a pledge on vehicles and auxiliary equipment of agricultural machines specified in Article 53(1) of the Law of Georgia on Road Traffic based on paper or electronic documents.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 3879 of 8 December 2006 – LHG I, No 48, 22.12.2006, Art. 321

Law of Georgia No 4310 of 29 December 2006 – LHG I, No 2, 4.1.2007, Art. 35

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Law of Georgia No 314 of 2 October 2008 – LHG I, No 24, 20.10.2008, Art. 160

Law of Georgia No 4323 of 9 March 2011 – website, 22.3.2011

Law of Georgia No 6311 of 25 May 2012 – website, 12.6.2012

Law of Georgia No 1833 of 24 December 2013 – website, 3.1.2014

Law of Georgia No 5674 of 20 December 2019 – website, 31.12.2019

Article 258¹ – Certificate of pledge

1. If a debtor fails to fulfil the obligation under Article 281(1) of this Code within two weeks after the pledgee’s written request, the Service Agency shall issue, based on the pledgee’s application, a certificate of pledge.

2. A certificate of pledge is an enforceable act evidencing the fact that the pledge provided for in Article 258(4) of this Code has been registered with the Service Agency. In the circumstances determined by the legislation of Georgia the pledgee may request the authorised body (official) to transfer the pledged item to his/her possession to satisfy the claim secured by the pledge.

3. A certificate of pledge shall not be issued if the registered pledge transaction does not contain the agreement of the parties required by Article 283(1) and/or Article 260¹ of this Code for securing the claim.

4. The responsibility for the legitimacy of the request for the certificate of pledge submitted by the pledgee to the Service Agency shall rest with the pledgee.

5. The form and procedure for issuing a certificate of pledge shall be determined by an order of the Minister of Internal Affairs of Georgia.

Law of Georgia No 1541 of 17 July 2009 – LHG I, No 21, 3.8.2009, Art. 124

Law of Georgia No 1833 of 24 December 2013 – website, 3.1.2014

Article 259 – Procedure for pledging claims and securities

1. Claims shall be pledged by signing a written transaction and registering the right under the transaction with the Public Registry. The requirements laid down in Article 258(2) of this Code shall apply to such transactions.

2. Until the debtor is notified in writing about pledging a claim, the debtor may perform the obligation before the holder of the claim. In that case, the procedure under Article 264(1) shall apply.

3. Securities shall be pledged under the procedures laid down for their acquisition. The procedures for pledging public securities are defined by the Law of Georgia on Securities Market.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 3879 of 8 December 2006 – LHG I, No 48, 22.12.2006, Art. 321

Article 260 – Procedure for pledging things in pawnshops

1. Things in a pawnshop shall be pledged by a written agreement between the parties and by transferring things into the direct possession of the pawnshop.

2. (Deleted – 21.7.2018, No 3315).

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 3315 of 21 July 2018 – website, 7.8.2018

Article 260¹ – Transfer of pledged items to the creditor (pledgee)

A pledged item may be transferred to the creditor (pledgee) on the grounds provided for in this Law only in the case of a registered pledge. Such transfer shall be expressly indicated in the agreement.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 261 – Rights and duties of a pledgee and a pledger

1. A pledger or a pledgee in the case of a registered pledge, and a pledgee or a third person designated by the pledgee in the case of a possessory pledge, shall properly keep and maintain the pledged item in their possession. Each party may inspect the condition (including size, weight, storage conditions) of the pledged item that is in the possession of the other party.

2. If a pledged item is held by the pledger, he/she may receive benefit from the pledged item. A pledgee may receive benefit from the pledged item in his/her possession if so provided by agreement of the parties. The pledgee shall be presumed to be entitled to the fruit of the pledged item if the pledged item bears fruit by its nature. The received benefit shall be set off against the secured claim. Upon request of the pledger, the pledgee shall present to the pledger an account of the received benefits.

3. A pledgee may claim from the pledger reimbursement of necessary expenses incurred on the pledged item. The procedure for reimbursement of other expenses shall be determined under the rules governing agency without specific authorisation.

4. If a pledger defaults on his/her obligation to properly keep and maintain the pledged item, the pledgee may demand that the pledged item be handed over to him/her or to a third person. If the pledgee defaults on his/her obligation to properly keep and maintain the pledged item, the pledger may demand that the pledged item be handed over to a third person.

5. If a pledged item is stock or a share in a business entity, then in making decisions or entering into transactions in connection with the business entity, the pledger shall act in good faith in his/her and the pledgee’s interests.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 262 – Insurance of pledged items

A pledger shall insure the pledged item only if so provided by law or by agreement of the parties.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 263 – Rights of a pledger that is not a personal debtor of a pledgee

A pledger that is not a personal debtor of the claim secured by a pledge may assert against the pledgee the defences to which a personal debtor is entitled, including the defences that the pledgee’s personal debtor waived after the creation of the pledge.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 264 – Substitution

1. If a claim is pledged and the debtor performs an obligation before the expiry of the pledge, then performance shall take the place of the claim, unless the parties agreed otherwise.

2. Any compensation, including insurance compensation received for the loss, damage, destruction or devaluation of the pledged item shall take the place of the pledged item, unless otherwise provided for by agreement of the parties.

3. In the cases provided for in paragraph 2 of this article, the pledger may purchase, with the sum received by him/her, an item substituting for the lost, damaged, destroyed or devalued item and the purchased item shall take the place of the pledged item.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 4323 of 9 March 2011 – website, 22.3.2011

Article 265 – Legal consequences of processing a pledged item and/or merging it with another movable thing

1. A pledge shall not be terminated if a pledged item is processed and/or merged with another movable thing in such a way that restoring it to the original condition is impossible or involves considerable expense, unless otherwise provided by agreement of the parties. If ownership is transferred as a result of processing a pledged item and/or merging it with another movable thing, the procedure under Article 196 of this Code shall apply.

2. In the cases provided for in paragraph 1 of this article, the pledgee’s prior consent shall be required to process a pledged item and/or merge it with another movable thing, unless otherwise provided by agreement of the parties.

3. In the cases provided for in this article, the priority of claims arising from a pledge shall be determined by the time of creation of the pledge which existed before the pledged item was processed and/or merged with another movable thing.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 4323 of 9 March 2011 – website, 22.3.2011

Article 266 – Making a transaction on pledged items

1. The parties may agree that the pledger will not transfer or re-pledge the pledged item until the pledge is terminated.

2. If the pledger defaults on his/her obligation under paragraph 1 of this article, the pledgee may immediately satisfy his/her claim.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 267 – Re-pledging pledged items and priority of pledges

1. The same property may be re-pledged several times. The priority of pledges shall be determined according to the time of their submission for registration.

2. If a pledged item is future property and the pledger purchases such property, the pledge created under the previous owner shall prevail over the pledge created under the new owner irrespective of the date of their creation.

3. Where so provided for in Articles 568, 586, 596, 634, 685 and 796 of this Code, the pledgee shall have priority in satisfying his/her claim at the expense of the pledged item over all other pledgees.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Article 268 – Protecting the rights of a pledgee

If the exercise of a pledgee’s rights is interrupted, the pledgee may exercise the same rights that the owner does.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 269 – Transfer of a pledge to a new creditor

1. By transferring a claim to another person, the pledge shall also be transferred to such person (new creditor).

2. A pledge shall be terminated if the new creditor does not request, within a reasonable time after the assignment of a claim secured with possessory pledge, the transfer of the pledged item to him/her or to a person authorised by him/her or the registration of the pledge.

3. Each third party whose legal status may be worsened by the sale of the pledged item may satisfy the pledgee’s claim and thereby acquire his/her rights against the pledger or a possible third party debtor.

4. A pledge may not be transferred to another person without transfer of the relevant claim. If during the transfer of a claim the pledge is not transferred, the pledge shall be terminated.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 270 – Termination of a pledge due to cancellation of a claim

A pledge shall be terminated upon cancellation of the claim for the security of which it exists.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 271 – Termination of a pledge due to perishing of pledged items

A pledge shall be terminated if the pledged item physically ceases to exist.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 272 – Termination of a pledge due to its waiver

1. A registered pledge shall be terminated if the pledgee waives the pledge by way of registration.

2. A possessory pledge shall be terminated if possession reverts to the pledger or the pledgee waives the pledge.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 273 – Termination of a pledge due to transfer of pledged items to a pledgee (consolidation)

A pledge shall be terminated if the pledged item is transferred into the ownership of the pledgee.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 274 – Transfer of pledged items

1. If the pledged item is transferred, the pledged property shall also be transferred to the buyer, except as provided for in paragraphs 3 and 4 of this article.

2. If the pledged item is transferred in the case of registered pledge, the pledger and the buyer shall be jointly liable to register the buyer as a pledger with the Public Registry and for vehicles and auxiliary equipment of agricultural machines defined by Article 53(1) of the Law of Georgia on Road Traffic, the pledger and the buyer shall be jointly liable to register the buyer as a pledger with the Service Agency. If the pledger and the buyer fail to meet the above requirement, they shall be jointly and severally liable for any damages caused by the non-performance of the requirements.

3. If the pledger transfers the pledged item in the case of a possessory pledge, the pledge shall be terminated and the buyer shall acquire non-encumbered property if the pledgee or the person authorised by him/her transfers the possession of the pledged item to the buyer.

4. If the pledger transfers the pledged item during the course of ordinary business activity, the buyer shall acquire non-encumbered property irrespective of whether or not the buyer had knowledge of the pledge. This rule shall not apply if the buyer and the pledger acted in bad faith.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 4310 of 29 December 2006 – LHG I, No 2, 4.1.2007, Art. 35

Law of Georgia No 1833 of 24 December 2013 – website, 3.1.2014

Article 275 – Pledgee’s obligation upon termination of a pledge

1. If a pledge is terminated, the pledgee shall return the pledged item that is in his/her possession to the pledger.

2. If a registered pledge is terminated, the pledger may demand that the pledgee immediately register the termination of the pledge with the Public Registry. If the registered pledge on vehicles and auxiliary equipment of agricultural machines defined by Article 53(1) of the Law of Georgia on Road Traffic is terminated the pledgee shall immediately register the termination of the pledge with the Service Agency. If the pledger does not demand an immediate registration of the termination of the pledge, the pledgee shall apply, within five business days after termination of the pledge, to the Service Agency for registration of termination of the pledge. If this obligation is not fulfilled, the pledger may claim damages from the pledgee.

3. The pledger may also demand the registration of the termination of a pledge. In that case, the application for registration of the termination of the pledge shall be accompanied by a written document issued by the pledgee that confirms termination of the pledge.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 4310 of 29 December 2006 – LHG I, No 2, 4.1.2007, Art. 35

Law of Georgia No 1833 of 24 December 2013 – website, 3.1.2014

Article 276 – Satisfaction of a pledgee

1. The pledgee shall be satisfied by selling the pledged item or transferring the pledged item to the pledgee to satisfy his/her claim, unless otherwise provided by law.

2. A claim shall be deemed to have been satisfied even if the proceeds from the sale of the pledged item are not enough to cover the claim secured by pledge or the value of the pledged item does not fully cover the amount of the claim, unless otherwise provided by agreement of the parties.

3. If a creditor/loan holder is not an entity subject to the supervision of the National Bank of Georgia, a claim proceeding from a loan/credit agreement granted to a natural person (including to an individual entrepreneur) shall be considered satisfied even in the case when the amount received as a result of selling a pledged item (items) or a pledged item (items) and a mortgaged immovable thing (things) is not sufficient to cover the claim secured by a pledge or a pledge and a mortgage, or the price of a pledged item (items) or the price of a pledged item (items) and a mortgaged immovable thing (things) does not fully cover the amount of the claim. No other agreement between the parties shall be allowed. The National Bank of Georgia may establish for entities subject to its supervision a procedure different from the one provided for in this paragraph and/or an additional procedure.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 3315 of 21 July 2018 – website, 7.8.2018

Article 277 – (Deleted)

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 278 – Right to demand the sale of pledged items and transfer of pledged items to a pledgee

The pledgee may demand that the pledged item be sold or transferred to him/her if the debtor does not fulfil or improperly fulfils the claim secured by the pledge.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 279 – Right to sell pledged items repeatedly

1. If a pledged item has been re-pledged several times, any pledgee may demand its sale upon the maturity of the claim.

2. A pledgee whose pledge ranks before the right of a selling pledgee may give the lower ranking pledgee, within two weeks after the date of receipt of a written notice of sale from the lower ranking pledgee, a notice that:

a) he/she exercises the right to sell the pledged item as provided for in paragraph 1 of this article. In such case, the lower ranking pledgee cannot make the sale and the obligation to make the sale shall rest with the higher ranking pledgee;

b) he/she agrees to the sale of the pledged item by the lower ranking pledgee provided that his/her claim is satisfied on a priority basis from the proceeds of the sale;

3. In the cases of a sale under paragraph 2 of this article, the proceeds of the sale shall go towards satisfying the higher ranking pledgee’s claim before the lower ranking pledgee’s claim.

4. If the higher ranking pledgee does not exercise the rights under paragraph 2 of this article, the pledged item shall remain encumbered with the rights of the pledgees whose pledges precede the right of the selling pledgee.

5. The selling pledgee and the buyer shall register the buyer as a pledger with the Public Registry or, if so provided by law, with the Service Agency. If selling pledgee and the buyer default on this obligation, they shall be jointly liable for any damages resulting from such default.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 4310 of 29 December 2006 – LHG I, No 2, 4.1.2007, Art. 35

Article 280 – Distribution of sales proceeds

1. The proceeds from the sale of a pledged item shall first cover the expense of the sale and then satisfy the selling pledgee’s claim.

2. The pledgee selling an item that has been re-pledged several times shall deposit the sum remaining after the payment of the sale expenses and satisfaction of his/her claim with a notary to ensure the satisfaction of the claims of the subsequent pledgees. The claim of each subsequent pledgee shall be satisfied after the claim of the previous pledgee has been satisfied in full.

3. The sum remaining after all the claims secured by the pledge have been satisfied in full shall be given to the pledger if there are no subsequent pledgees.

4. The selling pledgee shall be liable before the other pledgees for damages caused by the non-fulfilment of the obligation under paragraph 2 of this article.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 281 – Transferring pledged items to the pledgee entitled to sell

1. The pledgee entitled to demand that a pledged item be sold or transferred to him/her may demand that the pledged item be transferred to his/her possession. The pledgee’s demand for transfer of the pledged item to his/her possession shall be satisfied immediately.

2. If satisfaction of the claim depends on the performance of a certain legal act, then the pledgee may demand that the pledger perform the act. If the pledger does not fulfil the pledgee’s demand within two weeks, the pledgee may perform the act in relation to third persons on behalf of the pledger.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 1541 of 17 July 2009 – LHG I, No 21, 3.8.2009, Art. 124

Article 281¹ – Transferring a pledged vehicle and/or auxiliary equipment of agricultural machines to a pledgee

1. The pledgee may demand, without applying to a court, by presenting the certificate of pledge to an enforcement agency, to enforce the transfer into his/her possession of a pledged vehicle and/or the pledged auxiliary equipment of an agricultural machine defined by Article 53(1) of the Law of Georgia on Road Traffic.

2. An enforcement agency shall transfer the pledged vehicle and/or the pledged auxiliary equipment of an agricultural machine defined by Article 53(1) of the Law of Georgia on Road Traffic to the pledgee according to the procedures laid down by the Law of Georgia on Enforcement Proceedings.

3. If different pledgees present a certificate of pledge to an enforcement agency requesting the transfer to their possession of the same vehicle and/or the same auxiliary equipment of an agricultural machine defined by Article 53(1) of the Law of Georgia on Road Traffic, the pledged item shall be assigned to the pledgee with a pre-emptive right to satisfaction of the claim secured by the pledge.

4. Appealing a certificate of pledge shall not suspend its enforcement.

5. The pledgee who received possession of a vehicle and/or auxiliary equipment of an agricultural machine defined by Article 53(1) of the Law of Georgia on Road Traffic shall sell it or register title according to the procedures laid down by the legislation of Georgia.

6. The expenses relating to the enforced transfer of the vehicle and/or auxiliary equipment of an agricultural machine defined by Article 53(1) of the Law of Georgia on Road Traffic to the pledgee’s possession shall be borne by the debtor.

7. The liability for the legitimacy of submitting the certificate of pledge to the enforcement agency shall rest with the pledgee.

Law of Georgia No 1541 of 17 July 2009 – LHG I, No 21, 3.8.2009, Art. 124

Law of Georgia No 1833 of 24 December 2013 – website, 3.1.2014

Article 282 – Obligation to give notice of possible sale of pledged items

1. A pledgee shall give the pledger and other pledgees written notice of possible sale of the pledged item two weeks before the sale.

2. (Deleted).

3. The sale may be made even without any prior notice to the pledger and other pledgees if:

a) there is a real risk that the market or stock price of the pledged item will fall;

b) the pledged item is perishable.

4. The pledgee forfeits the right to sell the pledged item if a secured claim is satisfied at any time between the dates of service of the notice referred to in paragraph 1 of this article and sale of the pledged item.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 4310 of 29 December 2006 – LHG I, No 2, 4.1.2007, Art. 35

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Article 283 – Sale of pledged items

1. A pledgee may directly sell a pledged item if there is agreement between the pledgee and the pledger about it. When the pledged item is sold directly by the pledgee by direct sale, the pledgee shall sell the pledged item at a fair and reasonable price taking into account the pledger’s, other pledgees’ and his/her interests. In the case of failure to fulfil this obligation the pledgee shall be liable for damages caused to the pledger and other pledgees.

2. If the pledged item has a stock or market price, the pledgee may entrust the sale of the pledged item to a special trade agency.

3. If a pledged claim is sold with the debtor’s performance in favour of the pledgee, the pledgee shall present to the pledger a report on the debtor’s performance in favour of the pledgee.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 284 – Agreement of the parties on other procedures of sale

1. The pledgee and the pledger may indicate in a written agreement that the pledged item may be assigned to the pledgee or sold based on a writ of execution issued by a notary. In such case, the agreement between the parties shall be notarised.

2. The pledgee and the pledger may also agree on procedures of sale different from those given in this chapter. In such case, the pledged item shall be sold at a reasonable and fair price in the pledger’s and other pledgees’ interests

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Law of Georgia No 3879 of 8 December 2006 – LHG I, No 48, 22.12.2006, Art. 321

Article 285 – Effects of the sale of pledged items

1. The sale of a pledged item shall result in the transfer of unencumbered ownership to the buyer, except as provided for in Article 279(4).

2. If the pledgee unlawfully sells the pledged item, the buyer shall acquire ownership if he/she is in good faith in relation to that fact.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

Article 285¹ – Report on the sale of pledged items

The selling pledgee shall present, within a reasonable period after the sale, without undue delay, to the pledger a report of the sale of the pledged item that shall include information on the expenses related to the sale, sale proceeds and the use of such proceeds.

Law of Georgia No 1826 of 30 June 2005 – LHG I, No 41, 19.7.2005, Art. 284

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 secured creditor the right to receive satisfaction out of the thing before other creditors through the sale or transfer of the thing into his/her ownership (mortgage).

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.

3. A claim secured by a mortgage may be substituted by another claim. Such substitution shall require an agreement between the owner and the creditor (mortgagee) and registration of the agreement in the Public Registry.

3¹. If agricultural land is used (encumbered) for securing a claim, the procedure established by the Organic Law of Georgia on Agricultural Land Ownership shall also be taken into account.

4. An immovable thing, and a water and air means of transportation owned by a natural person or another natural person may not be used as security for a claim proceeding from a loan/credit agreement to be granted/granted to the natural person (including to the individual entrepreneur).

5. The restriction under paragraph 4 of this article shall not apply to the security of a claim proceeding from a loan/credit agreement to be concluded/concluded by a commercial bank, a micro-bank, a microfinance organisation, a non-bank depository institution – the credit union, and a loan holding entity that are subject to the supervision of the National Bank of Georgia under the Organic Law of Georgia on the National Bank of Georgia.

6. The restriction under paragraph 4 of this article shall not be effective if the agreement concluded between the parties specifies that a mortgaged immovable thing will be transferred to a natural person (including to an individual entrepreneur) for using as a dwelling room, or to a mortgagee legal person for using as a domicile (legal address). In addition, if two rights to mortgage have been registered in favour of one and the same natural person (including an individual entrepreneur) or legal person, the restriction under paragraph 4 of this article shall apply to him/her/it when concluding the third and each following mortgage agreement.

7. Parties to a mortgage agreement filed with a registration authority for registration of the right to mortgage shall be responsible for the content of the mortgage agreement, and for the validity and lawfulness of the facts specified therein.

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 3315 of 21 July 2018 – website, 7.8.2018

Law of Georgia No 4851 of 25 June 2019 – website, 2.7.2019

Law of Georgia No 2622 of 22 February 2023 – website, 10.3.2023

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 the things at his/her discretion, unless the parties agreed otherwise.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 288 – Owner’s mortgage

If a claim secured by a mortgage either has not arisen or is extinguished or is transferred to the owner of the immovable thing, then the mortgage shall also transfer to the owner (owner’s mortgage).

Article 289 – Registration of mortgage

1. A mortgage shall acquire legal force upon its registration in the Public Registry. The registration shall be carried out by one of the parties presenting the contract made according to the procedures laid down by Article 311¹ of this Code. The contract shall indicate the identities of the owner of the immovable thing, the mortgagee and any possible third party debtor. By agreement of the parties, the contract may also indicate the extent of the secured claim, the interest, the period of performance and other conditions.

1¹. A mortgage contract made to secure a claim arising from a loan agreement shall be certified by a notary. In certifying the mortgage contract, the notary shall inform the parties to the contract of the legal implications of their violation of the obligations under the loan agreement and the mortgage contract.

1². To register a mortgage with the Public Registry, the notary shall follow the procedures provided by the legislation of Georgia. The procedures and conditions for registering a mortgage with the Public Registry shall be determined by an order of the Minister of Justice of Georgia.

1³. The condition under paragraph 1¹ of this article shall not apply to mortgage contracts made to secure the claims of commercial banks, micro-banks, microfinance organisations, non-bank deposit institutions – credit unions.

2. If the parties so agree, at the request of the creditor, the Public Registry shall issue a Certificate of Mortgage. The issuance of the Certificate of Mortgage shall be recorded in the Public Registry.

3. The mortgage contract, for which a Certificate of Mortgage has been issued by agreement of the parties, shall be certified by a notary. Any legal act under the mortgage contract that requires certification by a notary shall be certified by the same notary who certified the mortgage contract.

4. Only one Certificate of Mortgage shall be issued for a blanket mortgage.

Law of Georgia No 3879 of 8 December 2006 – LHG I, No 48, 22.12.2006, Art. 321

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 1864 of 25 December 2013 – website, 30.12.2013

Law of Georgia No 1901 of 23 December 2017 – website, 11.01.2018

Law of Georgia No 2622 of 22 February 2023 – website, 10.3.2023

Article 289¹ – Certificate of Mortgage

1. A Certificate of Mortgage is a security certifying the right of its legal holder to:

a) demand the fulfilment of the obligations arising from the contract;

b) satisfy his/her claim at the expense of the mortgaged item if any obligation is not fulfilled.

2. The Certificate of Mortgage shall be made into one copy.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 289² – Contents of a Certificate of Mortgage

1. A Certificate of Mortgage shall contain:

a) indication of ‘Certificate of Mortgage’ in the title;

b) name and address of the mortgagee;

c) name and address of the debtor;

d) name and address of the owner of the immovable thing;

e) registration code of the mortgaged property, address of the mortgaged item;

f) indication of the registration of the Certificate of Mortgage with the Public Registry, indicating the relevant details;

g) indication of whether the mortgaged item or any part of it has been encumbered with any other mortgage or with any other real rights or obligations;

h) place and date of drafting the mortgage contract;

i) extent of the secured claim;

j) due date for the performance of an obligation under the mortgage contract, but if the obligation is to be performed in parts – due dates for the performance of such parts;

k) date of issue of the Certificate of Mortgage.

2. The validity of a Certificate of Mortgage shall be confirmed with the seal of the Public Registry.

3. Violation of the requirements indicated in paragraphs 1 and 2 of this article shall render the Certificate of Mortgage void.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 289³ – Exercising the rights arising from a Certificate of Mortgage

1. The actual holder of a Certificate of Mortgage shall be deemed to be its legal holder, unless proved to the contrary.

2. If a Certificate of Mortgage exists, a secured claim shall be fulfilled only if the Certificate of Mortgage is presented. Upon satisfaction of his/her claim, the creditor shall hand over the Certificate of Mortgage to the performer of the obligation.

3. Upon a partial satisfaction of the claim, the creditor shall enter a relevant notation in the Certificate of Mortgage.

4. By depositing a sum to the deposit account of the notary who certified the mortgage contract, the debtor shall be exempt of his/her obligation to the creditor.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 289⁴ – Assignment of a Certificate of Mortgage

1. A claim provided for in the Certificate of Mortgage shall be assigned with a notarised signature of the assignor of the Certificate of Mortgage.

2. If a claim is assigned by selling the Certificate of Mortgage at auction, the indication ‘Sold at Auction’ shall be made on the Certificate of Mortgage and confirmed with a specialist’s notarised signature.

3. Any prohibition of the assignment of a Certificate of Mortgage to another person shall be void.

4. The person in whose favour the claim has been assigned shall notify the debtor to that effect.

5. The procedure established by the Organic Law of Georgia on Agricultural Land Ownership shall also be taken into account in assigning a claim.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 4851 of 25 June 2019 – website, 2.7.2019

Article 289⁵ – Declaring a Certificate of Mortgage invalid

If a Certificate of Mortgage is damaged, lost or destroyed, the holder of the Certificate of Mortgage shall notify the Public Registry. In that case, the court shall declare it invalid under the general procedure (revocation proceedings).

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 289⁶ – Pledging a Certificate of Mortgage

1. A Certificate of Mortgage may be pledged in favour of its holder or another person according to the procedures laid down for pledging securities.

2. The pledge of a Certificate of Mortgage shall be registered with the Public Registry.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 289⁷ – Cancellation of a Certificate of Mortgage

1. A Certificate of Mortgage shall be cancelled:

a) if the claim arising from the Certificate of Mortgage is satisfied;

b) if the Certificate of Mortgage is voluntarily delivered to the owner of the immovable thing.

2. The cancellation of a Certificate of Mortgage shall be registered with the Public Registry.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 289⁸ – Priority of a Certificate of Mortgage over the Public Registry records

If there is any discrepancy between the Certificate of Mortgage and a Public Registry record, the Certificate of Mortgage shall prevail.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 290 – Re-mortgaging an immovable thing

An immovable thing may be re-mortgaged several times. The order of priority shall be determined by the date of registration of mortgage applications.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 291 – Right of the mortgagor who is not a personal debtor of the claim secured by a mortgage

1. If the mortgagor is not a personal debtor with respect to the claim secured by the mortgage, then he/she may still assert against the mortgagee any defences to which only the personal debtor is rightful, including defences resulting from setting off monetary obligations and defences against the claim.

2. If the time of performance of a claim depends upon a notice of 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.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 292 – Owner’s right upon satisfaction of the creditor

1. The owner may satisfy the creditor when the performance of the claim is due, or when the personal debtor is entitled to perform the corresponding act.

2. If the owner is not a personal debtor, then he/she shall assume the claims when he/she satisfies the creditor.

3. (Deleted).

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Article 293 – Extension of mortgage to the fruit of an immovable thing

A mortgage shall not extend to the fruit of an immovable thing unless otherwise provided by agreement of the parties.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 294 – Duty to maintain a mortgaged thing

1. The owner shall maintain the thing in such a way as not to endanger the purpose of the mortgage. In the case of any danger, the creditor may set an appropriate period for the owner to eliminate the danger. If the mortgaged thing is in the creditor’s possession, the duty to maintain the thing shall rest with the creditor.

2. If the thing is insured, the insurer may pay the insurance proceeds to the policyholder after the deterioration of the situation only when the creditor has already been informed of the damage. The creditor may object to the payment if he/she has fears that the payment will not be used to restore the thing.

3. If it is ascertained that the owner fails in his/her duty to maintain the thing, the creditor may demand that the thing be transferred to him/her for administration. A court shall make a decision with respect to such demand.

4. An agreement under which the owner assumes an obligation with the creditor not to transfer, use or otherwise encumber the immovable thing shall be void, unless otherwise provided by law. The validity of such transactions against third parties may not depend on the creditor’s consent.

5. Under a mortgage contract, the owner may assume an obligation with the creditor not to encumber the plot of land owned by him/her with the right of superficies.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 5017 of 1 July 2011 – website, 14.7.2011

Article 295 – Transfer of mortgages and underlying claims

A mortgage and an underlying claim may be transferred to another person only simultaneously and jointly. The mortgage shall be transferred to the new creditor upon transfer of the claim. The transfer of the mortgage shall be valid only if a written mortgage contract or a Certificate of Mortgage (if any) is handed over to the new creditor (under Article 289⁴ of this Code). The transfer of the claim shall be registered with the Public Registry except where a Certificate of Mortgage has been issued.

Law of Georgia No 3879 of 8 December 2006 – LHG I, No 48, 22.12.2006, Art. 321

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 296 – Debtor’s obligation with a new creditor

If, after the transfer of the claim to the new creditor, the debtor pays the former creditor, this payment shall not exempt him/her from his/her obligation with the new creditor, even when he/she had no knowledge of the transfer.

Article 297 – Presumption of accuracy of Public Registry entries upon transferring mortgages and claims to a new creditor

The mortgage and the claim shall be transferred to the new creditor as they were in the old creditor’s hands. In the creditor’s interests, Public Registry entries shall be presumed to be accurate. In such case, the debtor may not argue that the claim does not exist. This rule shall not apply if the new creditor had knowledge of the wrong entry in the Public Registry.

Article 298 – Rights of third persons

1. (Deleted).

2. If a personal debtor satisfies the creditor, the mortgage shall be transferred to him/her to the extent to which he/she may claim compensation from the owner.

Law of Georgia No 1902 of 28 December 2002 – LHG I, No 4, 22.1.2003, Art. 20

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 299 – Waiver of the claim or mortgage by creditor

1. If the owner is not a personal debtor and the creditor waives the claim or the mortgage, the owner shall become a mortgagee. A waiver shall be valid if it is registered with the Public Registry.

2. If a creditor waives the mortgage, not the claim, the personal debtor shall still be discharged provided he/she could have received compensation from the mortgage.

3. If the mortgagor has the right to rescind excluding a long-term use of the mortgage, he/she may demand that the creditor waive the mortgage.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 300 – Transfer of a mortgaged immovable thing to the creditor (mortgagee)

1. If the owner of an immovable thing delays satisfaction of the claim secured by the mortgage, the mortgaged thing may be transferred to the creditor (mortgagee) if the creditor (mortgagee) and the owner of the mortgaged immovable thing jointly apply to the registration authority.

1¹. If the mortgaged immovable thing is a plot of agricultural land, it may be transferred to the creditor (mortgagee) taking into account the requirement established by the Organic Law of Georgia on Agricultural Land Ownership.

2. If the mortgaged immovable thing is transferred to the creditor (mortgagee), the claim secured by the mortgage shall be deemed to have been satisfied when the value of the mortgaged immovable thing does not fully cover the amount of such claim, unless otherwise determined by law or by agreement of the parties.

2¹. If a creditor/loan holder is not an entity subject to the supervision of the National Bank of Georgia, a claim proceeding from a loan/credit agreement granted to a natural person (including to an individual entrepreneur) shall be considered satisfied even in the case when a mortgaged immovable thing (things) or a mortgaged immovable thing (things) and a pledged item (items) are transferred to the ownership of a creditor (mortgagee), the price of the mortgaged immovable thing (things) or the mortgaged immovable thing (things) and the pledged item (items) does not fully cover the amount of the claim secured by the mortgage or by the mortgage and the pledge. No other agreement between the parties shall be allowed. The National Bank of Georgia may establish for entities subject to its supervision a procedure different from the one provided for in this paragraph and/or an additional procedure.

3. If the owner of an immovable thing delays satisfaction of a claim secured by a mortgage and the mortgaged immovable thing is not transferred to the creditor (mortgagee) under paragraph 1 of this article, a notary shall issue a writ of execution if there is an agreement between the parties and the notary explained in the notary act in writing the legal consequences of issuing the writ of execution. The enforcement proceedings carried out under the writ of execution issued by the notary shall be conducted according to the Law of Georgia on Enforcement Proceedings.

Law of Georgia No 638 of 5 December 2000 – LHG I, No 48, 16.12.2000, Art. 138

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 2284 of 4 December 2009 – LHG I, No 45, 21.12.2009, Art. 329

Law of Georgia No 1864 of 25 December 2013 – website, 30.12.2013

Law of Georgia No 3315 of 21 July 2018 – website, 7.8.2018

Law of Georgia No 4851 of 25 June 2019 – website, 2.7.2019

Article 301 – Demand for sale of mortgaged immovable things

1. If the debtor does not satisfy the claim secured by the mortgage, the mortgagee may demand sale of the immovable thing, unless otherwise provided for in the mortgage contract.

1¹. A claim secured by a mortgage shall be deemed to have been satisfied even if the proceeds from the sale of the mortgaged thing are not enough to fully cover the claim secured by the mortgage, unless otherwise determined by law or by agreement of the parties.

1². If a creditor/loan holder is not an entity subject to the supervision of the National Bank of Georgia, a claim proceeding from a loan/credit agreement granted to a natural person (including to an individual entrepreneur) shall be considered satisfied even in the case when the amount received as a result of selling a mortgaged immovable thing (things) or a mortgaged immovable thing (things) and a pledged item (items) is not sufficient to cover the claim secured by the mortgage or the mortgage and the pledge. No other agreement between the parties shall be allowed. The National Bank of Georgia may establish for entities subject to its supervision a procedure different from the one provided for in this paragraph and/or an additional procedure.

2. The sale shall be carried out according to the procedures set out in this chapter and the Law of Georgia on Enforcement Proceedings.

3. The parties may agree to another procedure for holding an auction, subject to the requirements of Articles 302(6), 306¹-306³, 306⁵(1) and 307(2) of this Code.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 826 of 19 December 2008 – LHG I, No 41, 30.12.2008, Art. 304

Law of Georgia No 2284 of 4 December 2009 – LHG I, No 45, 21.12.2009, Art. 329

Law of Georgia No 3315 of 21 July 2018 – website, 7.8.2018

Article 302 – Sale of mortgaged immovable things

1. A mortgaged immovable thing shall be sold at auction by a written agreement between the creditor and the owner who designate a specialist, with the consent of the latter, for conducting the auction. The compensation of the specialist shall be determined in the agreement.

1¹. The sale by the specialist of a thing at an auction by agreement of the parties shall not constitute enforcement.

2. Any provision assigning obligations to third persons without their consent shall be void, but it shall not void the agreement on the auction.

3. The creditor and the owner may establish a form of sale different from auction by an agreement.

3¹. Under an agreement made in writing between the creditor and the owner the parties may stipulate that the mortgaged immovable thing be transferred to the creditor and sold based on a writ of execution issued by a notary. In such case, the transaction between the parties shall be notarised.

4. If the creditor and the owner fail to agree on holding an auction or on any other form of realisation of the immovable thing, a court shall make a decision on the enforced sale of the immovable thing at an auction based on a creditor’s application. The court decision on enforced sale of the immovable thing at an auction shall be enforced according to the procedures laid down by the Law of Georgia on Enforcement Proceedings.

5. A specialist may be any legally capable person, including the creditor, the debtor or the owner.

6. The specialist shall notify the authorised persons entered on the Public Registry about the auction.

7. A seized thing may not be sold through a specialist.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 219 of 15 July 2008 – LHG I, No 17, 28.7.2008, Art. 135

Law of Georgia No 826 of 19 December 2008 – LHG I, No 41, 30.12.2008, Art. 304

Law of Georgia No 2284 of 4 December 2009 – LHG I, No 45, 21.12.2009, Art. 329

Law of Georgia No 3368 of 6 July 2010 – LHG I, No 39, 19.7.2010, Art. 241

Article 303 – Fruits of mortgaged immovable things

From the moment at which an auction is announced or a court decision is made in connection with an immovable thing, the mortgagor shall forfeit the right to retain the fruit of the thing.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 304 – Avoiding an auction

1. The owner or any person in agreement with the owner and/or a third person whose right may be prejudiced as a result of an auction may avoid the auction by satisfying the claim before the auction is held.

2. The court shall establish whether the third person’s right is prejudiced or not.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 305 – Participation of a creditor, debtor and of an owner in an auction

A creditor, a debtor and an owner may participate in the auction provided that the debtor and the creditor present security that is deemed proper by an expert.

Article 306 – Notice of auction

A creditor(s) shall file an application for an auction based on a contract with a specialist. The application shall indicate the mortgaged immovable thing, the owner, the debtor, the claim and the contract.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 219 of 15 July 2008 – LHG I, No 17, 28.7.2008, Art. 135

Law of Georgia No 826 of 19 December 2008 – LHG I, No 41, 30.12.2008, Art. 304

Law of Georgia No 3368 of 6 July 2010 – LHG I, No 39, 19.7.2010, Art. 241

Article 306¹ – Cancelling or terminating an auction

1. An auction shall be cancelled if the creditor who has filed the application withdraws it.

2. An auction shall be terminated if before the auction is held, the debtor or the third person rightful to satisfy the creditor, pays the amount needed to satisfy the creditor and to cover all other expenses.

Article 306² – Determining the time and place of an auction

1. A specialist shall determine the time and place of an auction by publishing, at least seven days before the auction, an announcement indicating:

a) name and address of the owner of the immovable thing;

b) name and address of the specialist;

c) time and place of the auction;

d) starting price of the immovable thing;

e) location and brief description of the immovable thing;

f) the statement that all other persons holding rights to the immovable thing have to present evidence of such rights before the commencement of the auction;

g) conditions of the auction.

1¹. If an auction is conducted for selling a plot of agricultural land, an announcement shall also indicate that a person participating in the auction shall meet the requirements established by the Organic Law of Georgia on Agricultural Land Ownership.

2. The time and place of the auction shall be announced publicly in the media.

3. The specialist shall notify the parties of the time and place of the auction according to the procedures laid down by the Civil Procedure Code of Georgia.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 219 of 15 July 2008 – LHG I, No 17, 28.7.2008, Art. 135

Law of Georgia No 826 of 19 December 2008 – LHG I, No 41, 30.12.2008, Art. 304

Law of Georgia No 4851 of 25 June 2019 – website, 2.7.2019

Article 306³ – Rules for conducting an auction

1. A specialist shall conduct an auction. He/she shall declare the auction open and announce the starting price.

2. Before conducting the auction, the specialist shall determine which of the rights registered with the Public Registry ranks ahead of the claim of the creditor for whom the enforcement is sought.

3. At the auction, the specialist shall announce:

a) that the rights registered with the Public Registry which rank ahead of the claim of the creditor for whom enforcement is sought remain valid and are not satisfied by payment;

b) the value of transitional rights (rights ranking ahead of the creditor’s claim or the rights that are transferred together with the immovable thing after being sold at auction).

4. The specialist shall inform the involved parties of the conditions of the auction before the auction begins.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 219 of 15 July 2008 – LHG I, No 17, 28.7.2008, Art. 135

Law of Georgia No 826 of 19 December 2008 – LHG I, No 41, 30.12.2008, Art. 304

Article 306⁴ – Conducting an auction

1. An auction shall be conducted within one month after an application is filed with a specialist.

2. The starting price of an immovable thing shall be determined as the total amount of the auction expenses and the creditor’s claim. The auction shall continue until another bid is offered. The specialist shall announce the last bid and the end of the auction.

3. The last bid shall be announced loudly three times.

4. All participants of the auction shall present a bank guarantee which ensures full payment if the bidder wins the auction. The amount of the bank guarantee shall be one tenth of the starting price of the immovable thing. The primary beneficiary of the bank guarantee shall be the creditor.

5. If an auction is conducted for selling a plot of agricultural land, a person willing to participate in the auction shall present information proving that he/she meets the requirement established by the Organic Law of Georgia on Agricultural Land Ownership.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 219 of 15 July 2008 – LHG I, No 17, 28.7.2008, Art. 135

Law of Georgia No 826 of 19 December 2008 – LHG I, No 41, 30.12.2008, Art. 304

Law of Georgia No 4851 of 25 June 2019 – website, 2.7.2019

Article 306⁵ – Origination of ownership to property acquired at an auction

1. A buyer of property at an auction shall be served with the specialist’s order that indicates the acquired property, the buyer of the property at the auction, the price and the conditions of the auction. The specialist’s signature on orders relating to the auction shall be certified by a notary.

2. A buyer of property at an auction shall deposit the sum due to the specialist’s deposit account within one week. The parties to the mortgage contract may agree on another rule for payment of the sum that shall be specified in the conditions of the auction in advance.

3. Orders shall be announced at the auctions.

4. Orders shall take effect upon their announcement. After an order takes effect, the buyer of property at the auction shall become the owner only after the price has been paid in full.

5. The transfer of ownership shall cancel all mortgages and real rights with which the immovable thing was encumbered and which have been registered after the mortgage of the enforcing creditor. The rights registered earlier to the thing shall remain unchanged.

6. The new owner of the immovable thing sold at the auction shall take the place of the old owner and become a party to the legal relationship that existed in connection with the thing at the moment of the transfer of ownership.

7. Upon the transfer of the mortgaged immovable thing to the new owner, the old owner shall forfeit all rights to the thing.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 219 of 15 July 2008 – LHG I, No 17, 28.7.2008, Art. 135

Law of Georgia No 826 of 19 December 2008 – LHG I, No 41, 30.12.2008, Art. 304

Law of Georgia No 3887 of 7 December 2010 – LHG I, No 67, 9.12.2010, Art. 415

Article 306⁶ – Cancelling the transfer of rights to property acquired at an auction

If within the period specified under the conditions of the auction a specialist does not receive in the deposit account indicated by him/her the sum due from the buyer of property at the auction, or a specialist establishes that the buyer of the plot of agricultural land does not meet the requirements established by the Organic Law of Georgia on Agricultural Land Ownership, the specialist shall repeal the order of transfer of the right to the property acquired at the auction and conduct a new auction, which shall not be deemed to be a repeat auction.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 219 of 15 July 2008 – LHG I, No 17, 28.7.2008, Art. 135

Law of Georgia No 826 of 19 December 2008 – LHG I, No 41, 30.12.2008, Art. 304

Law of Georgia No 4851 of 25 June 2019 – website, 2.7.2019

Article 307 – Second auction

1. If an appropriate bid is not offered at the first auction, the specialist shall call a second auction within 10 days.

2. The second auction shall be announced in the same way as the first auction. At the same time, it shall be indicated that the auction is conducted for a second time.

3. The starting price of an immovable thing at the second auction shall be half of the starting price offered at the first auction or a lesser amount if the creditor agrees in writing.

4. (Deleted).

5. If a mortgaged immovable thing is not sold at the second auction, by agreement of the creditor and the debtor (owner of the immovable thing) the claim may be satisfied by transferring the immovable thing to the creditor. In such case, the expenses shall be borne by the creditor.

6. If the agreement referred to in paragraph 5 of this article cannot be achieved, the specialist shall conduct a third auction within the period defined in paragraph 5 of this article. The specialist shall determine the rule for selling the immovable thing at the third auction. The third auction shall be organised in such a way that the immovable thing is sold.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 219 of 15 July 2008 – LHG I, No 17, 28.7.2008, Art. 135

Law of Georgia No 826 of 19 December 2008 – LHG I, No 41, 30.12.2008, Art. 304

Article 308 – Payment of expenses

Claims shall be satisfied from the proceeds from the sale of a mortgaged immovable thing in the following order of priority: the expenses, the creditor’s claim in full. If the proceeds cannot fully cover the expenses, the obligation to pay the difference shall rest with the creditor.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 219 of 15 July 2008 – LHG I, No 17, 28.7.2008, Art. 135

Law of Georgia No 826 of 19 December 2008 – LHG I, No 41, 30.12.2008, Art. 304

Article 309 – Liability for conducting an auction improperly

If a specialist cannot discharge his/her duties with respect to conducting an auction, he/she shall be liable to the participants for damages caused.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 219 of 15 July 2008 – LHG I, No 17, 28.7.2008, Art. 135

Law of Georgia No 826 of 19 December 2008 – LHG I, No 41, 30.12.2008, Art. 304

Article 310 – Compulsory administration of things (sequestration)

1. On the application of the mortgagee entitled to enforcement, a court, instead of a compulsory transfer at an auction, may establish compulsory administration of the thing (sequestration). In that case the court shall convey the administration function to the administrator who may also be the mortgagee.

2. Before making a decision on the matter, the court shall hear the persons registered in the Public Registry whose rights may be prejudiced by the compulsory administration.

3. The administrator shall receive the fruits of the thing and at the end of a year, after deducting all expenses, including administration expenses, shall distribute the fruits according to the distribution plan designed by him/her and approved by the court.

4. Compulsory administration shall be extinguished when the creditor is satisfied or when it is evident that the creditor cannot be satisfied by way of administration.

5. The procedure and conditions for administration carried out by the Legal Entity under Public Law (LEPL) – National Bureau of Enforcement within the Ministry of Justice of Georgia shall be determined by the Law of Georgia on Enforcement Proceedings.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Law of Georgia No 1864 of 25 December 2013 – website, 30.12.2013

Section Four

Public Registry

Article 311 – Purpose of the Public Registry

1. The Public Registry is a collection of the records of the origin, modification and termination of rights to, attachment and lien/mortgage in things and intangible property. It is also a collection of the records of the origin and modification of the abandonment of the ownership of immovable things.

2. The rules and conditions for maintaining and accessing the Public Registry are defined by law.

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Article 311¹ – Procedure for submitting transactions to the Public Registry

1. A transaction made in writing shall be submitted to the Public Registry to register the relevant right to the thing and intangible property. The transaction or the signatures of the parties to the transaction shall be authenticated according to the procedures laid down by law.

2. If the parties to a transaction sign the transaction in the registration authority in the presence of an authorised person, then the transaction or the signatures of the parties to the transaction need not be authenticated in order for the transaction to be valid.

3. Where so provided by law, transactions involving things and intangible property shall take effect upon registration of the rights determined by such transactions with the Public Registry.

Law of Georgia No 3879 of 8 December 2006 – LHG I, No 48, 22.12.2006, Art. 321

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Article 312 – Presumption of the veracity and completeness of the Register entries

1. A presumption of veracity and completeness shall operate with respect to the contents of the Public Registry; that is the Register records shall be presumed accurate until proved incorrect.

2. An entry in the Register shall be deemed to be accurate in favour of the person who acquires some right from another person on the basis of a transaction and this right was registered in the Register in the name of the transferor, unless a complaint has been filed against the entry or the acquirer has knowledge of the incorrectness of the entry.

3. If the owner transfers or encumbers immovable property, the co-owner’s consent shall not be required when entering into a transaction (registering a right) if the co-owner is not registered as such with the Public Registry.

4. Where so provided for in paragraph 3 of this article, in the buyer’s interests, the transferor shall be presumed to be the sole owner if he/she is registered as such with the Public Registry, except if an acquirer knew that there was another owner besides the transferor.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 313 – (Deleted)

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Article 314 – (Deleted)

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Article 315 – (Deleted)

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Book Three

Law of Obligations

General Part

General Provisions on Obligations

Article 316 – Concept

1. By virtue of an obligation the obligee shall be entitled to claim performance of a certain action from the obligor. Omission may also be regarded as performance.

2. Depending on its content and nature, an obligation may bind each party to exercise exceptional care for the rights and property of the other party.

Article 317 – Grounds giving rise to an obligation

1. For an obligation to arise there shall be a contract between the parties except when the obligation arises from tort (delictus), unjust enrichment or other grounds prescribed by law.

2. An obligation with regard to the duties under Article 316 may also arise from the preparation of a contract.

3. A party to a negotiation may demand from the other party reimbursement of expenses he/she incurred for negotiating a contract that was not concluded by reason of the other party’s culpable action.

Article 318 – Obligation to disclose information

The right to obtain information may arise from an obligation. Disclosure of information shall be required when it is required in order to determine the contents of an obligation and when a contracting party can release the information without prejudicing his/her rights. The recipient of the information shall reimburse the obligor for the expenses of such release.

Section One

Contract Law

Part One

Chapter One

General Provisions

Article 319 – Freedom of contract. Obligation to enter into a contract

1. Subjects of private law shall be free to enter into contracts and determine their contents within the scope of the law. They may also conclude contracts that are 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 a contract depends upon the permission of the state, then a separate law shall govern the matter.

2. If one of the parties to a contract holds a dominant position in the market, then it shall be bound by the obligation to enter into a contract in this field of activity. This party may not unjustifiably offer unequal contractual terms to another contracting party.

3. Persons who acquire or use property and services either for non-commercial purposes or for meeting their vital needs may not be unjustifiably denied entry into a contract, provided that the other party to the contract is acting within the scope of its business.

Article 320 – Invalidity of a contract for future property

A contract by which one party undertakes to either transfer all or part of his/her future property to another person or encumber it by usufruct shall be void, except if the contract is concluded for particular items of future property.

Article 321 – Contract for transfer of property

A contract by which one party undertakes to either transfer all or part of his/her present property to another person or encumber it by usufruct shall be in written form, except if the contract is concluded for particular items of present property.

Law of Georgia No 3879 of 8 December 2006 – LHG I, No 48, 22.12.2006, Art. 321

Article 322 – Invalidity of a contract on estate

1. A contract concluded by other persons on the estate of a person during his/her lifetime shall be void. The same rule shall apply to a contract concluded during a person’s lifetime for either a compulsory portion of his/her estate and/or for a testamentary burden.

2. Paragraph 1 of this article shall not apply to a contract concluded among the expectant heirs at law for the hereditary or compulsory portion of one of them.

Article 323 – Procedure for transferring immovable things

A contract by which one party undertakes to transfer ownership of an immovable thing to another person or to acquire it shall be in written form.

Law of Georgia No 3879 of 8 December 2006 – LHG I, No 48, 22.12.2006, Art. 321

Article 324 – Scope of a contract for encumbrance of things

If a person undertakes to transfer or encumber his/her thing, then this obligation shall also extend to the accessories of that thing, unless otherwise provided for in the contract.

Article 325 – Defining the terms of an obligation on a fair basis

1. If the terms for performing an obligation are to be defined by one of the parties to the contract or by a third person, then it is presumed, when in doubt, that such definition shall be constructed on a fair basis.

2. If a party considers the terms to be unfair or if their definition is delayed, a court shall make a decision on the matter.

Article 326 – Application of the rules on contractual obligations to non-contractual obligations

The rules on contractual obligations shall likewise apply to non-contractual obligations, unless it otherwise follows from the nature of an obligation.

Chapter Two

Entering into a Contract

Article 327 – Agreement on the essential terms of a contract

1. A contract shall be considered entered into if the parties have agreed on all of its essential terms in the form provided for such agreement.

2. Essential terms of a contract shall be those on which an agreement is to be reached at the request of one of the parties, or those considered essential by law.

3. A contract may give rise to the obligation to conclude a future contract. The form stipulated for the contract shall apply to the preliminary contract as well.

Article 328 – Form of a contract

1. If a specific form has been prescribed by law for the validity of a contract, or if the parties have determined such a form for the contract, then the contract shall enter into force only if it meets the requirements of the form.

2. If the parties have agreed on a written form, the contract may be concluded by drawing up one document signed by the parties. A telegraph notice, telecopy or exchange of letters shall also be sufficient for observance of the form.

Article 329 – Making an offer

1. A proposal (offer) for concluding a contract shall be regarded as an offer if in the proposal, addressed to one or more persons, the proposal-maker (offeror) indicates his/her intention to be bound by the proposal in the case of consent (acceptance).

2. A proposal addressed to an unspecified circle of persons shall be regarded as an invitation to make an offer, unless otherwise expressly indicated in the proposal.

Article 330 – Making offer to present and absent persons

1. A reply to an offer made to a present person shall be received immediately.

2. An offer made to an absent person shall be accepted within a period of time during which the offeror may reasonably expect a reply.

Article 331 – Acceptance

If an offeror has fixed a period of time for acceptance, then the offer shall be accepted within such period.

Article 332 – Late acceptance

If an offeror receives a late acceptance, but the notice of acceptance shows that it was sent out in due time, then the acceptance shall be deemed to be late only if the offeror so informs the offeree immediately.

Article 333 – New offers

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 reply shall amount to a rejection of the offer and shall simultaneously constitute a new offer.

Article 334 – Presumption of consent of an offeror

If in business relations the acceptance has been given with modified terms, the contract shall be considered concluded provided that the offeree is entitled to presume consent from the offeror and the latter did not object immediately.

Article 335 – Silence as a form of acceptance

1. If an entrepreneur who performs business operations for other persons receives an offer for performance of such business operations from a person with whom he has a business relationship, he shall be bound to reply to this offer within a reasonable period of time; the silence of the entrepreneur shall amount to acceptance. The same rule shall apply when the entrepreneur receives such offer from a person from whom he/she has requested orders to perform such business operations.

2. Even if the entrepreneur rejects the offer but the goods have already been shipped, then he/she, in order to avoid harm, shall temporarily preserve the goods at the expense of the offeror so as to avoid their deterioration.

Article 336 – (Deleted)

Law of Georgia No 1456 of 29 March 2022 – website, 6.4.2022

Article 337 – Interpretation of particular expressions in a contract

If particular expressions in a contract may be interpreted differently, then preference shall be given to the version that is commonly used at the place of residence of the parties to the contract. If the parties reside in different places, the interpretation according to the offeree’s place of residence shall prevail.

Article 338 – Mutually exclusive and ambiguous expressions in a contract

If there are mutually exclusive and ambiguous expressions 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, account may be taken of the traditions and usages of the trade.

Article 340 – Interpretation of mixed contracts

When interpreting a mixed contract, account shall be taken of the legal regulations that apply to those contracts that most closely accord with and correspond to the essence of the performance.

Article 341 – Acknowledgment of the existence of a debt

1. A contract which acknowledges the existence of a debt shall be in writing. If another form is stipulated for the creation of those relations of obligation the existence of which has been acknowledged, then the acknowledgement shall also be in this form.

2. If the existence of a debt is acknowledged on the grounds of a mutual settlement (payment) or a settlement through negotiation, then the form need not be observed.

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 party, and which lay down rules that deviate from, or supplement statutory provisions.

2. If the parties have determined the contract terms in detail, then such terms shall not be deemed to be standard contract terms.

3. The terms specifically agreed upon by the parties shall prevail over standard contract terms.

Article 343 – Incorporating standard contract terms into a contract

1. Standard contract terms shall become an integral part of a contract concluded between the offeror or the other party to the contract only when:

a) the offeror, at the place of conclusion of the contract, makes an explicit notation referring to these terms, and

b) the other party to the contract is able to review the content of these terms and, if he/she agrees to them, to accept them.

2. If the other party to the contract is an entrepreneur, then standard contract terms shall become an integral part of the contract if this was to be expected by him/her 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 favour of the other party

If the text of standard contract terms is unclear, then it shall be interpreted in favour of the other party.

Article 346 – Invalidity of terms contravening the principles of trust and good faith

Standard terms of a contract shall be void, notwithstanding their inclusion in the contract, if they disadvantage the other party to the contract and are irreconcilable with the principles of trust and good faith. In addition, account shall be taken of the circumstances in which these terms have been included in the contract, also the mutual interest of the parties, etc.

Article 347 – Invalidity of standard contract terms

When an offeror uses standard contract terms towards natural persons who are not conducting entrepreneurial activities, then the following provisions of those terms shall be void:

a) a provision by which the offeror fixes unreasonably 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 law, reserves for himself/herself unreasonably long or insufficiently determined periods of time for performance of his/her obligations (periods of time before which breach is deemed to occur);

c) a provision which gives the offeror the right to repudiate his/her obligation without a reason which is justified and named in the contract (reservation to repudiate the contract);

d) a provision which gives the offeror the right to modify, or to deviate from, the promised performance, if agreement on such a thing is unacceptable to the other party to the contract (reservation to amend 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 (disproportionately high compensation for incurred expenses).

Article 348 – Other grounds for invalidity of standard contract terms

If an offeror uses standard contract terms towards natural persons who are not conducting entrepreneurial activities, the following provisions of such terms shall also 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 restricts or excludes: the right to refuse performance, which the party to a contract has under this Law or the right of the party to a contract to suspend performance until the other party performs his/her obligation (right to refuse performance);

c) a provision by which the party to a contract is deprived of the right to set off a claim that is undisputed or has been recognised by a court decision (prohibition of setoff of counterclaims);

d) a provision by which the offeror is released from the statutory obligation to warn the other party or to fix a period of time for performance of the obligation (notice to perform an obligation, fixing a period);

e) agreement on claiming a sum higher than the amount of damages (excessive 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/her agent (liability for negligence);

g) a provision by which, in the case of breach of the main obligation by the offeror:

the other party to the contract is deprived of or restricted in his/her right to repudiate the contract,

or,

the other party to the contract is deprived of or, contrary to paragraph (f) of this article, is restricted in his/her right to demand damages for non-performance of the contract (breach of the principal obligation);

h) a provision which, in the case of partial performance of the obligation by the offeror, excludes the right of the other contracting party to claim 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 (loss of interest in the case of partial performance of the obligation);

i) any provisions that, contrary to rules prescribed by law, limit the liability of the offeror for defects of a thing while supplying newly produced goods and performing works.

Chapter Four

Contract For the Benefit of a Third Person

Article 349 – Concept

Both the creditor and a third person may demand performance of a contract which has been concluded for the benefit of a third person, unless otherwise provided by law or stipulated in the contract or unless it otherwise follows from the essence of the obligation.

Article 350 – Interpretation of a contract concluded 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 the right or not;

b) whether the right is effective at once or is subject to certain preconditions;

c) whether the parties to the contract are rightful to revoke or modify the right of the third person without his consent.

2. The party that has made a stipulation in the contract for the benefit of a third person shall retain the right to substitute the third person named in the contract regardless of the contracting party’s consent.

Article 351 – Third person’s renunciation of the right acquired under contract

If a third person renounces the right acquired under a contract, then the obligee may demand performance of the obligation himself/herself, unless it otherwise follows from the contract or from the essence of the obligation.

Chapter Five

Avoidance of a Contract

Article 352 – Effects of repudiating a contract

1. If one of the parties to a contract, in the circumstances under Article 405, repudiates the contract, the performances and benefits derived shall be returned to the parties (restitution in kind).

2. Instead of restitution in kind, the obligor shall pay monetary compensation if:

a) what has been acquired cannot be returned due to its nature;

b) the party uses, transfers, encumbers, transforms or alters the acquired object;

c) the acquired thing has been spoilt or perished; wear and tear resulting from its proper use shall not be taken into account.

3. If the contract provides for performance in return, then monetary compensation shall 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 detected upon its processing or alteration;

b) the thing deteriorated or perished through the obligee’s fault;

c) the thing deteriorated or perished while in the custody of an authorised person despite the fact that he/she had cared for it as for his/her own thing; however, whatever remains shall be returned.

5. Under Article 394, the obligee may claim damages for breach of the obligations arising from paragraph 1 of this article.

Article 353 – Liability of the obligor not deriving benefit due to breach of the rules for proper use of the thing

1. If the obligor has not derived the benefit due to breach of the rules for proper use of the thing when he/she should have been able to derive the benefit, he/she shall reimburse the obligee of the damages caused by not deriving the benefit.

2. If the obligor returns the thing, pays reimbursement in money or, under Article 352(4)(a) and (b), no claim for damages arises, he/she shall be reimbursed for unavoidable expenses. Other expenses shall be reimbursed only if the obligee has benefited from them.

Article 354 – Performance of obligations arising from avoidance of a contract

The parties shall simultaneously perform obligations arising from the avoidance of a contract.

Article 355 – Obligation of notice of avoidance of a contract

Avoidance of a contract shall be exercised by notice to the other party.

Article 356 – Time limits for 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 period of time for the person entitled to avoid the contract. The period of time shall be reasonable. The right to avoid the contract is extinguished unless notice of avoidance is given before the period of time lapses.

Article 357 – Avoidance of a contract by a number of persons

If one or the other contractual party is a number of persons, then the right to avoid the contract shall be exercised jointly by all participants of the party who avoids the contract, by giving notice of avoidance to all participants of the other party. If the right to avoid the contract is extinguished for one of the rightful persons, then the right shall be extinguished for all of the persons.

Article 358 – Inadmissibility of avoiding a contract

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 through a setoff, and after avoidance he/she immediately declares a setoff against the obligation.

Article 359 – Avoidance of a contract by the obligee

If a contract has been concluded with the stipulation that the obligor, under the contract, shall forfeit his/her rights in the case of non-performance of his/her obligations, then the obligee may avoid the contract if such non-performance occurs.

Article 360 – Mistake in the grounds for a settlement

1. A contract by which a dispute or uncertainty between the parties is settled through mutual compromises (settlement) shall be void if, proceeding from the content of the contract, the settlement relies on grounds not relevant to the true state of affairs, and the dispute or uncertainty would not have occurred if the parties had known the true state of affairs.

2. Uncertainty may exist when performance of some requirement is doubtful.

Section Two

Performance of Obligations

Chapter One

General Provisions

Article 361 – Presumption of existence of obligations

1. Each performance implies the existence of an obligation.

2. The obligation shall be performed duly, in good faith, and at the time and place determined.

Article 362 – Place of performance of obligations

If the place of performance is neither fixed nor determined from the essence of the relations of obligation, then the object shall be delivered as follows:

a) for an individually defined object – at the place where it was located at the moment when the obligation originated;

b) for an object defined by generic characteristics – at the obligor’s place of business; and if no such place exists, then at his/her place of residence (legal address).

Article 363 – Change in domicile of an obligor or an obligee

1. If before the performance of an obligation the place of residence or the domicile of the enterprise of an obligor changes and due to this the obligee incurs additional expenses, then the obligor shall compensate the creditor for such expenses.

2. If before the performance of the obligation the place of residence or legal address of the obligee changes and due to this the expenses increase or the performance is at risk, then the obligee shall bear both the increased expenses and the risk with respect to the delivery of the object.

Article 364 – Early performance of obligations

The obligor may perform the obligation earlier than the due date, unless the obligee refuses to accept the performance for a valid reason.

Article 365 – Performance of obligations when no period for performance is fixed

If a period of time for performance of the obligation is neither fixed nor determinable from other circumstances, the obligee may demand its performance at any time, and the obligor may perform it immediately.

Article 366 – Inadmissibility of demanding early performance

If a period of time is fixed, then it shall be presumed, when in doubt, that the obligee may not demand performance before and the obligor may perform the obligation earlier than the set period of time.

Article 367 – Right to immediately demand performance of obligation

If a period of time is fixed for the performance of an obligation in favour of the obligor, then the obligee may immediately demand performance if the obligor has become insolvent, has decreased the promised security, or has failed to present it at all.

Article 368 – Performance of obligations in the case of conditional transactions

If the validity of a transaction depends upon the occurrence of a condition, then the obligation shall be due from the day of occurrence of that condition.

Article 369 – Refusal to perform obligations

The person who is obligated under a bilateral contract may refuse to perform an obligation until counter-performance is rendered, except if he/she was obligated to perform his/her obligation in advance.

Article 370 – Consumer credit

1. In the case of a consumer credit, the beneficiary of the credit may refuse to repay the credit if the counterclaim against the seller arising from a commutative contract relating to such credit would entitle the beneficiary to repudiate the performance of his/her obligation.

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 conclusion of the contract of credit.

Article 371 – Performance of obligations by a third person

1. Unless it follows from the law, the contract or the nature of the obligation that the obligor is to perform the obligation personally, any third person may perform the obligation as well.

2. The obligee may reject the performance offered by a third person if the obligor objects to it.

Article 372 – Satisfaction of a creditor by a third person

If a creditor seeks enforcement against a thing belonging to the obligor, then each person who is at risk of losing the right to the thing as a result of the enforcement may satisfy the creditor. When a third person satisfies the creditor, the right of claim shall be transferred to that person.

Article 373 – Acceptance of performance by an unauthorised person

1. An obligor shall give performance of the obligation to the creditor or to the person who is authorised by law or by a court decision to accept the performance.

2. If an unauthorised person has accepted performance of the obligation, then the obligation shall be deemed to have been performed if the obligee gave his/her consent to it or received benefit from the performance.

Article 374 – Alternative obligations

If one of several obligations (alternative obligations) is to be performed, the obligor may choose, unless otherwise provided for in the contract, in the law or in the essence of the obligation.

Article 375 – Choosing obligations to be performed

If it turns out that the obligor may repudiate one obligation out of the two obligations that are due, then the obligation to perform the other action shall remain effective.

Article 376 – Rules for choosing alternative obligations

Choice under Article 374 shall be made by making a declaration or effecting performance to the other party to the contract. The obligation chosen shall be deemed to be the obligation due from the beginning.

Article 377 – Choosing more than two obligations to be performed

The rules of Articles 374-376 shall also apply when the obligor may choose more than two performances for satisfying an obligation.

Article 378 – Performance of obligations in instalments

An obligor may perform the obligation in instalments (performance of obligations in instalments) if the obligee agrees.

Article 379 – Right of the obligee to accept another performance

The obligee shall not be obligated to accept any performance other than the one determined in the contract. This rule shall also apply when the performance is of high value.

Article 380 – Quality of performance of obligations

If the quality of performance is not specified in detail in the contract, then the obligor shall perform work or deliver a thing of at least average quality.

Article 381 – Performance of obligations in the case of an individually defined object

If an individually defined thing is the subject of the contract, the obligee shall not be obligated to accept another thing even if it is of higher value.

Article 382 – Performance of obligation in the case of a generic thing

If the subject of performance is a thing, which may be substituted (a generic thing), the obligor shall always perform the obligation.

Chapter Two

Performance of Monetary Obligations

Article 383 – Concept

Monetary obligations are expressed in the national currency. Parties may also determine a monetary obligation in foreign currency, unless prohibited by law.

Article 384 – (Deleted)

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 385 – Procedure for demanding return of payment made without obligation

The amount that has been paid without an obligation may be reclaimed under the rules regulating unjust enrichment.

Article 386 – Place of performance of monetary obligations

1. When there is doubt as to the place of performance, a monetary obligation shall be performed at the creditor’s domicile (place of residence or legal address).

2. If the creditor has a banking account intended for transfers of funds at the place or in the country where the payment is to be made, then the debtor may perform his/her monetary obligation by transfer to this account, except where the creditor is against it.

Article 387 – Order of priority for payment of monetary obligations

1. If a debtor is liable to a 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 performance shall be paid; and if the debtor does not choose, then that debt, which was the first to fall due, shall be paid.

2. If the dates on which claims mature occur simultaneously, 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 expenses

Out of a payment made by a debtor that is not sufficient to pay all of the debt due, first shall be paid any court expenses, then the principal (debt), and finally the interest.

Article 389 – Payment of monetary obligations in the case of a change in the exchange rate of currency

If, before the date of maturity of payment, the currency (rate of exchange) appreciates or depreciates, or if the currency has been changed, the debtor shall make payment according to the exchange rate 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 based on the exchange rate that existed between these currencies on the day of the change in currency.

Chapter Three

Obligee in Default

Article 390 – Concept

1. The obligee shall be deemed to be in default if he/she does not accept the performance offered to him/her when it is due.

2. When a certain action of the obligee is required to perform an obligation, he/she shall be deemed to be in default if he/she does not perform the action.

Article 391 – Obligation of the obligee to pay damages

The obligee shall pay damages incurred to the obligor because of the obligee’s fault in not accepting an obligation performed when due.

Article 392 – Liability of an obligor when an obligee is in default

When the obligee is in default, the obligor shall be liable for the non-performance of an obligation only if the performance proved to be impossible because of the obligor’s intention or gross negligence.

Article 393 – Effects of default by an obligee

If the obligee is in default, then, regardless of his/her fault:

a) he/she shall reimburse the obligor any additional expenses incurred for the storage of the object of the contract;

b) he/she shall bear the risk of any accidental spoiling or perishing of the thing;

c) he/she shall no longer be entitled to receive interest on a monetary obligation.

Section Three

Breach of Obligations

Chapter One

General Provisions

Article 394 – Claim for damages in cases of breach of obligations

1. If the obligor breaches an obligation, 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. If the obligor delays performance, the obligee may give the obligor a necessary period of time to perform the obligation. If the obligor does not perform the obligation within such period of time, the obligee may claim damages instead of performance of the obligation.

3. No additional period of time need be given when it is evident that it will not yield any result, or when extraordinary circumstances exist which, in the interests of both parties, justify an immediate claim for damages.

Article 395 – Inadmissibility of preliminarily agreeing on release from liability for damages

1. An obligor shall be liable only for the damages caused by an intentional or negligent action, unless it is otherwise foreseen and unless it otherwise follows from the essence of the obligation.

2. A preliminary agreement of the parties to release the obligor from liability for damages in the case of an intentional breach of an obligation shall not be allowed.

Article 396 – Liability of the obligor for the action of his/her representative

An obligor shall be liable for the actions of his/her legal representative and of the persons whom he/she employs to perform his/her obligations to the same extent as for his/her own culpable action.

Article 397 – Liability of an obligor for receiving the object of performance from another person

The obligor shall be liable for performance even if he/she was to receive the object of performance from another person and could not receive it, unless otherwise provided for in the contract or by other circumstances.

Article 398 – Adapting a contract to changed circumstances

1. If the circumstances that were the grounds for the conclusion of a contract have evidently changed after conclusion of the contract, and the parties, had they taken the changes into account, would not have executed the contract or would have executed it with different contents, then it may be demanded that the contract be adapted to the changed circumstances. Otherwise, taking into account individual circumstances, a party to the contract may not be required to strictly observe the unchanged contract.

2. It shall also be regarded as a change in circumstances if the understandings, which constituted the grounds for the conclusion of a contract, prove to be wrong.

3. The parties shall first try to adapt the contract to the changed circumstances. If such adaptation is impossible, or if the other party does not agree, then the party whose interest has been harmed may repudiate the contract.

Article 399 – Repudiation of a long-term relationship of obligation

1. Any party to a contract may repudiate, for a valid reason, a long-term relationship of obligation without observing the period of time fixed for termination of the contract. The reason shall be valid when, taking into account the specific situation, including force majeure and the mutual interests of the parties, the party terminating the contract cannot be required to continue the contractual relationship until the lapse of the agreed period of time or until the expiry of the period of time fixed for termination of the contract.

2. If the grounds for repudiation are also a breach of contractual obligations, then repudiation of the contract shall be allowed only after the period of time fixed for elimination of the deficiencies expires or after a warning proves unsuccessful. Article 405(2) shall apply accordingly.

3. A rightful person may repudiate a contract within a reasonable period of time after the reason for termination has become known to him/her.

4. If, as a result of termination of the contract, any already given performance is no longer of any interest to the rightful person, the termination of the contract may be extended to the already given performance as well. To secure the return of the already given performance, articles 352-354 shall apply accordingly.

5. Article 407 shall apply accordingly to a claim for damages.

Chapter Two

Obligor in Default

Article 400 – Concept

The obligor shall be deemed to be in default, if:

a) he/she has not performed the obligation within the time period fixed for performance;

b) even after being warned by the obligee he/she fails to perform the obligation after the due date of the promised performance.

Article 401 – Impossibility to perform an obligation

No default shall be deemed to have occurred if the obligation is not performed due to circumstances not caused by the obligor’s fault.

Article 402 – Obligor’s liability

If the obligor is in default, he/she shall be liable for any negligence. He/she shall be liable even for an accident, unless he/she proves that the damage would have occurred even if the obligation had been performed in time.

Article 403 – Payment of interest when delaying the payment of funds

1. An obligor who has delayed payment of a sum of money shall pay, for the period of delay, the interest determined by agreement of the parties, provided that the obligee may not claim more on any other grounds.

2. In the case of delaying the payment of a sum of money, the payment of interest on interest may be demanded only in cases explicitly indicated in the contract.

Law of Georgia No 5127 of 29 June 2007 – LHG I, No 27, 17.7.2007, Art. 260

Article 404 – Obligee’s right to claim damages

The obligee may claim damages caused by the obligor’s delay of performance.

Chapter Three

Breach of Obligations during the Term of a Bilateral Agreement

Article 405 – Setting additional period of time in the case of breaching obligations

1. If one of the parties to a bilateral contract breaches a contractual obligation, then the other party to the contract may repudiate the contract if the obligation is not performed within an additional period of time fixed by him/her. If, based on the nature of the breach, no additional period of time is afforded, then a warning shall be equivalent to the fixing of an additional period of time. If the obligation is breached only in part, then the obligee may repudiate the contract only if the performance of the remaining part of the obligation is no longer of any interest to him/her.

2. An additional period of time need not be fixed or a warning need not be issued when:

a) it is obvious that it will yield no results;

b) the obligation was not performed within the period of time fixed under the contract, and the creditor has in the contract tied continuation of the relation to the timely performance of the obligation;

c) an immediate termination of the contract is justified for specific reasons, in the mutual interests of the parties.

3. A contract may not be repudiated if:

a) the breach of an obligation is insignificant;

b) the requirements of Article 316(2) have been violated and, notwithstanding that, the obligee may be required to maintain the contract in force;

c) the obligee himself/herself is fully or principally liable for the breach of the obligation;

d) there is a counterclaim against the claim of breach, which the obligor has already asserted or will assert immediately after the repudiation of the contract.

4. The obligee may repudiate the contract before the due date of performance if it is obvious that reasons for repudiation will occur.

5. The obligor may determine a reasonable period for the obligee to repudiate the contract.

Article 406 – Right to receive counter-performance

1. If under a bilateral contract the obligor has the right to repudiate his/her obligation and the circumstance that gives him/her the right is caused 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 arose at the time when the obligee was delaying acceptance of the performance.

Article 407 – Compensation for damages in the case of avoiding a contract

1. Upon withdrawing from the contract, the obligee may claim damages incurred by him/her as a result of non-performance of the contract.

2. This rule shall not apply when the reason for the obligee’s withdrawal from the contract did not arise through the fault of the obligor.

Section Four

Duty to Pay Damages

Article 408 – Duty of restitution

1. A person who is liable to pay damages shall restore the state of affairs that would have existed if the circumstances giving rise to the duty to pay damages had not occurred.

2. If, as a result of bodily injury or harm inflicted to the health of a person, his/her ability to work is lost or diminished, or if his/her needs increase, then the injured person shall be compensated for such damage by paying him/her a monthly allowance.

3. The injured person may demand the payment of expenses for medical care in advance. The same rule shall also apply when professional retraining becomes necessary.

4. The injured person may demand compensation instead of allowances, if there is a compelling reason for doing so.

Article 409 – Impossibility of restitution

If damages cannot be paid by restitution or if such restitution would require disproportionately high expenses, then the obligee may be given monetary compensation.

Article 410 – Preliminary renunciation of the right to claim damages

Preliminary renunciation of the right to claim damages due to a breach of an obligation shall be allowed if so provided by law or by agreement of the parties.

Law of Georgia No 2284 of 4 December 2009 – LHG I, No 45, 21.12.2009, Art. 329

Article 411 – Damages for lost profits

Damages shall be compensated not only for the loss of property actually incurred but also for lost profits. Profit shall be 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 duty to pay compensation applies

Only the damages which the debtor could have foreseen and which are the direct consequence of the action causing them shall be compensated.

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 to a person’s health, the injured party may claim non-property damages as well.

Article 414 – Calculation of damages

The interest that the creditor had in due performance of the obligation shall be taken into account when calculating damages. The time and place for performance of the contract shall be taken into account when calculating damages.

Article 415 – Fault of the injured person in causing damages

1. If actions of the injured person contributed to the occurrence of damages, then the duty to compensate and the amount of compensation shall depend on which party was more at fault for the damages.

2. This rule shall apply also when the injured person is at fault because of his/her omission to avoid or reduce harm.

Section Five

Additional Remedies for Securing a Claim

Article 416 – Kinds of additional remedies for securing the performance of obligations

To secure the performance of an obligation, the parties may also determine under the contract additional means for doing so: penalty, earnest money or a debtor’s guarantee.

Chapter One

Penalty

Article 417 – Concept

Penalty – an amount of money determined by agreement of the parties to be paid by the obligor in the case of non-performance or improper performance of an obligation.

Article 418 – Form of determining a penalty

1. The parties to the contract are free to determine a penalty that may exceed the possible damages, except as provided for in Article 625(8) of this Code.

1¹. The net obligation of a party determined after a mutual setoff or a final mutual setoff provided for by the Law of Georgia of Financial Collaterals, Setoffs and Derivatives is not a penalty or other, similar penal sanction and shall not be deemed to be a penalty or other, similar penal sanction.

2. The agreement for a penalty shall be made in written form.

Law of Georgia No 239 of 29 December 2016 – website, 13.1.2017

Law of Georgia No 5674 of 20 December 2019 – website, 31.12.2019

Article 419 – Inadmissibility of simultaneous demands for payment of a penalty and performance of an obligation

1. An obligee may not demand simultaneously the payment of a penalty and the performance of the obligation, unless the penalty has been stipulated to apply in those cases where the obligor does not perform the obligations in due time.

2. The obligee may always claim damages.

Article 420 – Reduction of penalty by court

A court, taking into account the circumstances of the case, may reduce a disproportionately high penalty.

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 the sign that the contract has been concluded.

Article 422 – Counting earnest money towards payment of an obligation

Earnest money shall be credited against the performance owed, and if it is not credited, then it shall be returned after performance of the obligation.

Article 423 – Counting earnest money towards compensation for damages

1. If the earnest money giver breaches the assumed obligation, 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 the non-performance of an obligation is caused by the fault of the earnest money receiver, then this party shall return to the other party double the amount of the earnest money. In addition, the party who gave the earnest money may claim damages.

Chapter Three

Debtor’s Guarantee

Article 424 – Concept

A debtor’s guarantee is an undertaking to perform an unconditional action or an action that is beyond the scope of the contract.

Article 425 – Validity of a guarantee

The guarantee shall be valid unless it contravenes the rules laid down by law or obligates the debtor excessively.

Article 426 – Form of guarantee

A guarantee shall be executed in writing.

Section Six

Termination of Obligations

Chapter One

Termination of Obligations by Performance

Article 427 – Termination of obligations by performance in favour of an obligee

A relationship of obligation shall be terminated by performance of the obligation in favour of the obligee (performance).

Article 428 – Termination of obligations by novation

A relationship of obligation shall also be terminated when the obligee accepts performance of another obligation in the place of performance of the originally foreseen obligation.

Law of Georgia No 1902 of 28 December 2002 – LHG I, No 4, 22.1.2003, Art. 20

Article 429 – Accepting the performance of obligations

1. The obligee, on demand of the obligor, shall issue a document confirming that performance of the obligation has been accepted in full or in part.

2. A document drawn up to confirm the receipt of a debt that says nothing about the interest shall imply that the interest has been paid and the monetary obligation is satisfied in full.

3. When the payment of a debt is made periodically, in instalments, then the document on payment of the last instalment shall, until proven otherwise, imply that the preceding instalments have also been paid.

Article 430 – Particulars of a document confirming the receipt of performance

A document on receipt of performance drawn up by a creditor or by a person authorised to do so shall include data on the amount and the kind of the debt, the name and the surname of the debtor or of the person who is paying the debt, and the time and place of the performance.

Article 431 – Right to demand a certificate of indebtedness

If a certificate of indebtedness has been issued relating to a claim, then the debtor, along with the document on receipt of performance, may demand return or cancellation of the certificate of indebtedness. If the creditor is unable to return the document, then the debtor may demand an officially certified document indicating that the debt has been extinguished.

Article 432 – Compensation for expenses relating to issuing the document on receipt of performance

1. The expenses relating to issuing a document on receipt of performance shall be borne by the debtor, unless otherwise stipulated in the agreement with the creditor.

2. If a creditor changes his/her place of residence or dies leaving heirs at another place of residence, the increased expenses for issuing the document on receipt of performance shall be borne by the creditor or his/her heirs.

Article 433 – Repudiation of performance by reason of the creditor’s non-performance of duties

If a creditor refuses to issue a document on receipt of performance or return or cancel a certificate of indebtedness or indicate in the document on receipt of performance that the certificate of indebtedness cannot be returned or acknowledge that the debt is extinguished, then the debtor may repudiate performance. In such cases the creditor shall be deemed to be in default.

Chapter Two

Termination of Obligations by Deposit

Article 434 – Concept

1. If an obligee delays acceptance of performance or his/her whereabouts are unknown, then the obligor may deposit the object of performance with a court or a notary office, or deposit money or securities to the deposit account of the notary.

2. By such deposit the obligor shall be released from the obligation to the obligee.

Article 435 – Transfer of the deposited property to the obligee

A judge or a notary shall transfer the deposited property to the obligee. The court or the notary shall select a depositary but retain the documents.

Article 436 – Objects suitable for deposit

Deposited objects shall be fit for storage. Perishable objects shall not be accepted for storage.

Article 437 – Place of storage

Storage shall be effected according to the place of performance.

Article 438 – Demand that the obligee accept objects

A court or a notary shall notify the obligee of receiving the object of performance for storage and demand that the obligee accept the object.

Article 439 – Compensation for storage expenses

All expenses with respect to the storage shall be borne by the obligee.

Article 440 – Reclamation of a deposited object by an obligor

1. An obligor may claim the deposited object back before its acceptance by the obligee, unless he/she initially refused to reclaim it. If the obligor reclaims the object, the storage shall be deemed not to have occurred.

2. The obligor may take back the deposited object if the obligee refuses to accept it or if the period of time fixed under Article 441 has elapsed.

3. If the obligor takes back the object, he/she shall bear the storage expenses.

Article 441 – Period of time for storing objects of performance

A court or a notary shall keep the object of performance for up to three years. If the obligee does not accept the object within that period, then the obligor shall be notified about it and it shall be demanded that the obligor take back the deposited object. If the obligor does not accept the object within the period required for taking back, the object shall be deemed property of the state.

Chapter Three

Termination of Obligations by Setting off Counterclaims

Article 442 – Possibility to set off obligations

1. Counterclaims between two persons may be terminated by setoff if these claims have become due.

2. Obligations may also be set off when one of the claims has not become due but the party holding such claim agrees to the setoff. Obligations shall be set off by notice to the other party.

Article 442¹ – Mutual setoffs and final mutual setoffs

Bilateral obligations arising from a qualified financial contract entered into within a mutual setoff agreement may be performed by a mutual setoff and/or a final mutual setoff, which is regulated by the Law of Georgia on Financial Collaterals, Mutual Setoffs and Derivatives.

Law of Georgia No 5674 of 20 December 2019 – website, 31.12.2019

Article 443 – Possibility to set off time-barred claims

Lapse of the limitation period on a claim shall not exclude setoff of the obligations if the limitation period had not expired at the time when the claim could still have been offset.

Article 444 – Claims subject to setoff

If the claims that are to be offset cannot compensate each other in full, only the lesser of the two claims shall be offset.

Article 445 – Several claims subject to setoff

1. If a party to a contract who was notified of a setoff has several claims subject to setoff, then the rules of Article 387 shall apply.

2. If a party is obligated to pay interest and other expenses to the other party in addition to the principal obligation, then the rules of Article 388 shall apply.

Article 446 – Setoff of obligations for different places of performance

Set-off of obligations shall also be allowed when different places have been designated for performance of the respective claims.

Article 447 – Inadmissibility of setting off claims

Claims may not be set off:

a. if setoff of claims was excluded in advance by an agreement;

b. if the object of an obligation cannot be enforced or if the object of the obligation serves as a livelihood;

c. if the obligation envisages payment of damages caused by infliction of harm to health or by death;

d. in other instances provided for by law.

Chapter Four

Termination of Obligations by Forgiveness of Debt

Article 448 – Concept

Forgiveness of a debt by agreement of the parties shall terminate the obligation.

Article 449 – Effects of forgiveness of debt for other joint and several debtors

Forgiveness agreed between the obligee and one joint and several debtors shall also release the other joint and several debtors, unless the obligee retains his/her claim against them. In such case, the obligee may assert against the rest of the joint and several debtors only one claim, less the share of the released debtor.

Article 450 – Effects of forgiving debt to the principal debtor

1. Forgiveness of debt granted to the principal debtor shall release any sureties as well.

2. Forgiveness of debt granted to the surety shall not release the principal debtor from performance of the obligation.

3. Forgiveness of debt granted to one surety shall release the other sureties as well.

Article 451 – Effects of renunciation of the claim under a bilateral contract

Waiver by one of the parties to a bilateral contract of his/her claim shall not terminate the obligation. That party shall perform its obligations under the contract until the other party also waives its claim.

Chapter Five

Other Grounds for Terminating Obligations

Article 452 – Termination of obligation where the obligee and the obligor turn out to be the same person

An obligation shall be terminated when the obligee and the obligor prove to be same person.

Article 453 – Termination of obligations due to the obligor’s death

1. The death of the obligor shall terminate the obligation if performance is impossible without his/her personal participation.

2. The obligee’s death shall terminate the obligation if the performance was intended personally for the obligee.

Article 454 – Termination of obligations due to liquidation of a legal person

The obligation of a legal person shall be terminated from the moment of the registration of completion of its liquidation.

Section Seven

Multiple Obligees or Obligors with Respect to Obligation

Chapter One

Joint and Several Obligees

Article 455 – Joint entitlement

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 rightful persons – joint and several obligees.

Article 456 – Grounds for joint entitlement

Joint entitlement shall arise out of a contract, by law or by the indivisibility of the object of an obligation.

Article 457 – Performance of obligations to any obligee

The obligor may perform the obligation to any of the obligees at his/her own discretion, unless one of the obligees has asserted a claim against him/her under Article 455.

Article 458. Performance of obligations for one of the obligees

Performance of the obligation in full for one of the obligees shall release the obligor from the obligation with respect to the rest of the obligees.

Article 459 – Effects of renunciation by one of the joint and several obligees

If one of the joint obligees waives a claim against the obligor, the obligor shall be released from payment only to the extent of the share of the payment which was due to this obligee.

Article 460 – Inadmissibility of applying the facts related to other obligees

The obligor may not use against one of the obligees the facts relating to another obligee.

Article 461 – Rights of the heirs of joint and several obligees

If a joint and several obligee leaves a number of heirs, each heir shall be entitled to only that part of the right to the debt that corresponds to his/her portion of the estate.

Article 462 – Liability of a joint and several obligee before the rest of the joint and several obligees

1. A joint and several obligee who has received performance in full from the obligor shall be liable to pay to the rest of the obligees the share to which they are entitled.

2. The joint and several obligees shall have equal shares in relation to each other unless otherwise determined among them.

Chapter Two

Joint and Several Obligors

Article 463 – Joint obligation

If a number of persons are bound to perform the obligation so that each of them is to participate in the performance of the whole obligation (joint obligation) and the obligee has the right to claim the performance only once, then they are joint and several obligors.

Article 464 – Grounds for joint obligation

Joint obligation shall arise out of a contract, by law or by the indivisibility of the object of the obligation.

Article 465 – Right of the obligee to demand performance from any of the obligors

The obligee may demand, at his/her own discretion, performance from any of the obligors, both in part or in full. Until the entire performance is rendered, the obligation of the rest of the obligors shall remain effective.

Article 466 – Counterclaim of a joint and several obligor against the obligee

A joint-and-several obligor may assert against the obligee all the counterclaims which arise out of the essence of the obligation, or to which only the obligor is entitled, or which are common for all joint and several obligors.

Article 467 – Effects of the entire performance by one of the obligors

The entire performance by one of the obligors shall release the rest of the obligors from performance. The same rule shall apply in the case of setoff exercised by the obligor with the obligee.

Article 468 – Inadmissibility of applying facts relating to another obligor

The facts relating to one of the joint and several obligors may be used only against that person, unless the relationship of obligation dictates otherwise.

Article 469 – Lawsuit against one of the joint and several obligors

The filing of a claim against one of the joint and several obligors shall not deprive the obligee of his/her right to file a claim against the rest of the obligors.

Article 470 – Effects of delay in accepting performance

1. The effects of the obligee’s delay in accepting performance from one of the joint and several obligors shall be effective for the rest of the joint and several obligors.

2. The effects of a delay in performance by one of the joint and several obligors may not be used against the rest of the joint and several obligors.

Article 471 – Rights of heirs of a joint and several obligor

If a joint and several obligor leaves a number of heirs, each heir shall pay the claim according to his/her portion of the estate. This rule shall not apply when the claim is indivisible.

Article 472 – Merger of the obligee’s claim with one of the joint obligor’s debt

If the claim of the creditor is merged with the debt of one of the joint and several obligors, the obligation of the rest of the obligors shall be terminated in proportion to the share of that obligor.

Article 473 – Right of subrogation in the case of entire performance by one of the obligors

1. An obligor who has performed a joint obligation has the right of subrogation against the rest of the obligors proportionately to their equal shares, though with subtraction of his/her own share, unless otherwise provided for in a contract or law.

2. When the extent of the liability of each obligor cannot be determined, the obligors shall be equally liable to each other.

Article 474 – Effects of insolvency of a joint and several obligor

If one of the obligors is insolvent, then the share fixed for him/her shall be distributed in equal shares among all other, solvent obligors.

Article 475 – Compensation of a joint and several obligor

If a joint obligor has received a benefit from the joint obligation, another joint and several obligor who has not received such benefit may claim from the former satisfaction for the performance of his/her obligation.

Article 476 – Effect of expiry of the period of limitation

Suspension or interruption of the period of limitation to one of the joint and several obligors shall not apply to the other obligors.

Special Part

Section One

Contract Law

Part Two

Chapter One

Sale; Exchange

I – General Provisions

Article 477 – Concept; subject matter

1. Under a contract of sale, the seller shall transfer to the buyer the title to the property and the documents relating to it and deliver the goods.

2. The buyer shall pay the seller the agreed price and accept the purchased property.

3. If the contract does not expressly indicate the price, the parties may agree on the method by which it is to be determined.

Article 478 – Expenses of sale of a movable thing

Expenses relating to the transfer of a sold thing, in particular the expenses of weighing, measuring and packing, shall be borne by the seller, and the expenses of receipt and shipping of the goods from the place of execution of the contract to another place shall be borne by the buyer, unless otherwise provided for in the contract.

Article 479 – Expenses of sale of an immovable thing

The seller of a plot of land or other immovable thing shall bear the expenses of executing a contract of sale, registering it with the Public Registry and submitting the necessary documents for registration, unless otherwise provided for in the contract.

Law of Georgia No 3879 of 8 December 2006 – LHG I, No 48, 22.12.2006, Art. 321

Article 480 – Duties of a seller when shipping goods

1. If the seller transfers goods to a carrier under a contract, and these goods are not clearly marked either with an identification marker or by any other means, then the seller shall notify the buyer of the shipment of the goods and, in addition, shall dispatch to the buyer a detailed list of the freight.

2. If the seller is obligated to ship the goods, he/she shall execute the contracts that are required for carriage of freight to the agreed place and for regular terms of such carriage.

3. If the seller is not obligated to insure the freight during the carriage, then, upon request of the buyer, he/she shall hand over to the buyer all the information at his/her disposal that is necessary for execution of such contract of insurance.

Article 481 – Obligations of the seller of a plot of land

1. The seller of a plot of land shall pay the expenses for the development of the plot and for similar activities performed on the plot incurred before the execution of the contract, regardless of the moment when the obligation to pay arises.

2. (Deleted).

Law of Georgia No 4744 of 11 May 2007 – LHG I, No 18, 22.5.2007, Art. 158

Article 482 – Transferring of the risk of accidental perishing of things

1. Upon transfer of the sold thing the risk of accidental perishing or spoiling 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 provided for in the contract, the risk of accidental perishing or spoiling of the thing shall pass to the buyer from the moment when the seller delivers the thing to the carrier or to the person responsible for performance.

Article 483 – Presumption of acceptance of goods

The goods shall be considered accepted if the buyer performs the action that evidences acceptance.

Article 484 – Grounds for repudiation of the contract

1. Each party to the contract may refuse to perform his/her obligations if it turns out after execution of the contract that there is a real danger of non-performance by the other party of a significant part of his/her obligations.

2. Such refusal shall not be allowed if the safety of this party is secured.

Article 485 – Selling goods to a number of persons

If the seller has sold the same item to a number of persons, then priority shall be given to the buyer into whose possession the item was first transferred, and if the item has not been transferred to any of them, then to the buyer with whom a contract was earlier executed.

Article 486 – Delivery of sold goods in instalments

When the sold goods are delivered in instalments, a party to the contract may repudiate the contract if by reason of non-performance of only one obligation of delivery by the other party, a real danger arose that the future obligations of delivery will also not be performed.

Article 487 – Duty to transfer a thing free of defects

The seller shall transfer to the buyer a thing free of material and legal defects.

Article 488 – Thing free of material defects

1. A thing shall be regarded as free of material defects if it is of the agreed quality. If the quality is not agreed in advance, then the thing shall be deemed free of defects if it is suitable for the use intended under the contract or for customary use.

2. It shall also be a material defect if the seller transfers only one part of the thing or an entirely different thing or transfers it in insufficient quantity, or if one part of the thing is defective, except if the defect will not materially affect the performance of the thing.

Article 489 – Thing free of legal defects

1. A thing shall be regarded as free of legal defects if third persons cannot assert against the buyer any claim with respect to his/her rights to it.

2. Any non-existent right registered in the Public Registry shall amount to a legal defect.

Article 490 – Duties of the seller when selling a defective thing

1. If the thing sold is defective, the seller shall either remedy the defect or, in the case of a generic thing, replace it within the time required for it.

2. Expenses required for remedying the defect, including 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 transfers to the buyer a thing free of any defect to remedy a defect, then he/she may demand that the buyer return 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 termination of the contract under Article 352.

2. The seller shall compensate the buyer for the expenses incurred.

Article 492 – Demand for price reduction

If the buyer does not demand the remedying of the defect or replacement of the defective thing with a new thing free of defects after lapse of the period of time accorded to the seller, nor the termination of the contract, then he/she may demand reduction of the price of the thing in the amount necessary to remedy the defect. The price existing at the time of execution of the contract shall be taken into account.

Article 493 – Right to reject goods

1. The buyer may refuse to accept the goods if the seller has delivered to him/her a smaller quantity of goods than that specified in the contract. If the buyer accepts such goods, he/she shall pay the price in proportion to the contractual price.

2. If the quantity of the goods delivered exceeds the amount specified in the contract, then the buyer may either accept such quantity and pay the price in proportion to the contractual price or accept only the quantity 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 incurred due to a defect of the thing sold or due to a breach of other conditions stipulated in the contract shall be paid according to the general rules.

2. No rights shall accrue to the buyer on the grounds of a defect of the thing if at the time of execution of the contract he/she had the knowledge of the defect.

Article 495 – Acceptance of a defective thing by the buyer

1. If the buyer is an entrepreneur, he/she shall inspect the thing immediately; if he/she fails to assert a claim against the seller within an appropriate period of time after detecting a defect or within the period of time during which he/she ought to have had knowledge of the defect, then he/she shall be deprived of the right to complain on the grounds of the defect in the thing.

2. If the seller intentionally kept silent about the defect of the thing, he/she may not exercise the right provided for in this article.

Article 496 – Duration of fitness of a thing

If the seller defines the duration of the fitness of the thing, it shall be presumed that any defect that may be detected within this period of time shall entitle the buyer to make a claim with respect to the defect.

Article 497 – Exclusion of liability of the seller

The liability of the seller for defects may be excluded or limited by contract but such agreement shall be void if the seller intentionally kept silent about a defect in the thing.

Article 498 – Transfer of right or other property

1. The rules governing the sale of a thing shall apply accordingly to the sale of a right or any other property.

2. When selling a right, the seller shall undertake the expenses of verification of the validity and of transfer of the right.

3. If a right is sold that provides the possibility to possess a thing, then the seller shall transfer to the buyer that thing free of material or legal defects.

Article 499 – Repeated sale of things

If a thing is sold repeatedly, the right securing an obligation shall be passed to every subsequent buyer. A buyer may assert claims within the scope of his/her rights against the relevant seller in this succession of sales.

Article 500 – Seller’s lien

If the buyer does not accept the thing in time or fails to pay its price in time, the seller shall keep the thing. The seller may retain the thing or detain them in transit until the buyer reimburses the seller for the corresponding expenses.

Article 501 – Return of things by the buyer

If the buyer has accepted a thing but is willing to return it lawfully, then he/she shall take care in storing the thing. The buyer may retain the thing until the seller reimburses him/her for the corresponding expenses.

Article 502 – Expenses for storing things

The party obligated to keep the thing may, at the expense of the other party, store it in the warehouse of a third person, unless doing so would result in disproportionate expenses.

Article 503 – Right of the keeper of things

1. The party keeping a thing according to the rules of Articles 500-502 may sell the thing by observing the applicable rules if the other party delays accepting the thing or reimbursing the expenses of keeping them. He/she shall notify the other party to that effect.

2. The party selling the thing may retain from the sale proceeds an amount corresponding to the expenses of storing and selling the thing and shall hand over the remaining amount to the other party.

Article 504 – Peculiarities of keeping perishable things

If in the cases provided for in Articles 500 and 501 the thing is perishable or may depreciate or its storage requires large expenses, the party liable to keep it shall sell it according to the provisions of Article 503.

II – Instalment Sale

Article 505 – Concept

In the case of an instalment sale the seller shall deliver the thing to the buyer before the price is paid. Payment of the price of the thing shall be made in periodic instalments on fixed time intervals.

Article 505¹ – Obligation of a seller when selling by instalments

1. If a seller is an entrepreneur, when selling by instalments, he/she shall comply with the requirements under Article 625 of this Code with regard to the interest rate, fee, penalty and the imposition of any financial sanctions.

2. When selling by instalments, if the total liabilities of a buyer to the same seller as a result of selling by instalments do not exceed GEL 200 000 (two hundred thousand), the receipt by a seller of the price for an item of up to GEL 200 000 (two hundred thousand) shall not, in any form, be attached or indexed to a foreign currency.

Law of Georgia No 239 of 29 December 2016 – website, 13.1.2017

Law of Georgia No 3315 of 21 July 2018 – website, 7.8.2018

Law of Georgia No 4104 of 22 December 2018 – website, 10.1.2019

Article 506 – Form of an instalment contract

1. An instalment contract shall be executed in writing.

2. The contract shall indicate:

a) the amount of cash payment;

b) the amount and time of payment by instalments;

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 a contract upon delivery of things

If a contract is executed in violation of the requirements of Article 506, the contract shall be deemed to have been executed from the moment of delivery of the thing. In such case, the buyer shall pay only the price of the thing, free of interest.

Article 508 – Bilateral restitution upon non-performance of obligations

Where the seller retains the right to repudiate the contract on the ground of the buyer’s default, then upon repudiation both parties shall return to each other what they have received under the contract. Any agreement to the contrary shall be void.

III – Redemption

Article 509 – Concept

If the seller has the right of redemption under a contract of sale, the exercise of the right shall depend on the will of the seller.

Article 510 – Redemption price

Redemption shall be exercised by paying the initial price. At the same time, the buyer may also demand the amount by which the value of the goods has increased up to the moment of redemption as a result of useful expenditures, and the redeemer may demand deduction of the amount by which the value of the goods has decreased before its redemption.

Article 511 – Fate of accessories upon sale

The buyer shall return the purchased thing together with its accessories.

Article 512 – Reimbursement of damages occurring before redemption

If the buyer damages or modifies the thing before the seller exercises the right of redemption, he/she shall reimburse the seller for the damages so incurred.

Article 513 – Invalidity of transfer of a thing before redemption

If the buyer transfers a thing before the exercise of the right of redemption, such transfer shall

be void.

Article 514 – Limitation period of the right of redemption

The period of time during which the right of redemption may be exercised may not exceed ten years. This period of time must not be extended.

Law of Georgia No 5445 of 9 December 2011 – website, 20.12.2011

Article 515 – Option

The parties may agree on the buyer’s unilateral right to buy an object up to a specific time or until the occurrence of a specific event (option to purchase), or, under the same conditions, the seller’s right to sell the object to the buyer (option to sell). The norms regulating a contract of sale shall apply to an option contract unless the parties agree otherwise.

IV – Pre-emptive Right

Article 516 – Concept

1. A person having a pre-emptive right may exercise the right if the obligor executes a sales contract for a given thing with a third party.

2. The pre-emptive purchase right is neither alienable nor hereditary unless otherwise stipulated.

Article 517 – Duty to give notice of anticipated sale of things

1. The obligor shall immediately notify the person who has a right of pre-emption of the contents of the contract that he/she intends to execute with third persons.

2. The pre-emptive right shall be exercised by notice to the obligor. By the notice, a contract of sale shall be executed between the rightful person and the obligor under the terms that the obligor offered to the third party.

3. A person having a right of pre-emption may exercise the right only within the period of time fixed by the obligor.

Article 518 – Invalidity of an agreement to not exercise a right of pre-emption

Any agreement between the obligor and a third person shall be void if, under that agreement, the contract of sale is dependent on the non-exercise of the right of pre-emption, or the obligor may repudiate the contract if the right of pre-emption is exercised.

Article 519 – Performance of additional obligations

1. If a third person has contractually assumed an additional obligation that the person having the right of pre-emption is unable to perform, then he/she shall pay the value of the additional obligation instead of performing it.

2. If the additional obligation cannot be measured in monetary terms, the right of pre-emption may not be exercised; the agreement on the additional obligation becomes invalid if the agreement was made in order to elude the right of pre-emption.

Article 520 – Contract of Sale conditioned upon approval of a thing

A contract of sale may be executed on the condition of approval of a thing, provided the buyer does not reject the thing within the agreed period of time. In the case of rejection the parties shall return to each other what they have received under the contract.

V – Exchange

Article 521 – Concept

1. Under a barter agreement, the parties shall transfer ownership of property to each other.

2. Each party to the barter agreement shall be deemed to be the seller of the property he/she offers and the buyer of the property that he/she receives in return.

Article 522 – Unequal value of exchanged property

If the bartered property is not equal in value to the property received in return, part of the property may be paid with money by agreement of the parties.

Article 523 – Rules applied to barter

The corresponding rules regulating sales contracts shall apply to barter contracts.

Chapter Two

Gift

Article 524 – Concept

Under a contract of gift the donor gratuitously transfers 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 shall be deemed to be executed from the moment of transfer of the property.

2. A gift contract with respect to an immovable thing shall be deemed to be executed from the moment that the ownership right provided for in the contract is registered in the Public Registry.

3. A promise of a gift shall give rise to the obligation to give the gift only if made in writing.

Law of Georgia No 3879 of 8 December 2006 – LHG I, No 48, 22.12.2006, Art. 321

Article 526 – Inadmissibility of giving a gift

A person shall not have the right to transfer property as a gift if the gift would deprive the donor or his/her dependents of their basic means of support.

Article 527 – Defect of property transferred as a gift

If the donor maliciously conceals a defect in the gift property, he/she shall reimburse the donee damages incurred.

Article 528 – Donation

1. The parties may determine that the validity of the contract of gift depends on the performance of certain conditions or on the achievement of a particular objective. This objective may be the common good as well (donation).

2. Besides the donor, the person in whose interests the condition was stipulated may also demand performance.

3. If the donee does not perform the condition, the donor may repudiate the contract.

Article 529 – Revocation of the gift due to ingratitude of the donee

1. The gift may be revoked if the donee grossly insults or shows extreme ingratitude towards the donor or his/her near relative.

2. If the gift is revoked, the donor may recover the gift property.

3. The gift may be revoked within one year after the donor becomes aware of circumstances that give him/her the right to revoke the gift.

Article 530 – Recovery of the thing given as a gift

1. If after giving the gift the donor falls onto hardship and is unable to maintain himself/herself or his/her dependents, then he/she may demand the return of the gift thing from the donee, provided it still exists and the return would not put the donee in hardship.

2. The thing given as a gift may not be recovered if the donor put himself/herself into hardship intentionally or through gross negligence.

Chapter Three

Rental

Article 531 – Concept

Under a rental contract the lessor shall transfer the thing to the use of the lessee for a specified period of time. The lessee shall pay the landlord the agreed upon rent.

Article 532 – Transfer of the object of rent in suitable condition

The lessor shall transfer to the lessee the rented thing in a condition fit for the use specified under the contract and shall maintain the object in that condition during the entire period of the rental contract.

Article 533 – Duty to transfer things free of defects

The lessor shall transfer to the lessee the rented thing free of legal or material defects.

Article 534 – Things free of legal defects

A thing shall be regarded as free of legal defects if a third person may not assert against the lessee any claims with respect to the thing.

Article 535 – Things free of material defects

A thing shall be regarded as free of material defects if it has the stipulated characteristics. If these characteristics are not stipulated, then the rented thing shall be deemed free of defects if it is fit for the use specified in the contract or for ordinary use.

Article 536 – Reduction of rent by reason of defective things

1. If the rented thing is found to be defective, then the amount of the rent shall be reduced by the amount by which the fitness of the thing is diminished by reason of the defect. The right shall expire upon elimination of the defect. Minor defects shall not be taken into account.

2. A tenancy agreement manifestly prejudicial to the tenant shall be void.

Article 537 – Reimbursement of damage incurred by reason of defective things

1. If a defect diminishing the fitness of the thing exists at the moment of execution of the contract or if it is found afterwards due to the circumstances for which the lessor is liable or if the lessor delays remedying the defect, then the lessee may claim damages without forfeiting the right to claim reduction of the rent.

2. If the lessor delays remedying the defect, then the lessee may remedy it himself/herself and claim the expenses.

Article 538 – Effects of not asserting a claim by reason of a defect in things

If at the time of concluding the contract the lessee is aware of a defect in the thing and does not assert a claim by reason of it, then the rights under Article 536 shall not accrue to him/her.

Article 539 – Invalidity of agreement to release liability

Any agreement by which the lessor’s liability for defective thing is relieved or limited shall be void if the lessor has intentionally concealed the defect.

Article 540 – Obligation to tolerate nuisances when renting lodgings

The tenant of lodging shall tolerate the influences applied to the rented thing that are required for maintenance of the rented lodging or the building. If possible, the landlord shall notify the tenant of the measures and avoid any actions not caused by necessity.

Article 541 – Right to terminate the contract

1. If transfer of the rented thing to the lessee, in whole or in part, is delayed, or if afterwards the lessee is deprived of the right to use the thing, then the lessee may terminate the contract without observing the term stipulated for its termination. Termination of the contract shall be allowed only if the lessor does not eliminate the circumstances hindering the use of the thing within the period of time fixed by the lessee.

2. The period of time need not be fixed if the lessee has lost interest in the contract as a result of the circumstances providing grounds for terminating the contract.

3. When renting lodging, a tenancy agreement that prohibits or restricts the right of termination defined in paragraph 1 of this article shall be void.

Article 542 – Termination of a tenancy agreement by a tenant

If a dwelling or other lodging intended for human habitation is in a condition that presents a significant danger to the health of the dwellers, then the tenant may terminate the tenancy agreement without observing the term. The tenant shall still have this right even if at the time of conclusion of the agreement he/she was aware of the danger but did not assert the claim.

Article 543 – Duties of the lessee upon detecting a defect in rented things

If the rented thing is found to be defective, or if necessary measures are to be taken to protect the thing from an unforeseen danger, then the lessee shall immediately notify the lessor to that effect. The same rule shall apply when a third person asserts his/her rights to the thing.

Article 544 – Burden of encumbrance created on the rented thing

The burden of an encumbrance created on the rented thing shall rest on the lessor.

Article 545 – Obligations of the lessor

1. The lessor shall be obligated to reimburse the lessee for necessary expenses incurred with respect to the rented thing.

2. The obligation to pay other expenses shall be determined according to the rules governing the agency without specific authorisation.

Article 546 – Right of the lessee to things added to the rented thing

1. The lessee may retain that with which he/she has equipped the rented thing.

2. The landlord of a dwelling place may replace the exercise of this right with appropriate compensation, except when the tenant disagrees with the landlord for a valid reason.

Article 547 – Liability for normal wear and tear to things

The lessee shall not be liable for any 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 shall carry out current repairs. He/she may not make alterations or reconstruction of the dwelling place without the consent of the landlord.

2. The tenant shall perform the works at his/her own expense.

3. The landlord may claim damages caused by the tenant’s non-performance of the duty under paragraph 1 of this article.

Article 549 – Consent of the lessor to a sublease

The lessee shall not have the right to transfer the rented thing to a third person (subleasing) without the consent of the lessor. A family member of the lessee shall not be deemed to be a third person.

Article 550 – Inadmissibility of refusing to sublet

The landlord may not refuse the subletting of a dwelling if the tenant, having a valid reason, is willing to sublet some or all of the rented lodging to a third person. This rule shall not apply if the sub-tenant is an undesirable person for the landlord, or if the lodging is overcrowded, or if a subletting is unacceptable to the landlord for other reasons.

Article 551 – Fate of subletting upon completion of the tenancy

If the subletting is intended to evade the guaranties of termination of the tenancy agreement, then upon completion of the tenancy the landlord shall assume the rights and duties existing between the tenant and the subtenant.

Article 552 – Amount of security for tenancy relations

1. If under a tenancy agreement the tenant is required to submit a guarantee to secure the obligation, the amount of the security may not exceed triple the amount of one month’s rent. If the amount of money is to be paid in advance, then the tenant may pay it in equal monthly instalments over three months.

2. Interest at the rate determined by law shall accrue on the security paid in advance, and after completion of the tenancy 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 rent

1. Rent shall be paid when the term of the rental contract expires. If the payment of rent is to be made periodically, then it shall be paid at the end of each period.

2. The payment of additional expenses may be required only if an agreement on the matter exists between the parties.

Article 554 – Effect of non-payment of rent through the fault of the lessee

If the lessee is impeded in the use of the rented property through his/her own fault, he/she shall not be released from payment of the rent.

Article 555 – Early termination of the tenancy agreement at the tenant’s initiative

The tenant of a dwelling place may terminate the tenancy agreement before it expires, provided he/she gives the landlord a one month’s notice to that effect and offers the landlord a tenant who is solvent and acceptable for the landlord and who agrees to be the tenant for the remaining term of the tenancy.

Article 556 – Counterclaims of the tenant against the landlord

If against the claim for payment of rent the tenant has the tight to detain property or to set off other claims arising out of the tenancy relation, then the tenant may exercise such right even if otherwise provided for in the agreement, provided he/she gives advance notice to the landlord.

Article 557 – Termination of the contract at the lessor’s initiative

A lessor may terminate the contract before the expiration of its term if the lessee significantly damages the rented thing or creates an apparent danger of such damage despite a warning given by the lessor.

Article 558 – Termination of the agreement due to non-payment of rent

A lessor may terminate the contract before the expiration of its term if the lessee has not paid the rent for three months.

Article 559 – Termination of rental relations upon expiration of the term

1. Rental relations shall be terminated upon expiration of the term of the contract.

2. If the lessee continues to use the thing after expiration of the term of the contract and the lessor does not object to it, 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, then the making a declaration of termination of the contract shall terminate the tenancy.

Article 560 – Right to demand extension of the tenancy agreement for an indefinite term

If a tenancy agreement is concluded for a fixed term, then the tenant may demand extension of the tenancy agreement for an indefinite term by giving a written notice at least two months before termination of the tenancy relations, provided the landlord consents.

Article 561 – Period of time for termination of the contract

The period of time for termination of a rental contract shall be three months unless it otherwise follows from the circumstances or from the agreement of the parties.

Article 562 – Termination of a tenancy agreement for valid reasons

1. The landlord may terminate a tenancy agreement only for valid reasons.

2. A reason shall be valid if:

a) the tenant has substantially breached his/her obligations under the contract;

b) the landlord needs the dwelling place for himself/herself or for his/her close relatives;

c) the tenant refuses to pay the increased rent corresponding to market rates offered by the landlord;

d) the tenant has committed such illegal or immoral acts against the landlord that continuation of their relation is no longer possible.

3. If the object of the tenancy is a furnished apartment, then the landlord may always terminate the tenancy agreement, provided he/she observes the period fixed for termination of the contract.

Article 563 – Form of termination of a tenancy agreement

Termination of a tenancy agreement shall be made in writing.

Article 564 – Duties of the lessee upon termination of the rental contract

Upon termination of a rental contract, the tenant shall return the rented thing to the landlord in the same condition in which he/she received it, taking into account normal wear and tear, or in the condition specified in the contract.

Article 565 – Inadmissibility of the right to detain property

The lessee of a plot of land may not detain the plot of land in satisfaction of his/her claims.

Article 566 – Transfer of rented property to third persons

If the lessee has transferred the thing to the use of a third party, then after termination of the rental contract the lessor may recover the thing from the third party.

Article 567 – Payment of damages arising from failure to return rented things

1. If after completion of the rental relations the lessee does not return the rented thing, the lessor may claim the stipulated rent for the period of such delay as compensation for damages.

2. An agreement by which the lessee is bound to pay damages in excess of the damage incurred shall be void.

Article 568 – Lessor’s lien on lessee’s things

In order to secure any claims arising out of the rental relations, the lessor of a plot of land, house or apartment shall have a lien on the things that the lessee has brought to the place. The lien lapses upon removal of the things from the rented premises if this is done in the ordinary course of affairs.

Article 569 – Form of a rental contract on a plot of land

A rental contract on a plot of land for a term of more than ten years shall be in writing. If the form is not observed, the contract shall be presumed to have been concluded for an indefinite term. The contract may be terminated only after the expiration of the first year of the tenancy.

Article 570 – Procedure for termination of contracts concluded for 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 terminate the contract within the period prescribed under Article 561.

Article 571 – Transfer of rights of the tenant to his/her family members

If a tenancy agreement is concluded for a dwelling place where the tenant manages his/her common household together with his/her family members, then in the case of the tenant’s death, his/her family members shall enter into the legal relation with the landlord. They may terminate the tenancy agreement within the term determined by law.

Article 572 – Succession of title in case of transfer of rented things

If the lessor transfers the rented thing to a third person after having transferred it to the possession of the lessee, the buyer shall takes the place of the lessor and the rights and duties arising out of the rental relations shall pass to him/her.

Article 573 – Limitation period on claims for damages

1. By reason of substitution or deterioration of the rented thing the lessor, within six months, may claim damages and the lessee may assert against him/her any claim for the recovery of expenses incurred.

2. The period of limitation on the lessor’s claim for damages begins to run from the moment the rented thing is returned, and the period of limitation on the lessee’s claim from the moment the rental contract is terminated.

Article 574 – Dispute between spouses in the case of divorce

1. Where, in the case of divorce, the spouses cannot agree on who will live in the rented lodging, a court shall settle the dispute.

2. It does not matter for the court which of the spouses is the tenant. If the court acknowledges the right of that spouse to the lodging who is not the tenant, then that spouse becomes a party to the tenancy agreement.

Article 575 – Protection of a lessor’s rights

The lessor may protect his/her possessions from any encroacher, including the owner.

Chapter Four

Finance Lease

Article 576 – Concept

1. Unless otherwise determined by the legislation of Georgia, under a finance lease agreement the lessor shall transfer the specified property to the use of the lessee for a term stipulated by the agreement, with or without the right to purchase the property. The lessee shall pay compensation to the lessor with the specified periodicity, provided that:

a) the lessee determines the property and chooses the supplier, from which to purchase or otherwise obtain the property;

b) the lessor acquires the property to lease it out and the supplier is aware of the fact.

2. The supplier may concurrently be a lessor if the supplier’s ordinary business is the supply or leasing of property. Property may also be acquired from the lessee.

3. The leased property may be re-leased upon expiry or early termination of the finance lease agreement but in order for the provisions of this chapter to apply, the lessor shall obtain the lessee’s confirmation of an independent selection of property.

4. The subject-matter of lease may not be money, security or share in an enterprise.

5. Unless otherwise determined by the legislation of Georgia, and if as a result of granting the amount of lease financing the total liabilities of a lessee to the same lessor is less than GEL 200 000 (two hundred thousand), the receipt by a lessor of the cost shall not, in any form, be attached or indexed to a foreign currency

6. If a lessor is an entrepreneur, when granting a lease, the annual effecti