Readings in Business Law

8/8/2019 Readings in Business Law

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Readingsin

General and International

Business Law

for

IBS students

by

dr. Gábor ANDRÁSI and dr. Tamás MADARASSY

International Business School, Budapest

2004



C O N T E N T S

CHAPTERONE..............................................................................................................................EXTRACTS OF THEHUNGARIANCONSTITUTION...................................................................... 3

CHAPTERTWO.............................................................................................................................EXTRACTS OF THEHUNGARIANCIVILCODE......................................................................... 18

CHAPTERTHREE .........................................................................................................................EXTRACTS OF THEHUNGARIANCOMPANYACT .................................................................... 96

CHAPTERFOUR............................................................................................................................EXTRACTS OF THEHUNGARIANCOMPETITIONACT ........................................................... 121

CHAPTERFIVE.............................................................................................................................CONVENTION ONC. I. S. G.................................................................................................... 132

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CHAPTERONE

EXTRACTS OF THEHUNGARIANCONSTITUTION

Act XX of 1949 The Constitution of the Republic of Hungary

Chapter I General Provisions

Article 1.

Hungary is a republic.

Article 2.

(1) The Republic of Hungary is an independent, democratic state under the rule of law.

(2) In the Republic of Hungary all power belongs to the people, who exercise their sovereignrights directly and through elected representatives.

(3) No activity of any person shall be directed at the aggressive acquisition or exercise orexclusive possession of power. Everyone has the right and obligation to act legally againstsuch activities.

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Article 4.

Labour unions and other representative bodies shall protect and represent the interests of employees, members of co-operatives and entrepreneurs.

Article 5.

The State of the Republic of Hungary shall defend the freedom and power of the people, theindependence and territorial integrity of the country, and its national borders as established ininternational treaties.

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Article 8.

(1) The Republic of Hungary recognizes inviolable and inalienable fundamental human rights.The respect and protection of these rights is a primary obligation of the State.

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(2) In the Republic of Hungary the fundamental rights and duties are determined by Acts.These Acts may not restrict the basic meaning and contents of fundamental rights.

Article 9.

(1) The economy of Hungary is a market economy, in which public and private property shallreceive equal consideration and protection under the law.

(2) The Republic of Hungary recognizes and supports the right to enterprise and the freedomof competition in the economy.

Article 10.

(1) The property of the State of Hungary is national wealth.

(2) Fields of sole ownership and sole economic activity of the State are determined by Acts.

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Article 13.

(1) The Republic of Hungary guarantees the right to property.

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Chapter II

The Parliament

Article 19.

(1) The Parliament is the supreme body of State power and popular representation in theRepublic of Hungary.

(2) Exercising its rights based on the sovereignty of the people, the Parliament shall ensurethe constitutional order of the society and define the organization, orientation and conditionsof government.

(3) Within this field of authority, the Parliament shalla) adopt the Constitution of the Republic of Hungary;b) pass legislation;c) define the social and economic policy of the country;d) assess the balance of public finances and approve the State Budget and its

implementation;e) decide on the program of the Government;

f) conclude international treaties of outstanding importance to the foreign relations of theRepublic of Hungary;

g) decide on the declaration of a state of war and on the conclusion of peace;h) declare a state of national crisis and establish the National Defence Council, in the

case of war or danger of armed attack by a foreign power (danger of war);

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i) declare a state of emergency, in the case of armed actions aimed at the constitutionalorder or at the acquisition of exclusive possession of public power, in the case of actsof violence committed by armed forces or by armed groups which endanger lives andproperty, and in the event of natural or industrial disaster;

j) with the exceptions laid down in the Constitution, rule on the use of the armed forces

both abroad and within the country, the use of foreign armed forces in Hungary or inother countries from the territory of Hungary, the participation of the armed forces inpeacekeeping missions, humanitarian operations, and the stationing of the armedforces abroad or of foreign armed forces in Hungary;

k) elect the President of the Republic, the Prime Minister, the members of theConstitutional Court, the Parliamentary Ombudsmen, the President and Vice-Presidents of the State Audit Office, the President of the Supreme Court and theGeneral Prosecutor;

l) upon recommendation made by the Government – which shall first be submitted to theConstitutional Court for review – dissolve assemblies of local government whoseactions have been found unconstitutional, decide on the territory of counties, theirname and seat, the recognition of cities with county-level rights, and the establishmentof the Districts of the Capital;

m) exercise general amnesty.

(4) A majority of two-thirds of the votes of the Members of Parliament shall be required forthe decisions specified in points g), h) and i) of Paragraph (3).

(6) A majority of two-thirds of the votes of the Members of Parliament in attendance shall berequired for the decision specified in point j) of Paragraph (3).

Article 19/A.

(1) The President of the Republic shall have the right to declare a state of war, a state of national crisis and establish the National Defence Council, or to declare a state of emergencyin case of the obstruction of the Parliament to make such decisions.

(2) The Parliament shall be considered to be obstructed to make such decisions, if it is not insession and it is impossible to convene due to lack of time or due to the events responsible forthe declaration of the state of war, state of national crisis or state of emergency.

(3) The Speaker of Parliament, the President of the Constitutional Court and the Prime

Minister shall jointly determine whether the Parliament is obstructed, and whether adeclaration of a state of war, a state of national crisis or a state of emergency is justified.

(4) At its first meeting following the end of the obstruction, the Parliament shall review the justification of the declaration of a state of war, state of national crisis or state of emergency,and decide on the legality of the measures taken. A majority of two-thirds of the votes of theMembers of Parliament is required for this decision.

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Article 19/B.

(1) During a state of martial law, the National Defence Council shall decidea) on the use of the armed forces abroad and within the country, the participation of the

armed forces in peacekeeping missions, humanitarian operations, and the stationing of

armed forces in a foreign country,b) on the use of foreign armed forces in Hungary or in other countries from the territory

of Hungary, and on the stationing of foreign armed forces in Hungary,c) on the introduction of emergency measures as defined in a separate law.

(2) The National Defence Council is chaired by the President of the Republic, and iscomposed of the following members: the Speaker of Parliament, the leaders of the politicalparties represented in Parliament, the Prime Minister, the Ministers, and the Chief of Staff of the Hungarian Armed Forces with the right of consultation.

(3) The National Defence Council shall exercisea) the powers delegated by the Parliament;b) the powers of the President of the Republic;c) the powers of the Government.

(4) The National Defence Council may pass decrees, which may suspend the application of certain laws or which may deviate from the provisions of certain laws. Furthermore, it maytake other extraordinary measures, but may not, however, suspend the application of theConstitution.

(5) Decrees passed by the National Defence Council shall lose validity upon cessation of thestate of national crisis, unless the Parliament extends the validity of such decrees.

(6) The operation of the Constitutional Court may not be restricted during a state of nationalcrisis.

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Article 20.

(1) The general election of Members of Parliament – with the exception of elections held dueto the declaration of the dissolution of the Parliament or the Parliament having been dissolved

– shall be held in the month of April or May in the fourth year following the election of theprevious Parliament.

(2) Members of Parliament shall carry out their duties in the public interest.

(3) Members of Parliament are granted parliamentary immunity, in accordance with theregulations of the Act defining the legal status of Members of Parliament.

(4) Members of Parliament are entitled to compensation adequate to ensure theirindependence, to specified allowances and to reimbursement of their expenses. A majority of two-thirds of the votes of the Members of Parliament present is required to pass the law on the

amount of compensation, reimbursement of expenses and allowances.

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(5) A Member of Parliament may not be the President of the Republic, a member of theConstitutional Court, the Ombudsman for Civil Rights, the President, Deputy President orauditor of the State Audit Office, a judge or prosecutor, an employee of an organ of stateadministration – with the exception of the Members of the Government and ParliamentaryState Secretaries –, a professional member of the armed forces, the police or other security

organs. Other cases of conflict of interest may be established by Act.

(6) A majority of two-thirds of the votes of the Members of Parliament present is required topass the Act on the legal status of Members of Parliament.

Article 20/A.

(1) The mandate of a Member of Parliament shall enda) upon completion of the term of Parliament;b) upon the death of the Member of Parliament;c) upon declaration of a conflict of interest;d) upon resignation;e) upon disfranchisement.

(2) A majority of two-thirds of the votes of the Members of Parliament present shall berequired for the Parliament to declare a conflict of interest.

(3) Members of Parliament may resign their mandate by making a statement to this effect tothe Parliament. A statement of acceptance by the Parliament is not required for the resignationto be effective.

Article 21.

(1) The Parliament shall elect the Speaker of Parliament, Deputy Speakers and Clerks from itsMembers.

(2) The Parliament shall establish standing committees from its members and may establish acommittee for the investigation of any issue whatsoever.

(3) Everyone is obliged to provide information requested by Parliamentary Committees and isobliged to testify before such committees.

Article 22. (1) The Parliament shall hold two regular sessions annually: every year from the 1st of February through the 15th of June and from the 1st of September through the 15th of December.

(2) The inaugural sitting of the Parliament shall be convened by the President of the Republicwithin a period of one month following the elections; in other cases the Speaker of Parliamentis responsible for convening sessions of the Parliament and its individual sittings.

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(3) Upon written request by the President of the Republic, the Government or one-fifth of theMembers of Parliament, an extraordinary sitting of the Parliament shall be convened. Suchrequest shall contain the grounds for convening the extraordinary sitting, as well as theproposed date and agenda.

(4) The Parliament may be adjourned by the President of the Republic no more than once perparliamentary session and for a period not to exceed thirty days.

(5) During the period of adjournment the Speaker of Parliament shall re-convene theParliament, at a date not later than eight days following the receipt of a written request to thiseffect, signed by one-fifth of the Members of Parliament.

Article 23.

Sittings of the Parliament are open to the public. Upon petition by the President of theRepublic, the Government or any Member of Parliament and with the assent of two-thirds of its Members, the Parliament may decide to hold a closed sitting.

Article 24.

(1) The Parliament has a quorum if more than the half of its members is present.

(2) The Parliament shall pass decisions with a majority of more than one-half of the votes of the Members of Parliament present.

(3) A majority of two-thirds of the votes of the Members of Parliament is required to amendthe Constitution and for certain decisions specified in the Constitution.

(4) The Parliament shall establish its rules of procedure and speaking order in the HouseRules. A majority of two-thirds of the votes of the Members of Parliament present is requiredto pass the House Rules.

Article 25.

(1) Legislation may be initiated by the President of the Republic, the Government, allParliamentary Committees, and any Member of Parliament.

(2) The authority to pass legislation belongs to the Parliament.(3) The Speaker of Parliament shall sign Acts which have been passed by the Parliament andsubsequently send such laws to the President of the Republic.

Article 26.

(1) The President of the Republic shall ensure promulgation of the Act within a period of fifteen days following its receipt or within a period of five days if the Speaker of Parliamentrequests that the issue is urgency. The President of the Republic shall ratify the Act sent forpromulgation. The Act shall be promulgated in the Official Gazette.

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(2) Should the President of the Republic disagree with an Act or with any provision of an Act,prior to ratification, he shall refer such Act, along with his comments, to the Parliament forreconsideration within the period of time specified in Paragraph (1).

(3) The Parliament shall debate the Act again and hold another vote on its passage. The

President of the Republic is required to ratify and promulgate the Act sent to him by theSpeaker of Parliament following this procedure, within a period of five days.

(4) Should the President of the Republic find unconstitutional any provision of an Act, he mayrefer such Act to the Constitutional Court for review within the period of time specified inParagraph (1) prior to ratification.

(5) Should the Constitutional Court – in special proceedings – find the Act to beunconstitutional, the President of the Republic shall refer such Act to the Parliament;otherwise he shall ratify and promulgate the Act within a period of five days.

(6) The President of the Republic shall ratify the Act subject to national referendum if suchAct is confirmed by the national referendum.

Article 27.

Any Member of Parliament may direct a question to the Ombudsman for Civil Rights and theOmbudsman for the Rights of National and Ethnic Minorities, to the President of the StateAudit Office and the President of the National Bank of Hungary, to the Government or any of the Members of the Government, as well as to the General Prosecutor on matters which fallwithin their respective sphere of authority.

Article 28.

(1) The term of Parliament commences with its inaugural sitting.

(2) The Parliament has the right to declare its dissolution prior to the completion of its term.

(3) The President of the Republic has the right to dissolve the Parliament, simultaneouslywith the announcement of new elections, if

a) the Parliament passes a motion of no-confidence in the Government on no less thanfour occasions in a period of twelve months during the course of one term, or;

b)

in the event that the mandate of the Government ends, a candidate for Prime Ministerproposed by the President of the Republic is not elected by the Parliament within aperiod of forty days from the day upon which the first candidate is nominated.

(5) Prior to dissolving the Parliament, the President of the Republic is required to request theopinions of the Prime Minister, the Speaker of Parliament and the leaders of the partiesrepresented in the Parliament.

(6) A new Parliament shall be elected within a period of three months following thedeclaration of the dissolution of the Parliament or the Parliament having been dissolved.

(7) The Parliament shall continue to operate until the inaugural sitting of the new Parliament.

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Chapter III The President of the Republic

Article 29.

(1) The Head of State of Hungary is the President of the Republic, who represents the unity of the nation and monitors the democratic operation of the State.

(2) The President of the Republic is the Commander in Chief of the armed forces.

Article 29/A.

(1) The Parliament shall elect the President of the Republic for a term of five years.

(2) Any Hungarian citizen with the right to elect Members of Parliament, who has reached theage of thirty-five prior to the date of the election, may be elected to the office of President of the Republic.

(3) The President of the Republic may be re-elected to such office not more than once.

Article 29/B.

(1) The election of the President of the Republic shall be preceded by the nomination of acandidate. The written recommendation of no less than fifty Members of Parliament is

required for such a nomination to be valid. The nomination must be submitted to the Speakerof Parliament prior to the announcement of the election. No Member of Parliament maynominate more than one candidate. If a Member of Parliament nominates more than onecandidate, all nominations made by the Member shall be invalid.

(2) The Parliament shall elect the President of the Republic by secret ballot. Voting may berepeated should this prove necessary. The candidate who receives a majority of two-thirds of the votes of the Members of Parliament in the first round of voting is elected President of theRepublic.

(3) Should no candidate receive such a majority in the first round of voting, the voting process

must be repeated, in accordance with Paragraph (1). A majority of two-thirds of the votes of the Members of Parliament shall also be required to be elected in the second round of voting.

(4) Should no candidate win the required majority in the second round of voting, a third roundof voting shall be held. In the third round of voting only those two candidates who receivedthe largest numbers of votes in the second round may stand for election. The candidatereceiving a majority of the votes – regardless of the number of votes cast – in the third roundof voting is elected President of the Republic.

(5) The election procedure shall be completed within a period of no more than threeconsecutive days.

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Article 29/C.

(1) The President of the Republic must be elected within a period of 30 days prior to theexpiration of the mandate of the former President or, should the mandate of the formerPresident end earlier, within 30 days from the date upon which the mandate ends.

(2) The Speaker of Parliament shall announce the elections for the office of President of theRepublic.

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Article 30/A.

(1) The President of the Republic shalla) represent the State of Hungary;b) conclude international treaties in the name of the Republic of Hungary; if the subject

of the treaty falls within its legislative competence, prior ratification by the Parliamentis necessary for conclusion of the treaty;

c) accredit and receive ambassadors and envoys;d) announce general parliamentary and local government elections, mayoral elections as

well as the dates of the European parliamentary elections and national referenda;e) have the right to participate in and speak at sittings of the Parliament and of its

committees; f) have the right to petition the Parliament to take action; g) have the right to initiate national referenda;h) appoint and dismiss State Secretaries, in accordance with regulations specified in a

separate law;i) appoint and dismiss the President and Vice-Presidents of the National Bank of

Hungary, and university professors upon the recommendation of persons ororganizations specified in a separate Act; appoint and dismiss the university rectors;appoint and promote Generals of the armed forces; confirm the President of theHungarian Academy of Sciences;

j) confer titles, orders, awards and decorations specified by Act and authorize the usethereof;

k) exercise the right to grant individual pardons;l) issue rulings in cases of citizenship;m) issue rulings in all issues assigned to his sphere of authority on the basis of separate

Acts.(2) The counter-signature of the Prime Minister or responsible Minister is required for all of the measures and actions of the President of the Republic listed in Paragraph (1), with theexception of the items specified in Points a) , d), e), f) and g) .

Article 31.

(1) The mandate of the President of the Republic shall end -a) upon completion of the term of office;b) upon the death of the President;

c) upon incapacitation preventing him from attending to his duties for a period of morethan ninety days;

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d) upon declaration of a conflict of interest;e) upon resignation;

f) upon removal from the office of President.

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Chapter IV The Constitutional Court

Article 32/A.

(1) The Constitutional Court shall review the constitutionality of laws and attend to the dutiesassigned to its jurisdiction by Act.

(2) The Constitutional Court shall annul any laws that it finds to be unconstitutional.

(3) Everyone has the right to initiate proceedings of the Constitutional Court in the casesspecified by Act.

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Chapter V The Parliamentary Ombudsman for Civil Rights and

the Parliamentary Ombudsman for the Rights of National and Ethnic Minorities

Article 32/B.

(1) The Parliamentary Ombudsman for Civil Rights is responsible for investigating orinitiating the investigation of cases involving the infringement of constitutional rights whichcome to his attention and initiating general or specific measures for their remedy.

(2) The Parliamentary Ombudsman for the Rights of National and Ethnic Minorities isresponsible for investigating or initiating the investigation of cases involving the infringementof the rights of national or ethnic minorities which come to his attention and initiating generalor specific measures for their remedy.

(3) Everyone has the right to initiate proceedings by the Parliamentary Ombudsmen in thecases specified by Act.

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Chapter VI The State Audit Office and the National Bank of Hungary

Article 32/C.

(1) The State Audit Office is the organ of Parliament responsible for financial and economicauditing. (…)

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Article 32/D.

(1) The National Bank of Hungary is the central bank of the Republic of Hungary. TheNational Bank of Hungary shall define the monetary policy in a way specified by Act.

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Chapter VII The Government

Article 33.

(1) The Government shall consist of a) the Prime Minister andb) the Ministers.

(2) The Prime Minister shall designate a Minister to act as Deputy Prime Minister.

(3) The Prime Minister shall be elected by a majority of the votes of the Members of Parliament, based on the recommendation made by the President of the Republic. TheParliament shall hold the vote on the election of the Prime Minister and the acceptance of theprogram of the Government simultaneously.

(4) The Ministers shall be appointed and dismissed by the President of the Republic, based onthe recommendation made by the Prime Minister.

(5) The Government is formed upon appointment of the Ministers. After its formation, theMembers of the Government shall take an oath before Parliament.

Article 33/A.

The mandate of the Government shall enda) upon formation of the newly elected Parliament;b) upon resignation of the Prime Minister or the Government;c) upon the death of the Prime Minister;d) upon disfranchisement of the Prime Minister,

e) upon establishment of a conflict of interest on the part of the Prime Minister, or f) if the Parliament passes a motion of no-confidence in the Prime Minister and elects a

new Prime Minister in accordance with the provisions of Paragraph (1), Article 39/A.

Article 33/B.

The mandate of a Minister's term shall enda) upon completion of the term of the Government,b) upon resignation,c) upon dismissal,d) upon the death of the Minister,e) upon disfranchisement of the Minister,

f) upon declaration of a conflict of interest.

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Article 34.

The list of Ministries of the Republic of Hungary shall be contained in a separate Act.

Article 35.

(1) The Government shalla) defend constitutional order, and defend and ensure the rights of the natural person,

legal persons and unincorporated organizations;b) ensure the implementation of Acts;c) direct and co-ordinate the work of the Ministries and other organs placed under its

direct supervision;d) ensure that the legal operation of local government is monitored, in co-operation with

the Minister of the Interior Affairs;e) ensure the formulation and the implementation of social and economic policies;

f) define State responsibilities in the development of science and culture, and ensure thenecessary conditions for the implementation thereof;

g) define the State system of social welfare and health care services, and ensure sufficientfunds for such services;

h) supervise the operation of the armed forces and of the police and other securityorgans;

i) take the necessary measures to limit the consequences of natural disasters thatendanger lives and property (hereinafter referred to as a state of danger) and tomaintain public order and safety;

j) participate in the development of foreign policy; conclude international treaties in thename of the Government of the Republic of Hungary;

k) attend to those responsibilities assigned to its sphere of authority by Act.

(2) Within its sphere of authority, the Government shall issue decrees and pass resolutions,which shall be signed by the Prime Minister. Government decrees and resolutions may notconflict with the law. Government decrees shall be promulgated in the Official Gazette.

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Article 37.

(1) The Prime Minister shall preside over sessions of Government and shall ensure theimplementation of Government decrees and resolutions.

(2) The Ministers shall head the branches of public administration falling within theirrespective portfolios and direct the public authorities they are responsible for in accordancewith the law and Government resolutions. Ministers without Portfolio shall attend to theresponsibilities determined by the Government.

(3) In the course of administering their duties, Members of the Government may issuedecrees. Such decrees, however, may not stand in conflict with the law or with Governmentdecrees or resolutions. Decrees shall be promulgated in the Official Gazette.

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Article 39.

(1) The Government is responsible to the Parliament for its operation and is required to reportregularly on its work to the Parliament.

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Article 39/A.

(1) A motion of no-confidence in the Prime Minister may be initiated by a written petition,which includes the nomination for a candidate for the office of Prime Minister, by no less thanone-fifth of the Members of Parliament. A motion of no-confidence in the Prime Minister isconsidered a motion of no-confidence in the Government as well. Should, on the basis of thismotion, the majority of the Members of Parliament withdraw their confidence, then thecandidate nominated for Prime Minister in the motion shall be considered to have beenelected.

(2) The debate and vote on the motion of no-confidence shall be held no earlier than threedays from the date of proposal and no later than eight days from the date of proposal.

(3) The Government, via the Prime Minister, may propose a vote of confidence in accordancewith the period of time specified in Paragraph (2).

(4) The Government, via the Prime Minister, may propose that the vote on the motion it hasmade simultaneously be considered as a vote of confidence.

(5) Should the Parliament fail to give the Government a vote of confidence in accordance withthe provisions of Paragraphs (3)-(4), the Government shall resign.

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Chapter IX Local Governments

Article 41.

(1) The territory of the Republic of Hungary is divided into the following administrative units:

the capital, the counties, the cities and communities.

(2) The capital is divided into districts. Districts may be formed in cities as well.

Article 42.

Eligible voters of the communities, cities, the capital and its districts, and the counties havethe right to local government. Local government refers to independent, democraticmanagement of local affairs and the exercise of local public authority in the interests of thelocal population.

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Chapter X The Judiciary

Article 45.

(1) In the Republic of Hungary justice is administered by the Supreme Court of the Republicof Hungary, the Judgment Boards, the Court of the Capital Budapest, the county courts andthe local and labour courts.

(2) Special courts for specific groups of cases may be established by Act.

Article 46.

(1) The courts shall, unless otherwise prescribed by law, administer justice through councils.

(2) Non-professional judges shall also participate in the cases and in the manner prescribed byAct.

(3) Only professional judges may fill the office of single judges and presidents of council.

Article 47.

(1) The Supreme Court is the supreme court authority for justice of the Republic of Hungary.

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Article 50.

(1) The courts of the Republic of Hungary shall protect and ensure the constitutional order, aswell as the rights and lawful interests of natural person, legal persons and unincorporatedorganizations, and shall determine the punishment for those who commit criminal offences.

(2) The courts shall review the legality of the decisions of public administration.

(3) Judges are independent and answer only to the law. Judges may not be members of political parties and may not engage in political activities.

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Chapter XI The Office of the Public Prosecutor

Article 51.

(1) The General Prosecutor and the Office of the Public Prosecutor of the Republic of Hungary ensure the protection of the rights of the natural person, legal persons andunincorporated organizations, maintain constitutional order and shall prosecute any actionwhich violates or endangers the security and independence of the country.

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Chapter XII

Fundamental Rights and Duties

Article 54.

(1) In the Republic of Hungary everyone has the inherent right to life and to human dignity.No one shall be arbitrarily denied of these rights.

(2) No one shall be subject to torture or to cruel, inhuman or humiliating treatment orpunishment. Under no circumstances shall anyone be subjected to medical or scientificexperiments without his prior consent.

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Article 56.

In the Republic of Hungary everyone is legally capable.

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Chapter XIV The Capital and National Symbols of the Republic of Hungary

Article 74.

The Capital of the Republic of Hungary is Budapest.

Article 75.

The national anthem of the Republic of Hungary is the poem "Himnusz" by Ferenc Kölcsey,set to the music of Ferenc Erkel.

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Chapter XV

Final Provisions Article 77.

(1) This Constitution is the supreme law of the Republic of Hungary.

(2) This Constitution and laws and statutes established in accordance with this Constitutionare equally binding for everybody of the country.

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CHAPTERTWO

EXTRACTS OF THEHUNGARIANCIVIL CODE

Act IV of 1959 on the Civil Code of the Republic of Hungary

PART ONE INTRODUCTORY PROVISIONS

Purpose of the Act

Section 1

(1) This Act regulates the financial and certain personal relations of the citizens, the state, thelocal governments, the economic and social organizations, and other persons. Other laws inconnection with these relations shall be interpreted regarding the provisions of this Act, unlessthese laws regulate otherwise.

(2) The provisions of this Act shall be interpreted regarding the economic and social order of the Republic of Hungary.

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Exercising Rights and Fulfilling Obligations

Section 4

(1) In the course of exercising civil rights and fulfilling obligations, all parties shall act in themanner required by good faith and fairness, and they shall be obliged to cooperate with oneanother.

(4) Unless this Act prescribes stricter requirements, it shall be necessary to proceed in civilrelations in a manner that can generally be expected in the particular situation. No person

shall be entitled to refer to his own accountable conduct in order to obtain advantages. If aperson has not proceeded in a manner that can generally be expected in the particularsituation, this person shall be entitled to refer to the other party's accountable conduct.

Section 5

(1) This Act prohibits the abuse of rights.

(2) Exercising any right directed toward a goal that is incompatible with the social intent of that right shall be regarded as an abuse of rights, particularly if it would lead to damaging thenational economy, harassing persons, impairing their rights and legal interests, or acquiringundue advantages.

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Section 6

The court may award damages payable in full or in part by a party whose wilful conduct has

explicitly induced another, bona fide person to act in a manner that has brought harm to thisperson through no fault of his own.

Section 7

(1) Each and every government agency shall be obliged to protect the rights provided by law.Unless otherwise regulated by Act, these rights shall be judicially enforced.

(2) Parties may resort to arbitration instead of litigation if at least one of them isprofessionally engaged in an economic activity, if the legal dispute is in connection with thatactivity, and if the parties are able to freely dispose over the subject of the proceeding.

PART TWO PERSONS

Title I MAN AS A SUBJECT OF LAW

Chapter I Legal Capacity

Section 8

(1) All persons in the Republic of Hungary shall have legal capacity; all persons shall beentitled to have rights and obligations.

(2) Legal capacity shall be equal regardless of age, sex, race, ethnic background, or religiousaffiliation.

(3) Contracts and unilateral statements limiting legal capacity shall be null and void.

Section 9

Legal capacity shall be due each person, if born alive, from the day of conception. The threehundredth day preceding the date of birth shall be considered the day of conception, which,however, may be proved to have occurred earlier or later. The day of birth shall be included inthis period.

Section 10

If it is necessary for the protection of a child's rights, particularly if there is a conflict of interest between the child and its legal representative, a curator must be appointed before thechild is born.

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Chapter II Disposal Capacity

Section 11

(1) Everybody, whose capacity is not limited or disqualified by the law, has disposal capacity.

(2) Who has disposal capacity is entitled to conclude contracts and make other legalstatements.

(3) Any contract or a unilateral statement restricting disposal capacity shall be null and void.

Limited Disposal Capacity and Disposal Incompetence of Minors

Section 12

Persons who have not yet reached the age of eighteen years shall be deemed minors, unlessthey are married. Marriage shall not constitute adulthood if the marriage has been annulled bya court owing to the absence of the guardian's permission, which is necessary because of thelack of competency or minority.

Section 12/A

(1) A minor shall be of limited capacity if he or she has reached the age of fourteen years andis not incompetent.

(2) Unless otherwise provided by law, the legal statement of a minor with limited capacityshall not be deemed valid without the approval or consent of his/her legal representative. If and when minors of limited capacity become competent, they shall be entitled to make theirown decisions concerning the validity of their pending legal statements.

(3) Minors of limited capacity shall, without the participation of their legal representatives, beentitled

a) to make legal statements of a personal nature for which they are authorized by legalregulation;

b) to conclude contracts of minor importance aimed at satisfying their everyday needs;c) to dispose of the earnings they acquire through work and assume obligations up to the

extent of their earnings;d) to conclude contracts that only offer advantages.

(4) With the permission of the guardian, legal representatives shall be entitled to refuse gifts –in accordance with Paragraph d) – that are promised or given to minors of limited capacity.Should a guardian not approve of statement of refusal of the legal representative, theguardian's decision shall replace the legal representative's statement of acceptance.

(5) Legal representatives shall be entitled to issue legal statements in the name of minors of limited capacity, except when the law requires the statement to be made by the minor withlimited capacity himself/herself or when the statement concerns earnings acquired through

work.

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Section 12/B

(1) Minors under the age of fourteen years are legally incompetent.

(2) Minors over the age of fourteen whom the court has placed in a curatorship precluding

legal competency shall also be legally incompetent. The procedure for placing a minor incuratorship shall be governed by the provisions of Section 15. Curatorship shall come intoeffect when reaching legal age, however, the minor loses his/her disposal capacity on the dateon which the relevant decision becomes legally binding.

Section 12/C

(1) Legal statements made by incompetent minors shall be null and void; their legalrepresentatives shall proceed on their behalf.

(2) Contracts of minor importance that are generally concluded in large numbers and do notrequire special consideration and have been concluded directly by incompetent minors andhave already been performed shall not be considered null and void.

Section 12/D

As regards any statement of a legal representative that affects the person or property of aminor, it shall be made with a view to the minor's opinion if he/she is of partial capacity, or if deemed legally incompetent but is not impaired mentally.

Common Provisions Pertaining to Minors of Limited Capacity or Legal Incompetence

Section 13

(1) The approval of the guardian is required for the validity of statements made by legalrepresentatives, if the legal statements concern

a) the waiver of maintenance of a minor,b) rights or obligations that, by virtue of inheritance, fall upon a minor; and refusals to

inherit any property that can be individually refused,c) the transfer or any form of encumbrance of the real property of a minor, with the

exception when usufruct is established upon acquiring a real property withoutconsideration,

d)

the assets of a minor surrendered in accordance with a separate legal regulation,e) any other property of a minor, tangible or intangible, the value of which exceeds thelimit prescribed in a separate legal regulation.

(2) The approval of the guardian is not required for the validity of a legal statement that hasbeen judged valid by a court or notary public.

Section 13/A

(1) A minor shall not be entitled, even with the approval of his/her guardian, to make validlegal statements by which he/she gives gifts, undertakes obligations without adequate

consideration, or waives his/her rights without consideration.

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(2) This provision shall not prevent minors of limited capacity from having control overearnings that they acquire through work; nor shall it exclude usual and customary gift giving.

Section 13/B

(1) Nullity on the basis of incompetence or limited capacity can only be cited in the interest of a person who is incompetent or of limited capacity.

(2) Persons who mislead other parties regarding their disposal capacity shall be heldaccountable for such conduct, and they can be obliged to perform contracts on the basis of their accountability.

Limitation or Exclusion of Disposal Capacity by Order of Curatorship

Section 14

(1) Persons of legal age shall be of limited capacity if a court has placed them in the custodyof a curator to that effect.

(2) Curatorship may be requested by the spouse, next of kin, the brother or sister of a personof legal age, or by the guardian or the public prosecutor's office.

(3) The guardian shall initiate the curatorship procedure upon receiving notice that custody of a curator is necessary, if it is not initiated by a close relative defined in Subsection (2) within60 (sixty) days of the guardian's receipt of notification concerning the requirement for legalaction.

(4) Persons whose necessary discretionary ability for conducting their affairs is – owing totheir mental state, unsound mind, or pathological addiction – generally, or in respect of certainmatters, permanently or recurrently diminished shall be placed by a court in a curatorship thatlimits their capacity.

(5) If the loss of discretionary ability is only partial the person under curatorship shallhimself/herself be able to make legal statements in all matters concerning which the court didnot limit his/her capacity in its ruling restricting disposal capacity.

(6) The disposal capacity of persons placed under curatorship may be completely restricted by

court order regarding the following matters:1) applying for social security, welfare and unemployment benefits and disposition over suchbenefits and any income received for work, whether by employment contract or otherrelationship of the like, that is in excess of the measure defined in Paragraph c) of Subsection(2) of Section 14/B;2) right of disposition over movable and immovable property;3) making legal statements related to family affairs, such as

a) statements related to property law in connection with marriage,b) statements in connection with descent,c) naming his/her child or changing the name of his/her child,d) consent for the adoption of his/her child;

4) decision concerning the financial aspects of obligation to provide support;

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5) statements in connection with the rental of a residence (conclusion and termination of contract);6) inheritance matters;7) statements in connection with placement in a social institution;8) exercise of rights in connection with health care;

9) selecting a place of domicile.

Section 14/A

(1) The court ruling limited disposal capacity shall specify the date by which to initiate thestatutory review of curatorship; this date must be fixed within five years from the date whenthe ruling becomes legally binding.

(2) The review procedure shall be initiated by the guardian. The petition for review mayrequest the termination of curatorship, the extension of curatorship, the transfer of curatorshipof limited capacity to preclude disposal capacity, the transfer of curatorship of precludedcapacity to allow limited capacity, or the amendment of the sphere of rights that cannot beexercised by a person under curatorship of limited capacity.

Section 14/B

(1) By general principle or in respect of the matters specified in the court ruling – apart fromthose defined in Subsection (2) – the legal statement of a person with limited capacity shallnot be deemed valid without the subsequent approval or consent of that person's legalrepresentative. Any disagreement between the curator and the person in his custody shall beresolved by the guardian. If and when persons of limited capacity become competent, theyshall be entitled to make their own decisions concerning the validity of their pending legalstatements.

(2) Persons of limited capacity shall, without the participation of their curator, be entitleda) to make legal statements of a personal nature for which they are authorized by legal

regulation;b) to conclude contracts of minor importance aimed at satisfying their everyday needs;c) to dispose over 50 per cent of their income received for work, whether by employment

contract or other relationship of the like, social security, welfare and unemploymentbenefits, and assume obligations up to the same percentage;

d) to conclude contracts that only offer advantages.

(3) A person with limited capacity may grant overall authority in a public document to hisconservator, provided the curator consents, to act in his/her name and on his/her behalf, and tomake legal statements with the exception of those defined in Subsection (2), and with theexception of the matters where legal statement is only accepted by law from the person of limited capacity.

(4) The person under curatorship may revoke the overall authorization defined in Subsection(3) by way of a private document of full probative force, of which the curator must beinformed as well.

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(5) In matters requiring prompt attention, or as defined in another Act, the curator shall beentitled to act in the name and on behalf of a person in his custody in the absence of anagreement defined in Subsection (3).

Disposal Incapacity (Incompetence)

Section 15

(1) Persons of legal age whom the court has placed in a curatorship precluding disposalcapacity are incompetent.

(2) Curatorship may be requested by the spouse, next of kin, the brother or sister of a personof legal age, or by the guardian or the public prosecutor's office.

(3) The guardian shall initiate the curatorship procedure upon receiving notice that custody of a curator is necessary, if it is not initiated by a close relative defined in Subsection (2) within60 (sixty) days of the guardian's receipt of notification concerning the requirement for legalaction.

(4) Persons of legal age whose necessary discretionary ability for conducting their affairs is –owing to their mental state or unsound mind – completely and perpetually absent shall beplaced by a court in a curatorship that limits their capacity.

(5) The court ruling of limited disposal capacity shall specify the date by which to initiate thestatutory review defined in Section 14/A, unless the lack of discretionary ability of the personaffected appears permanent, which shall be attested by a forensic medical expert.

Section 15/A

(1) Legal statements made by incompetent persons, with the exception set forth in Subsection(2), shall be null and void; their curator shall proceed on their behalf. Prior to making adecision the curator shall hear the views and requests of the person in his custody, if he/she isof sound mind, i.e. regarding his/her place of domicile, and shall abide by such requests if possible. A curator who repeatedly breaches this obligation shall be subject to dismissal inaccordance with Subsection (2) of Section 19/C.

(2) Incompetent persons can themselves conclude contracts of minor importance that are

generally concluded in large numbers and do not require special consideration.Common Provisions Concerning Persons of Limited Capacity or Incompetence

by Order of Curatorship

Section 16

(1) The approval of the guardian is required for the validity of statements made by the curatorof persons of incompetence or by persons of limited capacity and their curators, if the legalstatements concern

a) the maintenance of a person who is incompetent or of partial capacity,

b) rights or obligations that, by virtue of inheritance, fall upon a person who isincompetent or of partial capacity,

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c) the transfer or any form of encumbrance of real property of a person who isincompetent or of partial capacity, with the exception when usufruct is establishedupon acquiring a real property without consideration,

d) the assets of a person who is incompetent or of limited capacity surrendered inaccordance with Section 20/B,

e) other property, whether tangible or intangible, of a person who is incompetent or of partial capacity, the value of which exceeds HUF 50,000 or the amount specified inthe order of curatorship.

(2) If justified by the relevant circumstances the guardian may approvea) upon the request of the curator of a person who is incompetent or upon the joint

request of the curator and the person in his custody if he/she is of limited capacity, fora descendant of the person under curatorship to establish and sustain his/her ownhousehold or to achieve some other vital objective as financed from the assets of theperson under curatorship; this support, however, shall not exceed the compulsoryshare of inheritance of the descendant;

b) upon the joint request of the curator and the person in his custody if he/she is of limited capacity, for the person under curatorship to surrender any property as gifts orto surrender any of his/her rights without consideration or donate such for publicpurposes, if such transaction does not endanger the livelihood of the person undercuratorship.

(3) The approval of the guardian is not requireda) for the validity of a legal statement that has been judged valid by a court or notary public,b) if the disposal capacity of the person placed under curatorship of limited capacity by courtorder is not restricted by that order in respect of the legal statements defined in Subsection (1).

Section 16/A

(1) Nullity on the basis of incompetence or limited capacity can only be cited in the interest of a person who is incompetent or of limited capacity.

(2) Persons who mislead other parties regarding their disposal capacity shall be heldaccountable for such conduct, and they can be obliged to perform contracts on the basis of their accountability.

Incompetence without Curatorship

Section 17

(1) Persons who completely lack the mental ability, either permanently or temporarily at thetime of making a legal statement, to conduct their affairs are incompetent even if they are notplaced in the custody of a curator.

(2) Legal statements made by incompetent persons who have not been placed in the custodyof a curator shall be null and void, with the exception defined in Subsection (3).

(3) Legal statements, exclusive of testamentary dispositions, made by incompetent persons of

legal age who have not been placed in the custody of a curator shall not be considered nulland void on the grounds of incompetence, if the contents and circumstances of any legal

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statement can lead to the conclusion that the statement would also have been justified had theparty been legally competent.

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Termination and Revision of Curatorship

Section 21

(1) The court shall terminate curatorship concerning competence if the grounds on which itwas ordered no longer prevail.

(2) Petition for the termination of curatorship may be filed by the person under curatorshiphimself/herself, by his/her spouse, next of kin, brother or sister, by the guardian or by thepublic prosecutor's office.

(3) Legal action for the termination of curatorship may also be initiated before the statutoryreview procedure defined in Section 14/A.

(4) The parties defined in Subsection (2) may, in addition to the termination of curatorship,also request the revision of the list of matters in connection with which the court has restrictedthe competence of the person under curatorship, as well as the transfer of curatorship of limited capacity to preclude disposal capacity, or the transfer of curatorship of precludedcompetence to allow limited capacity.

Chapter III Cessation of Legal Capacity

Legal Declaration of Death

Section 22

Legal capacity ceases with death.

Section 23

Missing persons may be declared legally dead by the court five years after the date of

disappearance if there has been no information of any kind during the five-year period toindicate that they are alive.

Section 24

(1) The court shall declare the date of death upon due consideration of the circumstances.

(2) If consideration of the circumstances fails to be conclusive, the date of death shall be thefifteenth day of the month following the month of the person's disappearance.

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Section 25

(1) A person declared legally dead shall be considered dead until there is evidence to thecontrary.

(2) If it is conclusively resolved that the person declared legally dead had disappeared beforeor after the date indicated in the relevant decision, and the conditions for the declaration of death are otherwise valid, the court shall amend the legal declaration of death accordingly. Inthis case, the legal consequences shall change in accordance with the amended resolution.

(3) If it has been conclusively resolved that a person declared legally dead had disappearedafter the date indicated in the relevant decision and the conditions for the legal declaration of death are not valid, the court shall repeal the decision pertaining to the declaration of death.Unless an exemption is granted by law, the legal consequences that have proceeded from thedecision shall be null and void.

(4) If a person who has been declared legally dead is found, the decision shall be set aside,and, unless a exemption is granted by law, the legal consequences proceeding therefore shallbe null and void.

Title III ARTIFICIAL (LEGAL) PERSONS

Chapter V Legal Capacity; Establishment and Termination of Artificial Persons

Section 28

(1) The State, as the subject of property related legal relations, shall be deemed an artificialperson. Unless otherwise prescribed by law, the Minister of Finance shall represent the Statein civil law legal relations; he may exercise such jurisdiction by way of other State agencies,or may transfer such to other State agencies.

(2) According to the legal regulations that govern them, artificial persons include state, localgovernment, economic, social, and other organizations.

(3) All artificial persons have legal capacity. Unless otherwise provided by legal regulations,

the legal capacity of artificial persons shall extend to all those rights and obligations that donot inherently pertain solely to individual human beings.

Section 29

(1) The conditions for establishing and terminating artificial persons shall be defined by lawfor each type of artificial person. Artificial persons may also be established by law.

(2) The name, activity, seat, and (unless stipulated in a separate legal regulation) therepresentatives of each artificial person shall be described in the legal regulation, resolution,or document pertaining to the foundation of the artificial person.

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Section 77

(1) Everybody has the right to bear a name.

(2) Scientific, literary, or artistic activities or activities accompanying public performancesmay be pursued under an assumed name without injuring the rights and legal interests of otherpersons.

(3) The name of an artificial person must be different from the names of other previouslyregistered artificial persons who are engaged in similar activities in the same field of endeavour.

(4) The illegal use of another person's name or a name similar to that of another person shallbe deemed a violation of the right to bear a name. A person engaged in scientific, literary, orartistic activities, if his name can be confused with the name of another person who hasalready been engaged in similar activities, shall not even be entitled to use his own namewithout a distinctive addendum or omission while engaged in such activities.

Section 78

(1) The protection of inherent rights shall also include protection against defamation.

(2) The statement, publication, or dissemination of an injurious untrue fact pertaining toanother person or a true fact with an untrue implication that pertains to another person shall bedeemed defamation.

Section 79

(1) If a daily newspaper, a magazine (periodical), the radio, the television, or a news servicepublishes or disseminates false facts or distorts true facts about a person, the person affectedshall be entitled to demand, in addition to other actions provided by law, the publication of anannouncement to identify the false or distorted facts and indicate the true facts (rectification).

(2) The rectification shall be published within eight days of receipt of the relevant demand inthe case daily papers, in the next issue of a periodical or a news service in the same manner,or (also within eight days) at the same time of the day if the defamation had been broadcast

over radio and television.Section 80

(1) Any misuse of the likeness or recorded voice of another person shall be deemed as aviolation of inherent rights.

(2) With the exception of public performances, the consent of the person affected shall berequired for the public use of his likeness or recorded voice.

(3) A likeness (recorded voice) of a missing person or a person under criminal prosecution for

a felony offence may be used for substantial public interests or a justifiable private interestwith the permission of the authorities.

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Section 81

(1) A person who has violated the sanctity of the mails or has come into the possession of aprivate or business secret and publishes such secret without authorization or abuses it in any

other manner shall be construed as having violated an inherent right.

(2) Business secrets shall comprise all of the facts, information, conclusions or data pertainingto economic activities that, if published or released to or used by unauthorized persons, arelikely to jeopardize the rightful financial, economic or market interest of the owner of suchsecrets, provided the owner has taken all of the necessary steps to keep such informationconfidential.

(3) Any data that is related to the central budget; the budget of a local government; theappropriation of moneys received from the European Communities; any subsidies andallowances in which the budget is involved; the management, control, use and appropriationand encumbrance of central and local government assets; and the acquisition of any rights inconnection with such assets shall not be deemed business secrets, nor shall any data thatspecific other legislation, in the public interest, prescribes as public information. Suchpublication, however, shall not include any data pertaining to technological procedures,technical solutions, manufacturing processes, work organization, logistical methods or know-how that, if made public, would be unreasonably detrimental for the business operation towhich it is related, provided that withholding such information shall not interfere with thepublication of public information in the public interest.

(4) Any person entering into a financial or business relationship with a sub-system of thecentral budget shall, upon request, supply information in connection with such relationshipthat is deemed public under Subsection (3). Disclosure of information may take place on thewebsite or in the registered publication medium of the person concerned. In the event of non-compliance or if the information supplied is deemed insufficient by the party requesting it, a

judicial oversight proceeding may be initiated at the competent agency.

Section 82

The rights pertaining to private dwellings and to the premises used by artificial persons areprotected by law.

Section 83 (1) Data management and data processing by computer or other means may not violateinherent rights.

(2) Information from registered data may only be disclosed to duly authorized bodies orpersons (in addition to the person concerned).

(3) If any registered fact or datum is false, the person affected shall be entitled to demand thatthe false fact or datum be corrected in a manner prescribed by a separate legal regulation.

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Section 84

(1) A person whose inherent rights have been violated may have the following options undercivil law, depending on the circumstances of the case:

a) demand a court declaration of the occurrence of the infringement,

b) demand to have the infringement discontinued and the perpetrator restrained fromfurther infringement;

c) demand that the perpetrator make restitution in a statement or by some other suitablemeans and, if necessary, that the perpetrator, at his own expense, make an appropriatepublic disclosure for restitution;

d) demand the termination of the injurious situation and the restoration of the previousstate by and at the expense of the perpetrator and, furthermore, to have the effects of the infringement nullified or deprived of their injurious nature;

e) file charges for punitive damages in accordance with the liability regulations undercivil law.

(2) If the amount of punitive damages that can be imposed is insufficient to mitigate thegravity of the actionable conduct, the court shall also be entitled to penalize the perpetrator byordering him to pay a fine to be used for public purposes.

(3) The above provisions shall also apply if the infringement occurred through the publicationof an illegal advertisement.

Section 85

(1) Notwithstanding the provisions of Subsections (2) and (3), inherent rights may only beenforced personally. A person with diminished capacity may take action himself in theprotection of his inherent rights.

(2) The legal representative of an incompetent person, or the relative or conservator of amissing person whose whereabouts are unknown shall be entitled to proceed in the protectionof that person's inherent rights.

(3) In the case of injury to the memory of a deceased person, the relative and/or the personhaving been named heir apparent in the will of the deceased shall be entitled to file for courtaction. If conduct causing defamation to a deceased person (former artificial person) infringesupon the public interest, the public prosecutor shall also be entitled to enforce this inherent

right.(4) If a legal injury has been rendered probable and delay might result in irreparable damage,the court shall be entitled to take provisional measures, in the course of which it shall beentitled to issue an injunction to seize the instruments of legal injury.

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PART THREE OWNERSHIP

Title I GENERAL RULES OF OWNERSHIP

Chapter IX Objects of Ownership

Section 94

(1) All things that can be possessed can be objects of ownership.

(2) Unless otherwise provided by law, the provisions pertaining to ownership shall properlyapply to money and securities as well as to natural resources that can be utilized in the sameway as things.

Section 95

(1) Ownership extends to everything that is permanently joined with a thing in such a waythat disjunction would cause the thing or its disjoined part to be destroyed or wouldsignificantly reduce its value or usefulness (components).

(2) In the case of doubt, ownership shall also extend to parts that are not components but areusually necessary or beneficial for the proper use or maintenance of a thing (accessories).

Section 96

The ownership of land shall not extend to the "treasures of the earth" nor does it extend tonatural resources.

Section 97

(1) Ownership of a building may be claimed by the owner of the land.

(2) The ownership in respect of a building may be claimed by the builder if so prescribed bylaw or by a written agreement concluded with the owner of the land.

(3) The owner of the land shall have right of pre-emption in respect of the building, while theowner of the building shall have right of pre-emption in respect of the land.

Chapter X Content and Protection of Ownership

Right of Possession

Section 98

An owner has the right of possession and is entitled to protect the possession.

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Usufruct and of Collection of Proceeds

Section 99

An owner is entitled to use and to collect the proceeds from a thing; he bears the liabilities

belonging to the thing as well as the damages for which no one can be obliged to makecompensation.

Section 100

An owner is obliged, while using a thing, to refrain from any conduct that would needlesslydisturb others, especially his neighbours, or that would jeopardize the exercise of their rights.

Section 101

(1) An owner may not deprive the neighbouring building from its necessary ground-supportwithout providing another appropriate means of securing it.

(2) An owner may keep the fruits fallen from branches reaching over his land if they are notgathered by the owner of the tree; he is not entitled to cut branches bending over or rootsspreading over his land, unless they prevent him from the proper use of his land, and theowner of the tree does not remove them in spite of being requested to do so.

Rights of Neighbours

Section 102

(1) An owner shall permit entrance to his property for compensation if it is necessary fordoing works of public interest, harnessing animals, gathering fruit from branches reachingover his land, removing branches or roots, or for other important reasons.

(2) An owner may use the neighbouring land for compensation if it is necessary for theconstruction, demolition, reconstruction or maintenance of a building located on his land.

Section 103

(1) If two parcels of land are separated by a fence (hedge) or a borderland, the affected

neighbours shall be entitled to use it jointly.(2) Costs of maintenance shall be borne by neighbours in proportion to their statutoryobligation to erect a fence. If it is not prescribed by legal regulation, costs shall be borne inproportion to the length of the land to be enclosed.

Section 104

(1) A tree or bush standing on the borderline of two plots of land and the fruit thereof may beclaimed by the affected neighbours in equal proportions. Maintenance costs are borne by theaffected neighbours in the same proportions.

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(2) If a tree or bush standing on the borderline of two plots of land impedes the proper use of one of the plots of land, the affected owner shall be entitled to demand its removal, the costsof which shall be shared jointly by the owners.

Section 105

A stray animal may be retained by the user of the land until compensation is provided by itsowner for any damage that has been caused.

Section 106

A legal regulation or an agreement of the parties may depart from the provisions of this Actthat pertain to neighbours' servitude.

Section 107

(1) In the event of danger (emergency) constituting a direct threat to the life, safety orproperty of another person that cannot be prevented in any other way, an owner shall toleratehis thing to be used, utilized or damaged to the extent necessary for eliminating theemergency situation. This obligation shall be binding on an owner in the case of anemergency endangering another person's property only if the imminent damage is estimated tosubstantially exceed the damage likely to be caused to the owner as a consequence of theintervention.

(2) Owners shall be entitled to demand compensation from persons in an emergency andindemnification from persons who cause unjustifiably great damage in the course of eliminating the emergency.

(3) If a danger that threatens the lives or properties of several persons is prevented bysacrificing some endangered articles, the damage originating therefore shall be borne jointlyby the affected persons in proportion to their risked interests, if such sacrifice was necessary;this provision shall also apply to the sharing of costs necessary for preventing the danger.

Section 108

(1) The owner of a real property is obliged to tolerate agencies authorized by separate legalregulation to use the real property for a period of time, obtain servant tenement or restrain

ownership rights in other ways up to the extent that is necessary for the performance of theirprofessional tasks. In such cases, the owner of the real property shall be entitled tocompensation according to the extent of the hindrance (restraint).

(2) If the servitude or another restraint terminates or considerably impedes the proper use of the real property, the owner may request that the real property be purchased or expropriated.

(3) Provisions pertaining to production, construction, health care, water management andother issues concerning the exercise of ownership rights are prescribed in separate legalregulations.

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Section 109

(1) If an owner had a house built beyond the boundary line of his land in good faith, theneighbour shall be entitled to demand the builder either

a) pay compensation for damages for the use of the part of land occupied and for the

depreciation in value caused therewith,b) purchase the part of the land occupied if the land is divisible, orc) purchase the entire parcel of land.

(2) A neighbour may demand that the builder purchase his entire land if a) the construction has rendered the remaining part of the land unusable,b) the exercise of a right or profession related to the land has become impossible or

considerably more expensive due to the construction.

Section 110

(1) If the builder has acted in bad faith or the neighbour has protested against the constructionat a time when restoration of the original state would not have caused unreasonable damage tothe builder, the neighbour shall, in addition to the options prescribed in Subsection (1) of Section 109, be entitled to demand the builder either

a) transfer ownership of his land and the building in return for proper compensation of actual gains, or

b) demolish the building.

(2) A neighbour may demand the demolition of a building if it is not against the requirementsof reasonable management. The costs of demolition and of the restoration of the original stateshall be borne by the builder; however, he shall have possession of the material recovered.

Section 111

(1) A court decision may resolve the consequences of construction in a manner that differsfrom the neighbour’s choice; however, such a decision may not prescribe a solution that isprotested by both parties.

Right of Disposition

Section 112

(1) An owner has the right to surrender the possession, use or usufruct of a thing to anotherperson, to use it as security or encumber it in another way and, furthermore, to transfer orabandon ownership.

(2) The ownership of real property may not be abandoned.

Section 113

If ownership of a building may be claimed by the owner of the land, the ownership of thebuilding may only be transferred or encumbered together with the ownership of the land.

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Section 114

(1) If a legal regulation or court decision excludes or restricts the right of disposition, anydisposition contrary to this prohibition or restriction shall be null and void.

(2) The right to alienate or encumber property may be restricted or excluded by contract onlyin the event of the transfer of ownership and only for the purpose of securing the right of thetransferor or another person in respect of the thing. With regard to real property, the rightsecured by the prohibition shall also be indicated in the property register.

(3) Any disposition contrary to a prohibition of alienation or encumbrance stipulated bycontract shall be null and void provided that

a) the prohibition has been entered in the property register,b) the person claiming a right for disposition has otherwise acted in bad faith, orc) the disposition did not include any consideration.

Protection of Ownership Rights

Section 115

(1) Ownership claims shall not lapse.

(2) Pursuant to the property protection regulations, an owner may arbitrarily restrain orprevent any and all illegal intrusion or influence that impedes, restricts, or obliterates theexercise of his ownership rights.

(3) An owner may demand the termination of illegal intrusions or influences and, if thingshave been removed from his possession, to have them returned.

Section 116

(1) The owner of a real property, if he has acquired ownership outside the property register,may request to have his ownership indicated in the property register.

(2) If other legal regulations do not make exceptions, the property register shall be deemedauthentic certification of the existence of ownership and other entitlements.

(3) The detailed provisions on property registration are prescribed in a separate legalregulation.

Chapter XI Acquisition of Ownership

Acquisition by Transfer

Section 117

(1) If other laws do not make exceptions, ownership by transfer may be acquired only from

the owner of the thing.

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(2) For the acquisition of ownership, in addition to the contract for transfer and other legaltitles, the delivery of the thing is also necessary. Delivery shall be implemented by the actualtransfer of possession of the thing or in any other way to substantiate beyond doubt thatcontrol of the thing has been conveyed from the transferor to the transferee.

(3) Registering the change of owners in the property register as well as providing the contractfor transfer and other legal titles are required in order to transfer ownership of a real property.

(4) In the event a real property is sold more than once, the buyer taking first possession of theproperty in good faith or, if there is no such person, the previous buyer may demand hisownership registered in the property register, except if the ownership of the subsequent buyerhas already been entered in the property register. This provision shall also be applied tomultiple donations.

Section 118

(1) A bona fide buyer shall acquire ownership of a thing that has been sold commercially,even if the dealer was not the owner of the thing.

(2) A person who has, outside of commercial trade, acquired a thing in good faith and forconsideration from a person, to whom the thing was entrusted by its owner, shall obtainownership. However, the owner may reacquire the thing within one year of the initialacquisition by refunding the consideration. Otherwise the rules of bona fide possessionwithout legal grounds shall apply to the parties' legal relationship.

Section 119

A transferee of cash or a bearer security shall become the owner, even if the transferor wasnot the owner.

Acquisition of Ownership by Means of Official Resolution or Auction

Section 120

(1) A person who has acquired a thing in good faith by means of official resolution or auctionshall become owner irrespective of the previous owner. This provision shall not apply to thesale of real property by auction.

(2) The state, if it acquires ownership pursuant to a court decision or other official resolutionwithout indemnification, shall be liable for the obligations of the ex-owner existing at the timeof acquisition of ownership to a bona fide person on the basis of a legal regulation, courtdecision, or other official resolution or a commutative contract to the extent of the value of theproperty. However, the state shall be liable only if the attachment of other property items of the ex-owner has been unsuccessful.

(3) Acquisition of ownership by the state shall not affect the rights of a third bona fide personthat have been entered in the property register.

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Adverse Possession

Section 121

(1) A person who has continuously possessed a real property for fifteen years, or any other

object for ten years as his own, shall acquire ownership through adverse possession.

(2) A person who has taken possession of a thing by committing a crime or in another violentor treacherous way shall not acquire ownership through adverse possession.

(4) Ownership of real property shall not be acquired through adverse possession, if theconditions of adverse possession exist only for a section of the land and that parcel of land isindivisible.

(5) An adverse possessor, in the event of failure to have his ownership registered in theproperty register, shall not be entitled to refer to the acquisition of ownership by a person whohas acquired a right on the real property for payment of a consideration, as relying upon theproperty register.

Section 122

A new possessor shall be entitled to add to the period of his own adverse possession the timethat qualified as time of adverse possession during the possession of his predecessor.

Section 123

If an owner is not in the position to exercise his ownership rights for a reason that can be justified, adverse possession shall not take place for one year from the termination of theimpediment, even if the time of adverse possession has elapsed or there is less than one yearleft.

Section 124

(1) Adverse possession is discontinued, if a) the owner summons the possessor in writing to surrender the thing or files a lawsuit

thereto,b) the owner has control of the thing (Section 112),

c)

the possessor loses the property against his will and does not acquire it again withinone year or does not file for court action within one year to have the thing returned byits new possessor.

(2) If adverse possession is discontinued, the time of adverse possession that has elapsed up tothat date may not be taken into consideration, and the period of adverse possession beginsagain following the termination of the reason for discontinuance.

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Appropriation of Products, Produce, and Progeny

Section 125

(1) A person, who has a right in respect of a thing of another person which entitles him to take

possession of products, produce, or progeny, shall acquire ownership by separation, if he hasnot previously acquired ownership thereof. If the entitled person does not possess the thingfrom which the product, produce, or progeny originates, he shall become owner by takingpossession thereof.

(2) If the right of a person entitling him to acquisition of ownership of a product, produce, orprogeny ceases before he acquires ownership thereof, such person may demand that the ownerdeliver the products, produce, or progeny primarily in kind, in proportion to his work, and upto the extent of his expenses that cannot be recovered from elsewhere.

(3) A bona fide possessor acquires ownership of products, produce, or progeny of a thing byseparation up to the day on which he becomes mala fide, or the thing is reclaimed from himbefore a court or town (city, metropolitan district) clerk.

Accretions

Section 126

The owner of a parcel of land shall acquire ownership of everything that has become part of the land subsequently (accretions). This provision shall not apply to products, produce, andprogeny if these can be claimed by another person on the basis of a legal relationship.

Acquisition of Abandoned Property

Section 127

If a thing has no owner, anybody may acquire ownership by taking possession thereof.

Acquisition of Ownership of Game and Fish

Section 128

(1) Game, the fish living in rivers and natural lakes, and other useful aquatic animals areowned by the state, unless otherwise prescribed by law.

(2) Game that perishes or is killed or captured in hunting grounds shall be owned by a partyauthorized to hunt.

(3) The ownership of fish and other useful aquatic animals caught by persons authorized toexercise fishing rights shall be acquired by the person authorized to exercise fishing rights,unless otherwise prescribed by law. The ownership of fish and other useful aquatic animalscaught by unauthorized persons shall be acquired by a person authorized to exercise fishingrights, unless otherwise prescribed by law.

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(2) If the value of the work significantly exceeds the value of the processed or convertedthing, the owner of the thing shall not have the right to choose, as he may claim onlyreimbursement for the value of the thing.

(3) If the person performing the processing or conversion has acted in bad faith, the right to

choose shall, in all cases, belong to the owner of the material; if the owner of the materialchooses ownership of the new thing, he shall pay reimbursement only up to the extent of hisactual gains.

Section 134

(1) If the objects of several persons are merged or combined in a way that the separation of such objects may only be accomplished by inflicting substantial damage or unreasonably highcost or if it cannot be accomplished at all; ownership of the final product shall be claimed

jointly by the persons affected. If either of the owners should wish not to participate in jointownership, the person whose thing was more valuable before the combination shall be entitledto choose whether to assume ownership of the thing by recompensing the other owners or tosurrender it to them in return for compensation.

(2) The right to choose may not be claimed by the person causing the merger or combinationhe in bad faith. In such case the mala fide ex-owner may demand reimbursement only up tothe extent of actual gains.

Section 135

(2) If ownership of a converted, processed, merged or combined thing is claimed by neither of the parties, it shall be sold; and the received price shall be distributed as appropriate amongthe entitled parties.

(3) In such a case, the party who is entitled to claim compensation only up to the extent of hisactual gains shall be entitled to no more than the part of the received price remaining after thesatisfaction of those entitled to full indemnification.

Section 136

(1) If a person uses another person's material for construction on his land or on the land usedby him, he shall acquire ownership of the built-in material, but shall make reimbursement for

the value thereof.Section 137

(1) If a person builds a structure on another person's land without authorization, ownership of the structure shall be acquired by the owner of the land; however, he shall reimburse theappendage builder to the extent of his actual gains. The court shall be entitled to oblige suchbuilder to buy the land or a part thereof (if the land is divisible) at the request of the land'sowner.

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(2) The appendage builder shall acquire ownership of the land or an adequate part thereof if the value of the building considerably exceeds the value of the land or the relevant part of theland. At the request of the landowner, the court may resolve that the builder has acquiredownership of the building alone; in such a case, the builder shall have usufruct on the land.

(3) If a person builds an extension or new addition to a building owned by another person orreconstructs such a building, or if there is an existing building on the other person's land;ownership of the final product in consequence of such appendage construction shall beclaimed by the persons affected, unless otherwise agreed by the parties. The builder's share of the property shall be determined on the basis of the value of the new addition in proportion tothe total value of the real property.

(4) The provisions pertaining to the acquisition of ownership by an appendage builder[Subsections (2)-(3)] shall not apply if the builder has acted in bad faith or if the owner of theland has protested against the construction at a time when the restoration of the original statewould not have caused unreasonably great damage to the builder.

Section 138

(1) If an appendage builder acquires ownership of the land or the relevant part of the land, heshall be obliged to compensate the owner of the land for the market value of the land; if thebuilder acquires usufruct on the land, he shall be obliged to pay a consideration for use of theland. If the builder does not acquire ownership of the entire parcel of land, he shall also paythe owner of the land compensation for the decrease in value caused by the construction.

(3) The rules of construction must otherwise be applied to appendage construction.

Chapter XII Joint Ownership

Section 139

(1) Ownership of the same thing, by specific shares, can be claimed by two or more persons.

(2) In the event of doubt, the property shares of the joint owners shall have equal shares.

Section 140

(1) Each co-owner has the right to possess and use the thing; however, none of them shallexercise this right if it adversely affects the rights and legal interests of the others inconnection with the thing.

(2) Unless otherwise provided by law, co-owners shall decide by majority vote on issues of possession, use, utilization and expenses not exceeding standard measures; each co-owner hasthe right to vote in proportion to his ownership share.

Section 141

Proceeds from a thing shall be claimed by the co-owners in proportion of their ownershipshares; costs of maintenance and other expenses related to the thing, as well as obligations

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originating from co-ownership, and any damage to the thing shall be borne by the co-ownersin the same proportion.

Section 142

Any of the co-owners is entitled to carry out works that are absolutely necessary for thepreservation and maintenance of the thing, and each co-owner shall be obliged to bear hisshare of such costs. However, if possible, the co-owners shall be notified before suchexpenses are incurred.

Section 143

(1) If a majority decision is required by law and if such decision infringes reasonablemanagement or substantially violates the legal interests of the minority, the minority shall beentitled to contest the decision in court. The contest shall not prevent execution of thedecision; however, the court shall be entitled to suspend execution on reasonable grounds.

(2) This provision shall also be applied if there is disagreement among the co-owners as towhether the proposed work is absolutely necessary for the preservation and maintenance of the condition.

(3) If a majority decision is required by law and there is no such decision, the court shall passa decision on matters related to possession, use, or utilization at the request of either of the co-owners.

Section 144

A unanimous decision by the co-owners shall be required fora) expenses in excess of standard measures,b) transferring ownership of the entire thing, surrendering it for usufruct or use, pledging

it as security or collateral, or encumbering it in any other way.

Section 145

(1) Each of the co-owners may freely dispose of his share of the property.

(2) The other co-owners shall have the right of pre-emption to buy, rent, or lease the property

share of a co-owner.(3) Unless otherwise prescribed by law, the right of pre-emption provided for other persons inspecific other legislation shall precede the pre-emption rights of co-owners.

Section 146

Any of the co-owners may act independently in protection of his proprietary rights.

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Termination of Co-Ownership

Section 147

Any of the co-owners may demand termination of co-ownership; any waiver of this right shall

be null and void.

Section 148

(1) Objects of co-ownership shall be divided primarily in kind.

(2) The objects of co-ownership, or a part thereof, may be given by court into the ownershipof one or several co-owners in return for the payment of an appropriate consideration if it is

justified with regard to the conditions of the co-owners. This requires the agreement of the co-owner acquiring ownership, unless ownership of part of a real property is transferred by courtorder to the co-owner residing on such property and such action does not violate thereasonable interests of the tenant.

(3) If co-ownership cannot be otherwise terminated, or division in kind would cause asignificant decrease in value or prevent proper use, the objects of co-ownership shall be soldand the price received shall be appropriately divided among the co-owners. Co-owners shallhave the right of pre-emption in respect of selling as well against third persons.

(4) A mode of termination of co-ownership against which all of the co-owners launch aprotest shall not be applied by the court.

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Chapter XIII Rights of Use

Usufruct and Use

Section 157

(1) A person may possess, use, and collect the proceeds of a property owned by anotherperson by virtue of usufruct.

(2) For the duration of the usufruct, the owner may exercise the right of possession, use, andcollection of proceeds only if the beneficiary of usufruct does not exercise his rights thereto.

(3) Usufruct shall remain in force even if ownership of the property is transferred.

(4) Usufruct shall be granted for only a limited period of time, not to exceed the lifetime of the beneficiary of usufruct.

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Section 158

(1) On the basis of a contract, usufruct enters into effect upon delivery of the property, or, inrespect of real properties, upon the usufruct being registered in the property register.

(2) Usufruct on a real property, if granted pursuant to a legal regulation or by virtue of a courtdecision or official resolution, shall be registered in the property register; in the absencethereof, usufruct shall be enforceable only against a mala fide acquirer of the property or anacquirer who has not given any consideration for the property.

Section 159

(1) A beneficiary of usufruct shall act in accordance with the rules of normal managementwhen exercising his right thereto and shall be liable for the maintenance costs thereof, withthe exception of extraordinary repairs and renovations, and, furthermore, for the obligationsrelated to the use of the thing as well as for all public dues.

(2) A beneficiary of usufruct may not transfer the usufruct; however, he may surrender theright to exercise such usufruct. The right to exercise usufruct may be surrendered for aconsideration only upon the owner's waiver of using the property under the same conditions.

(3) A beneficiary of usufruct shall notify the owner of any imminent danger to the propertyand any damage incurred, including any attempt by a third party to obstruct him fromexercising his usufruct; he shall, furthermore, tolerate the owner to take the necessarymeasures to prevent any potential danger or to eliminate the consequences of the damage.

(4) The beneficiary of usufruct shall return the property upon the termination of his usufruct.The beneficiary of usufruct is liable for any damages in the property, unless he is able toprove that he has acted in a manner that can generally be expected in the given situation. Thebeneficiary of usufruct shall not be liable for reimbursing any regular depreciation resultingfrom the use the property.

Section 160

A beneficiary of usufruct may dispose of the expendable objects, business equipment, andlivestock existing at the time usufruct is established to a degree justified by normalmanagement; however, he shall replace these when the usufruct is terminated or, if

replacement is not possible, reimburse the value thereof.Section 161

(1) Owners are entitled to regularly inspect the exercise of usufruct.

(2) If a beneficiary of usufruct uses the property improperly, damages it or otherwise jeopardizes the return of the property after the termination of usufruct, and if the owner hasprotested to no avail; the owner may demand security.

(3) If a beneficiary of usufruct fails to provide security, the court shall be entitled, upon the

owner's request, to order the suspension of the exercise of usufruct until such security isprovided.

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(4) An owner shall also have these rights against the person to whom the exercise of usufructhas been surrendered by the beneficiary of usufruct.

Section 162

(1) A beneficiary of usufruct shall be entitled to have extraordinary repairs or renovationsmade upon the owner's failure, despite the request of the beneficiary of usufruct, to do so.

(2) Upon termination of usufruct, the beneficiary of usufruct may demand reimbursementfrom the owner for the necessary expenses, less the appropriate depreciation. The owner, if his actual gains are in excess of the amount so determined, shall refund the difference as well.

Section 163

(1) If a thing is destroyed entirely or to a significant extent, the owner shall not be obliged torestore it.

(2) If the owner restores the thing, the usufruct shall be consequently re-established; however,the owner may request a limitation on the usufruct in proportion to the costs of restoration.

(3) If the owner does not restore the thing, the usufruct shall be abrogated; however, if theobject of usufruct is replaced by another thing, usufruct shall extend thereto. If the thing hasbeen replaced by a sum of money, the beneficiary of usufruct may demand that sum be spenton the restoration or replacement of the thing.

Section 164

(1) Concerning the usufruct of interest-bearing receivables and other profit-yielding rights, theprovisions pertaining to the usufruct of objects shall be duly applied.

(2) A right encumbered by usufruct may be cancelled or amended to the disadvantage of thebeneficiary of usufruct with a contract having an effect extending to the usufruct, but this maybe done solely upon the consent of the beneficiary of usufruct.

Section 165

(1) Persons entitled to beneficial use may use a thing and collect its proceeds up to an extentnot exceeding his own needs and those of his relatives living in the same household. Theexercise of the right of beneficial use may not be surrendered to another person.

(2) In respect of other issues, the provisions on usufruct shall be applied regarding the right of beneficial use.

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Title II SPECIAL RULES RELATING TO PUBLIC PROPERTY

Chapter XIV State Ownership

Objects of State Ownership

Section 172

Unless otherwise provided by law, the following shall remain under exclusive stateownership:

a) the "treasures of the earth, " b) underground waters, the natural basins of undergroundwaters, rivers and natural lakes, and the beds thereof,

b) abandoned riverbeds and newly evolved islands of rivers,c) national public roads, railroads, international commercial airports, and the airspace

over the territory of the country,d) frequencies to be used for telecommunications purposes,e) the full range of authentication codes used for communication networks, for the

provision of communication services, and for cooperation between communicationnetworks and services.

Section 173

(1) The following are not subject to trade:a) things owned exclusively by the state,b) other things prescribed by law.

(2) Any alienation of the things specified in Subsection (1) shall be deemed null and void.

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Expropriation

Section 177

(1) Real property may be expropriated in special cases and in the public interest, for the

reasons and in the manner prescribed by law. Full, unconditional, and prompt compensationshall be made for expropriated real properties.

(2) The specific provisions on expropriation shall be prescribed in a separate law.

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Title III Possession

Chapter XVI Possession and Protection of Possession

Possession

Section 187

(1) Possession shall be acquired by the person who takes a thing to himself or secures controlover a thing in any other way (possessor).

(2) The person temporarily losing control of a thing to another person, and the person whoseland is burdened with an easement is also deemed a possessor.

Protection of Possession

Section 188

(1) If a possessor is deprived of his possession without legal grounds or is restrained inmaintaining such possession (illicit power), he shall be entitled to protection of his possession.

(2) A possessor is entitled to protection of possession against anybody, with the exception of the person from whom he has acquired the possession by illicit power.

(3) A possessor shall, on the basis of his title, be entitled to protection of possession againstthe person from whom his possession originates or to whom such possession was temporarilysurrendered.

Section 189

(1) In the event of joint possession, protection of possession may be claimed by eachpossessor individually, and each possessor shall be entitled to demand the thing to be renderedavailable for joint possession.

(2) On the basis of their relationship, joint possessors are also entitled to protection of

possession against each other.Section 190

(1) A possessor shall be entitled to use his own might and power to avert an attack directedagainst his possession to the extent necessary for protection of the possession.

(2) A person shall be allowed to act on his own might and power in the interest of reacquiringa lost possession only if the time lost through the use of other means of protection wouldfrustrate protection of the possession.

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Section 191

(1) A person who is deprived of his possession or is restrained in its enjoyment shall, withinone year, be entitled to file a request with the town clerk for the restoration of the originalstate of possession or for the discontinuance of restraint.

(3) The town clerk shall restore the original state of possession and prohibit the trespasserfrom continuing in this conduct, unless it is obvious that the person who has requestedprotection of possession is not entitled to possession or has been obliged to tolerate suchrestraint. The town clerk may also resolve the issues of profits, damages, and costs.

(4) There is no remedy through state administrative channels against the decision of the townclerk; decisions on the issue of possession shall be executed within three days.

Section 192

(1) The party who finds the decision of the town clerk prejudicial may appeal to the courtwithin fifteen days of receipt of the decision to have the decision overturned.

(2) After one year, a possessor shall be entitled to request the restoration of the original stateof possession or the discontinuance of restraint directly from the court. A possessor may alsoresort directly to the court if the title of possession is also disputed in the case.

(3) The court shall resolve lawsuits concerning possession claims on the basis of eligibility forholding possession; eligibility of the party disturbed in peaceful possession shall be presumed.

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PART FOUR CONTRACT LAW

Title I CONTRACTS

Chapter XVII General Rules

Section 198 (1) A contract constitutes an obligation to perform services and an entitlement to demand suchservices.

(2) Conclusion of a contract can be rendered obligatory by legal regulation.

(3) An obligation or an entitlement to services may be constituted, on the basis of legalregulation or official order, without the conclusion of a contract if so ordered by the legalregulation or competent authority, and if the obligor, the obligee, and the service areaccurately specified. In such case, the provisions on contracts shall be duly applied, unless

otherwise provided by legal regulation or official order.

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Section 199

Entitlement to demand services shall be established from a unilateral statement only in thecases defined by legal regulations; unless otherwise provided by law, the provisions oncontracts shall be duly applied to unilateral statements.

Section 200

(1) The parties are free to define the contents of contracts, and they shall be entitled, uponmutual consent, to deviate from the provisions pertaining to contracts if such deviation is notprohibited by legal regulation.

(2) Contracts in violation of legal regulations and contracts concluded by evading a legalregulation shall be null and void, unless the legal regulation stipulates another legalconsequence. A contract shall also be null and void if it is evidently in contradiction to goodmorals.

Section 201

(1) Unless the contract or the applicable circumstances explicitly indicate otherwise, aconsideration is due for services set forth in the contract.

(2) If at the time of signing the contract there is an unreasonable and extensive differencebetween the value of a service and the consideration due, without either party having theintention of bestowing a gift, the injured party shall be allowed to contest the contract.

Section 202

If a contracting party has stipulated an unreasonably disproportionate advantage at theconclusion of the contract by exploiting the other party's situation, the contract shall be nulland void (usurious contract).

Section 203

(1) A contract by which the basis for satisfying a third person's claim has been deprivedentirely or in part shall have no legal force in respect of such third person if the other partyacted in bad faith or had a gratuitous advantage originating from the contract.

(2) If a person concludes such a contract with a relative, an economic organization in whichsuch relative is connected through interlocking directorates, a member or executive employeeof the economic organization or one of their relatives, bad faith and/or gratuitous promiseshall be presumed. Bad faith and/or gratuitous promise shall also be presumed when acontract is concluded between economic organizations that are not directly or indirectlyconnected through interlocking directorates, but are controlled by the same person or the sameeconomic organization.

(3) A party who has lost the gratuitous advantage originating from a contract in a manner forwhich he is not accountable shall not be liable towards the third person.

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Section 204

(1) The following claims may not be enforced by court action:a) claims originating from gambling or betting, unless the gambling or betting is licensed

by the state;

b) claims originating from a loan promised or granted explicitly for the purpose of agambling or betting;

c) claims that may not be enforced through a state agency by virtue of law.

(2) A contract signed for securing a claim which cannot be enforced by court action shall benull and void; however, voluntary performances shall not be reclaimed.

(3) Claims that cannot be enforced by court action must be officially considered. Unlessotherwise provided by legal regulation, this provision shall not apply to lapsed claims.

Chapter XVIII Conclusion of Contracts

Contracting Intent and the Expression Thereof

Section 205

(1) Contracts are concluded upon the mutual and communicated expression of the parties'intent.

(2) It is fundamental to the validity of a contract that an agreement is reached by the partiesconcerning all essential issues as well as those deemed essential by either of the parties. Theparties need not agree on issues that are regulated by legal regulations.

(3) General contracting conditions shall become part of a contract, in the event that theprovisions of Subsections (1)-(2) are also satisfied, only if they have previously been madeavailable to the other party for perusal and if the other party has accepted the conditionsexplicitly or through conduct that implies acceptance.

(4) Parties shall cooperate during the conclusion of a contract, and they shall respect eachother's rightful interests. Parties shall inform each other regarding all essential circumstancesin relation to the proposed contract before the contract is concluded.

(5) The other party shall be explicitly informed of any general contract conditions that differsubstantially from the usual contract conditions, the regulations pertaining to contracts, or anystipulations previously applied by the same parties. Such conditions shall only become part of the contract if, upon receiving special notification, other party has explicitly accepted it.

(6) If a general contract condition and another condition of the contract differ from oneanother, the latter shall be integrated into the contract.

(7) If there is discrepancy between contract statements and contractual obligations, the partiesshall attempt to reconcile their positions.

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Section 206

(1) Should the parties fail to reach an agreement on contractual obligations, the court, unlessotherwise provided by legal regulation, shall be entitled to bring the contract into existenceand determine its contents. The court shall not establish a contract if one of the parties subject

to the contractual obligations provides proof that it is incapable of performing the contract orthat the performance of the contract would be detrimental to the national economy.

(2) Within the realm of contractual obligations, the court may amend, terminate, cancel, orvalidate contracts in order to accommodate the interests of national economy.

(4) If the parties' agreement does not include an issue of minor importance, and if this issue isnot addressed by any legal regulation or other statutory provision, the court shall, with dueregard to the purpose and contents of the contract, be entitled to supplement such a contracton the basis of standard measures.

Section 207

(1) In the event of a dispute, the parties shall, in light of the presumed intent of the personissuing the statement and the circumstances of the case, construe statements in accordancewith the general accepted meaning of the words.

(2) If the contents of a consumer contract cannot be clearly established by applying theprovision stipulated in Subsection (1), the interpretation that is more favourable to theconsumer shall be authoritative.

(3) Should a person waive or curtail his rights, such a statement need not be broadlyconstrued.

(4) The parties' secret reservations or concealed motives shall be immaterial with regard to thevalidity of the contract.

(5) A fraudulent contract shall be null and void, and if such contract is intended to disguiseanother contract, the contract is to be judged on the basis of the disguised contract.

Agreements in Principle

Section 208 (1) Parties may agree on concluding a contract at a later date (agreement in principle). Anagreement in principle shall be concluded in the form stipulated for the contract. Anagreement in principle shall constitute an obligation to the parties to conclude a contract.

(2) Conclusion of an agreement in principle can be rendered obligatory by legal regulation.

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(3) If no contract is concluded, the court shall be entitled, if so requested by either party, tobring a contract into existence and determine its content. The court shall also be entitled toestablish a contract if the agreement in principle does not contain an agreement concerningthe essential issues of the contract, provided that, in due consideration of the interests of theparties and the national economy, the content of the contract can be determined on the basis of

the parties' negotiations and previous contracts and all of the circumstances of the case.

(4) Under special circumstances the court may bring a contract into existence by modifyingthe terms specified in the agreement in principle if it is justified by the interests of the nationaleconomy or any appreciable interest of the parties.

(5) Either party shall be entitled to refuse to conclude a contract if it provides proof of inability to perform the contract by virtue of a circumstance that has occurred after theconclusion of the agreement in principle or if the performance of the contract would bedetrimental to the national economy, or if, on the basis of such a circumstance, rescission ortermination of the contract might apply.

(6) Concerning other issues, the provisions pertaining to a contract to be concluded on thebasis of an agreement in principle shall be duly applied regarding the agreement in principle.

General Contract Conditions

Section 209

(1) If the general contract conditions are unfair, such clauses may be contested by the injuredparty.

(2) If an economic organization exploits an unfair general contract condition when a contractis concluded, the prejudicial clause may be contested before a court of law by an organizationdescribed in a separate legal regulation.

(3) If the contention described in Subsection (2) is found to be substantiated, the court shalldeclare the unfair stipulation null and void in favour of all of the parties with which the partyimposing the condition has a contractual relationship. Having the stipulation overturned bythe court shall not affect the contracts that have already been performed prior to the date onwhich the contention was filed.

Section 209/AA consumer may contest any unfair clause in a consumer contract regardless of whether or notsuch clause is regarded as a general contract condition.

Section 209/B

(1) A general contract condition, or the term of a consumer contract, shall be regarded unfairif the clause or term, in violation of the obligation to act in good faith, unilaterally andunjustifiably establishes the contractual rights and obligations of parties to the detriment of one of the parties.

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(2) The definition of rights and obligations is unilaterally and unjustifiably detrimental, inparticular if

a) it substantially deviates from major provisions of the contract; orb) it is incompatible with the subject matter or purpose of the contract.

(3) When establishing the unfair nature of a contract condition, it shall be necessary toexamine all of the circumstances leading to the conclusion of the contract as well as the natureof the stipulated service and the relationship of the condition in question with other contractconditions and other contracts.

(4) Other legal regulations may define the conditions that are regarded to be unfair in respectof consumer contract or that shall be regarded as unfair until proven otherwise.

(5) The provisions on unfair contract conditions shall not be applied to a contract clausestipulating the service and the consideration for such, if the phrasing of such clause is clearand understandable for both parties.

(6) The contract conditions defined by legal regulation, or established in accordance with theprovisions of legal regulations, shall not be deemed unfair.

Section 209/C

A clause unilaterally stipulated in advance by one of the parties in order to conclude a numberof contracts and in the determination of which the other party is not allowed to participateshall be construed as a general contract condition.

Section 209/D

The party applying a general contract condition shall be liable to prove that the other party hasparticipated in the determination of the condition.

Mistake, Deception, Menace

Section 210

(1) A person acting under a misapprehension regarding any essential circumstance at the timea contract is concluded shall be entitled to contest his contract statement if his mistake had

been caused or could have been recognized by the other party.(2) A contract statement may be contested on the grounds of misapprehension of a legal issueif such misapprehension is deemed significant and if the advice of legal counsel, acting withinthe scope of his competence, to the parties affected has been patently erroneous in terms of the contents of legal regulations.

(3) If the parties had the same mistaken assumption at the time the contract was concluded,either of them may contest the contract.

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Section 214

(1) A contract statement, if made orally or by verbal message, shall become operative when itbecomes known by the other party. A written statement or one sent by telegraph must bedelivered to and received by the other party in order to be valid.

(2) An as yet inoperative statement can be withdrawn. The statement of withdrawal mustreach the other party or be made known to him no later than the arrival of the withdrawnstatement.

(3) If both parties are economic organizations, the party assuming to pay consideration(purchase price, fee) may withdraw its statement before the conclusion of the contract;however, that party shall reimburse the expenses of the other party.

(4) If the statement of an offeree made in due time is belatedly received by the offeror, theofferor shall immediately notify the other party that the contract has not been concluded.Failure to do so shall validate the contract.

Section 215

(1) If the consent of a third party or official approval is required for the validity of a contract,the contract shall not be concluded until this has been given; however, the parties shall bebound by their statements. Either party shall be relieved from an obligation if the third partyfails to give its consent or the authority fails to grant its approval before the applicabledeadline as communicated by one party to the other.

(2) Once consent and/or approval has been received, the contract shall become effective as of date on which it is signed, unless otherwise prescribed in legal regulation.

(3) In the absence of consent and/or approval, the legal consequences of invalidity shall applyto the contract.

Formal Requirements

Section 216

(1) A contract may be concluded either verbally or in writing, unless otherwise provided by

legal regulation. The intent of conclude a contract can also be expressed by conduct thatimplies such intent.

(2) Failure to make a statement, if it is not implicit conduct, shall be deemed as acceptanceonly if legal regulation has so prescribed or the parties have so agreed.

Section 217

(1) A legal regulation may prescribe definite forms for contracts. A contract concluded inviolation of formal requirements shall be null and void, unless otherwise provided by legalregulation.

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Section 221

(1) A person who transgresses the scope of his authority to represent in good faith or who hasconcluded a contract in the name of another person without having the right to represent andthe person in whose name he has proceeded does not approve his action, such shall pay

compensation to the other contracting party for damages incurred in result of the conclusionof the contract. However, the court shall be entitled to grant exemption from suchindemnification, particularly if the person had previously been a representative and was,through no fault of his own, unaware of the cessation of his right to represent at the time thecontract was concluded.

(2) A mala fide false representative shall be liable for full recompense.

(3) A representative shall not proceed if the opposite or otherwise interested party is himself or a person whom also he represents. The representative, if an artificial person, shall also beallowed to proceed in a case of conflicting interests with the express permission of the personrepresented.

Power of Attorney

Section 222

In addition to the representation based on the law, official orders, or statutes; the right torepresent may be established by a statement (power of attorney) addressed to therepresentative, the other party, or the authority involved.

Section 223

(1) A power of attorney shall be subject to the same formal requirements as prescribed bylegal regulation for contracts to be concluded on the basis of the power of attorney. A generalpower of attorney shall not be valid unless it is written.

(2) A power of attorney shall be valid until withdrawn, unless otherwise provided; itswithdrawal towards a bona fide third person shall be operative only if he has been informedthereof. The right of withdrawal shall not be validly waived.

(3) A power of attorney shall cease to exist with the death of either party.

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Chapter XX Content and Subject Matter of Contracts

Section 226

(1) Legal regulations can prescribe certain content elements of contracts and provide that suchelements shall constitute a part of a contract even if the parties provide otherwise.

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(2) Legal regulations can amend the content of contracts that have been concluded prior to thedate on which the legal regulations enter into force only under special circumstances. If theamended content of a contract injures any essential legal interest of any of the parties, theparty so affected shall be entitled to request the court to amend the contract, or, unlessotherwise provided by legal regulation, the party shall be entitled to rescind from the contract.

(3) The provisions on establishing official prices shall be prescribed in a separate law.

Section 227

(1) Services stipulated in contracts can be directed toward the provision of some thing, anactivity, abstaining from an activity, or some other conduct.

(2) Contracts directed toward impossible services shall be null and void.

Conditions and Terms

Section 228

(1) If the parties have made the effective date of a contract contingent upon an unpredictablefuture event (condition precedent), the contract shall become effective when such conditionoccurs.

(2) If the parties have made the termination of a contract contingent upon an unpredictablefuture event (condition subsequent), the contract shall expire when such condition occurs.

(3) Incomprehensible, contradictory, illegal or unattainable conditions shall be null and void;the provisions of limited invalidity (Section 239) shall apply to contracts with suchconditions.

Section 229

(1) As long as a condition is pending, neither party shall be entitled to do anything that wouldinfringe upon or violate the other party's rights upon the realization or frustration of thecondition. This provision shall not affect the rights of third persons acquired in good faith andfor consideration.

(2) Persons who have actionably caused the realization or frustration of a condition shall notbe entitled to establish any right thereon.

(3) The provisions pertaining to conditions shall also be duly applied in the event the partieshave linked the validity or termination of a contract to a certain date.

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Alternative Services

Section 230

(1) If the parties have defined several services as the subject matter of a contract in a manner

that makes it possible to choose among the services, the obligor shall have the right to choose,unless otherwise prescribed by legal regulation. This right of the obligor shall pass to theobligee with the expiration of the performance deadline stipulated by court decision.

(2) If the obligee is presented with a choice, but he is late in making it, this right shall pass tothe obligor.

Cash Debt, Interest

Section 231

(1) A cash debt shall, unless otherwise stipulated, be repaid in the legal tender of the place of performance.

(2) A debt specified in a different currency or in gold shall be converted on the basis of theexchange rate (price) prevailing at the place and time of payment.

Section 232

(1) Contractual relations, unless otherwise provided by legal regulation, shall entail interest.Interest shall be due in the contractual relations of private persons only if so stipulated.

(2) The annual interest rate shall be the same as the central bank base rate unless otherwiseprescribed by legal regulation. The interest payable shall be calculated for the entire calendarhalf-year period by using the base rate in effect on the last day preceding the calendar half-year to which it pertains.

(3) Any unreasonably extensive interest rate established by the parties may be reduced by thecourt.

Contracts Concluded in Favour of a Third Party

Section 233 (1) If the parties have concluded a contract for services to be performed for a third party, thethird party will be an immediate beneficiary only if the parties have expressly stipulated.

(2) A third party shall be entitled to exercise the rights stipulated in its favour as of the date onwhich it receives notice of the contract from either party. If these rights are declined by thethird party, they shall become the property of the party that has made the contract in itsfavour.

(3) The obligor shall be entitled to enforce his objections to the contract in respect of third

persons, as well.

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Chapter XXI Invalidity and Contestation

Section 234

(1) Unless otherwise provided by law, anybody shall be entitled to plead the invalidity of anannulled contract without a time limit. No special procedure is required for the establishmentof invalidity.

(2) If a nullified contract is in conformity with the validity requirements of another contract,this latter contract shall be valid, unless it is in contradiction with the presumed intent of theparties.

Section 235

(1) A voidable contract shall, in consequence of being contested, become invalid as of thedate on which it is concluded.

(2) The aggrieved party and persons with a legitimate interest in contesting a contract shall beentitled to do so.

Section 236

(1) The other party shall be given written notification of a contestation within one year, and if the notification is not successful, the contestation shall be immediately enforced in court.

(2) The time limit for contestation shall commencea) upon recognition of the mistake or deception;b) in the case of unlawful menace, upon the cessation of duress;c) in the event of a conspicuous discrepancy between the services of the parties or an

unfair contractual condition [Subsection (1) of Section 209 and Section 209/A], onperformance by the injured party (in the case of performance by instalments at thetime of first performance) or, if this party was under duress at the time of performance,upon cessation thereof.

(3) The provisions pertaining to the abeyance and interruption of limitation shall be dulyapplied to the time limit for contesting a contract. Parties entitled to contest a contract shall be

entitled to enforce this right by challenging a claim originating from the contract, even if thetime limit for contesting the contract has already expired.

(4) The right to contest a contract shall be suppressed if the party entitled to contest thecontract confirms the contract in writing or otherwise waives his right to do so in writing afterthe expiration of the time limit for contestation.

Section 237

(1) With regard to invalid contracts, the state of affairs having existed prior to the conclusionof the contract shall be restored.

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(2) If the state of affairs having existed prior to the conclusion of the contract cannot berestored, the court shall declare the contract valid for the period up to the date of judgment.An invalid contract may be declared valid if the cause of invalidity can be abolished, inparticular by eliminating the disproportionate advantage in the case of a usurious contract orthe unreasonable disproportion between the services of the parties. In such cases, it shall be

necessary to provide for the return of any services that might remain without consideration.

(3) With regard to usurious contracts, the court may cancel reimbursement in full or in part if,even in those cases in which installation payments are permitted, the aggrieved party wouldfind itself in dire straits. Nevertheless, the party who caused the injury shall be obliged toreimburse the aggrieved party for that part of the received services that is equivalent to thedisproportionate advantage.

(4) Based on a motion filed by the public prosecutor, the court shall be entitled to award to thestate the performance that is due to a party who has concluded a contract that is contrary togood morals, who has deceived or illegally threatened the other party, or who has otherwiseproceeded fraudulently. In the case of a usurious contract, the performance to be returned tothe party who caused the injury shall be awarded to the state. Allotments due the state shallusually be awarded in cash.

Section 238

(1) If an invalid contract is declared valid, the contracting parties shall be liable for the breachof contract as if the contract had been valid from the very beginning.

(2) A person who has, in good faith, believed in the existence of an invalid contract candemand compensation from the parties for damages that originate from the conclusion of thecontract. However, if invalidity is attributable to the conduct of one of the parties, the courtshall not condemn the other party. If either of the parties has acted in bad faith towards thethird person, such party shall be liable for full compensation for damages even if invalidity isnot attributable to his conduct. The court shall also be entitled to award such indemnificationby maintaining the validity of the contract either in part or in full.

Section 239

In the event of limited invalidity of a contract, the entire contract shall fail only if the partieswould not have concluded it without the invalid part. Legal regulation may provide otherwise.

Chapter XXII Amendment of Contracts, Acknowledgment of Debts

Amendment by Contract and Compromise

Section 240

(1) Unless otherwise provided by legal regulation, the parties shall be entitled to amend thecontent of a contract by mutual consent or change the legal title of their commitment.

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(2) The parts of a contract not affected by amendment in terms of content or legal title shallremain unchanged. Any lien or suretyship pledged as security for the obligation shall beprevail; however, this cannot result in regress of the position of the pledging party without hisconsent, and his objections made prior to the amendment shall also remain in force.

(3) A contract may also be amended by compromise. Compromise shall be construed as theparties' settlement of disputed or uncertain contract issues by making mutual concessions toone another.

(4) The validity of contract amendment by compromise shall not be affected by anymisapprehension of the parties regarding a circumstance that was disputed or deemeduncertain. This also applies to cases in which the dispute or uncertainty could have beenavoided by evidence uncovered after the compromise had been made.

Amendment of Contracts by Court

Section 241

The court may amend a contract if the contract breaches any essential rightful interest of oneof the parties in consequence of a circumstance arising in the long-term legal relationship of the parties following the conclusion of the contract.

Acknowledgment of Debt

Section 242

(1) Acknowledgment of debt shall not change the legal title of a debt, but the person makingthe acknowledgment shall be obliged to prove that he has no debt, the debt cannot be

judicially enforced, or that the contract is invalid.

(2) A debt is acknowledged by a written statement addressed to the other party.

Chapter XXIII Accessory Obligations for Securing Contracts

Earnest

Section 243(1) Earnest may be given when a contract is concluded as a sign of assuming an obligation.

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Default Penalty

Section 246

(1) An obligor may pledge to pay a certain sum of money in case he fails to perform the

contract or his performance is not in conformity with the contract for reasons attributable tohim (default penalty). Default penalty shall only be deemed valid if it exists in writing. Anyinterest attached to a default penalty shall be null and void.

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Express Warranty

Section 248

(1) Where guarantee is to be provided under contract or legal regulation for the faultlessperformance of a contract, the guarantor shall be released from liability during the guaranteeperiod if he is able to prove that the cause of the defect occurred after performance. Thisguarantee shall not affect the consumer's legal rights.

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Bank Guarantee

Section 249

Banks shall be entitled to assume obligations to effect payment to a beneficiary up to aspecific amount within a predetermined time limit under certain conditions, such as theoccurrence or absence of a certain event or the submission of documents.

Stipulation of Forfeiture of Right

Section 250

(1) Parties shall be entitled to agree in writing that the party responsible for any breach of contract shall forfeit a right or a benefit to which he would be entitled on the basis of thecontract.

(2) If the forfeiture of a right afflicts the obligor excessively, such adverse disposition may bemitigated by the court.

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Creation of a Lien

Section 254

(1) Liens are created pursuant to contracts and legal regulations and on the basis of court and,

if so prescribed by law, other official decisions.

(2) Lien contracts shall be concluded in writing. For the creation of liens on certain properties,additional formal requirements may be prescribed by law.

Enforcement of Liens

Section 255

(1) Unless otherwise provided by law, satisfaction from the pledged property shall take placeon the basis of court order by a writ of execution.

(2) Agreements that are concluded before the claim is due and grant the lien holder the rightto acquire ownership of the pledged property in the event of the failure to fulfil the obligationshall be null and void.

Section 256

(1) The right of satisfaction shall not be affected by any rights acquired after pledging, unlessotherwise prescribed by law. If the same pledged property is encumbered by more than onelien, the lien holders shall, unless otherwise provided by law, be satisfied in the order in whichthe liens were created (order of priority).

(2) If a lien is put on several things, the lien holder may determine the order of enforcingsatisfaction. Sale, however, can only involve as many lien properties as necessary to providesatisfaction.

Section 257

(1) The parties can agree in writing to sell the pledged property together before the claim towhich it pertains falls due by establishing the lowest sale price or a formula for calculating thesale price, and a deadline from the date on which the claim falls due. If the pledged property

cannot be sold before the deadline and/or under the conditions set forth in the agreement, theagreement for joint sale shall become inoperative.

(2) If the pledged property has an official market price or if the lien holder is engaged inproviding mortgage loans commercially (in terms of claims secured by lien, including allcredit institutions), the parties can, before the claim is due, agree, under the terms andconditions prescribed in Subsection (1), to permit the lien holder to sell the pledged propertyhimself without court execution.

(3) If the provisions set forth in Subsection (2) cannot be applied or if the parties decide notapply them, the parties can agree, under the terms and conditions prescribed in Subsection (1),

to permit the lien holder to appoint a person who is commercially or ex officio engaged inproviding mortgage loans or organizing auctions to sell the thing.

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Section 258

(1) A person authorized to sell a pledged property or have an agent do it [Subsections (2) and(3) of Section 257], shall be entitled - on the basis of such authorization - to transfer the

pledged property instead and on behalf of the owner of such property. If the pledged propertyis not in his possession, he may request that it be surrendered for the purpose of sale.

(2) Prior to selling the pledged property, the obligor shall be notified regarding the mode,place and time of the sale.

(3) The lien holder shall be entitled to claim the proceeds from the sale of the pledgedproperty; however, the lien holder shall settle all accounts with the obligor and surrender anyproceeds exceeding the amount of the claim, any interest and the costs of sale. Any agreementto exempt the obligor from the obligation to keep records that is made prior to the terminationof the lien shall be null and void.

(4) Legal regulation may prescribe further provisions pertaining to the manner of saleoccurring by omission of judicial execution.

Termination of a Lien

Section 259

(1) If the owner of a pledged property and the obligor are not the same person (individualobligor) and if the lien holder has been satisfied from the pledged property, the lien shall beextinguished, and the claim, together with its other securities, shall be transferred to theowner.

(2) If a lien holder is not otherwise satisfied by the individual obligor, the lien shall betransferred to the person providing satisfaction up to the extent of the claim or to the demandfor reimbursement created on the basis of satisfaction. This person shall be entitled to demandthe surrender of the pledged property or the required statement for having the lien registeredin his favour.

(3) A lien shall be terminated upon the termination of the claim or if the claim is transferredwithout the transfer of the lien, unless a provision of law prescribes that the lien be retained as

security for the reimbursement claim.(4) A lien shall, furthermore, be terminated if the lien holder acquires ownership of thepledged property or the lien holder acquires the claim secured by lien; liens, however, if thenew owner of the claim is not deemed an individual obligor, shall remain for the holders of subordinate liens.

(5) A lien shall be terminated if so prescribed by law as part of an execution or some otherproceeding.

Section 260

(1) A lien shall also be terminated if the pledged property is destroyed.

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(2) If the pledged property is destroyed or depreciated owing to reasons attributable to theowner, and, furthermore, if the pledge has been attached under an obligation to providesecurity and the lien holder is not responsible for the damages, an adequate new pledgedproperty or additional security to cover the depreciation can be demanded from the party

obliged to provide security.

(3) A security deposit, reimbursement, or other value provided as alternative security for thedestruction or depreciation of the pledged property shall replace the pledged property orsupplement the lien security. In the case of equitable liens, both the owner and the lien holdershall be entitled to demand such amount to be spent on the restoration of the pledged property.

(4) If a pledged property is sold to avoid damages, the sale price shall replace the pledgedproperty. The owner's consent is required for such sale, if there is no insurmountable obstaclethereto.

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Security Deposit

Section 270

(1) If a security deposit is provided to secure a claim, the obligee shall be entitled to satisfyhis claim directly from the security deposit in the case of deficient performance or non-performance of the contract.

(2) Cash, savings accounts, or securities can be used as security deposits. If the object of thesecurity deposit is some other thing, the regulations on liens shall apply.

(3) Security deposits used to secure claims that cannot be enforced in court shall be null andvoid. This provision shall not be applied to security deposits that are used to secure expiredclaims.

(4) The expiration of a claim shall not impede satisfaction from the security deposit providedtherefore.

Section 271

(1) Security deposits can only be used for satisfaction; agreements to the contrary shall be nulland void.

(2) Security deposits shall be returned if the contract providing the basis therefore terminatesor the period of guarantee or warranty lapses without providing any legal grounds forsatisfaction from the security deposit.

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Suretyship

Section 272

(1) With a contract of suretyship, the surety assumes the obligation of performance to the

creditor in the event of non-performance by the principal debtor.

(2) Suretyship shall only be assumed valid if it is in writing.

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Chapter XXIV Performance and Setoffs

Performance

Section 277

(1) Contracts shall be performed as stipulated, at the place and time set forth and inaccordance with the quantity, quality, and range specified therein. Services, at the time whensupplied,

a) shall be suitable for their intended purpose and in conformity with other services of the like, and

b) shall be of a quality and performance that are normal in services of the same type andthat the consumer can reasonably expect, given the nature of the services and takinginto account any public statements on the specific characteristics of the services madeabout them by the guarantor, the seller, the producer or his representative, particularlyin advertising or on labelling, and

c) shall be for any particular purpose for which the consumer requires them and whichthe consumer made known to the seller at the time the contract was concluded andwhich the seller accepted, and

d) shall comply with the description given by the guarantor and possess the qualities of the services the guarantor presented to the consumer as a sample or model.

(2) The guarantor shall not be bound by the public statements referred to in Paragraph b) of Subsection (1) if he demonstrates that

a) he was not and could not reasonably have been aware of the statement in question, or

b)

the statement had been adequately corrected by the time the contract was concluded,orc) the decision to enter into the contract could not have been influenced by the statement.

(3) Within the meaning of Paragraph b) of Subsection (1), any person purporting to be aproducer or manufacturer by placing his name, trademark or other distinctive sign on theconsumer goods shall be regarded as a producer or manufacturer.

(4) The parties shall be under obligation to cooperate in the performance of a contract. Theobligor shall act to perform the contract in the manner that can generally be expected in thegiven situation, while the obligee shall promote performance in the same manner.

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(5) The parties shall be under obligation to inform each other of all important circumstancesaffecting performance of the contract.

(6) In the case of a contract concluded for the delivery of a thing, the obligor shall mark thething in a way suitable for identification, and he shall provide all of the necessary information

and instructions for the proper use and utilization of the thing, in accordance with theprovisions of legal regulations and professional standards. If the obligor is an economicorganization, it shall also be obliged to certify the quality of the thing.

Place of Performance

Section 278

(1) The place of performance is the domicile or registered office of the obligor, unlessa) it is otherwise provided by legal regulation,b) the object or purpose of the service suggests otherwise,c) the object of the service is at a different location, which is known by the parties.

(2) If the object of a service is to be sent to a place other than the domicile or registered officeof the obligor, and if such place or an intermediate location has not been stipulated as theplace of delivery, performance shall be deemed accomplished when the obligor delivers theobject of service to the beneficiary, a shipping agent, or a carrier. In the case of consumercontracts, performance shall be deemed effected upon delivery to the consumer.

(3) If the obligor delivers the thing by its own means of transportation or through itsrepresentative, the place of performance shall be the domicile or registered office of the latter.

(4) Regarding contracts between economic organizations, the place of performance shall bethe registered office (business premises), unless otherwise requested by the beneficiary, or thedestination if performance is effected through a carrier. Legal regulations can prescribeotherwise.

Section 279

(1) If one of the contracting parties changes his domicile or registered office prior toperformance, that party shall bear the extra expenses resulting therefore.

(2) Risk of damages shall fall on the other contracting party upon performance, unlessotherwise provided by law.

Date of Performance

Section 280

(1) If the date of performance is not specified,a) either of the parties may demand simultaneous performance by the other party,b) in the case of a gratuitous contract, the beneficiary shall be entitled to summon the

obligor to effect performance at any time.

(2) An obligor shall affect performance after the preparation time necessary for performance.

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(3) Alimony, life annuities, and accident compensation shall be paid in advance for each timeperiod. Beneficiaries shall not be entitled to initiate court action to demand any payments thatare six months overdue and have not bee enforced without substantial reason.

Section 281

(1) If on the basis of legal regulation or contract, the parties are bound to simultaneousperformance; neither party shall be obliged to perform his own service until the other partyoffers his service.

(2) The contracting party who is required to perform first shall be entitled to withhold hisservice, in the absence of security, if

a) the service is to be performed in phases or continuously and the other party is tardywith his own service, for as long as the delay subsists;

b) the reciprocal service is jeopardized by substantial deterioration in the other party'sfinancial conditions;

c) the other party has outstanding debts owed to him owing to financial insolvency.

(3) The party entitled to refuse the service shall be entitled to rescind the contract if he sets anappropriate deadline for the provision of security and it passes to no avail.

(4) Concerning other issues pertaining to the rights and obligations of the party that is entitledto refuse performance, the provisions on responsible custody shall be applied.

Section 282

(1) The day, on which the contract is concluded, shall not be included in the performanceperiod; if the last day of the performance period falls on an official holiday, the performanceperiod shall expire on the next working day.

(2) An obligor may complete performance before the deadline or prior to the initial date of theperformance period with the consent of the obligee. In the absence of consent, the obligeeshall proceed in observation of the provisions on responsible custody.

Mode of Performance

Section 283 (1) Unless otherwise provided by legal regulation, the obligee shall, within the shortestpossible time, verify whether performance is as contracted.

(2) When taking delivery of a thing, it is not necessary to inspect those characteristics whosequality has been certified or those that are covered by warranty.

(3) Unless otherwise provided by legal regulation, the costs of physical delivery, including thecosts of packaging and measuring, shall be borne by the obligor, while the costs of receivingdelivery shall be borne by the obligee.

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Section 284

(1) The obligor shall be entitled to demand a receipt upon performance, and he shall beentitled to demand the return of his promissory note.

(2) The costs of a receipt shall be borne by the obligor, unless the obligee fails to return thepromissory note.

(3) A person presenting a receipt bearing the signature of the obligee shall be construed as aperson authorized to accept performance, unless this is rendered doubtful by any apparentcircumstance.

Section 285

If a service is divisible, the obligee shall also accept partial performance, unless he hasexcluded partial performance in the contract or if partial performance damages hisfundamental interests.

Section 286

(1) The obligee shall also accept performance offered by a third person if the obligor hasgiven consent thereto and the service is not bound to a specific person, and if it does notrequire any expertise or skill, that is not possessed by the third person. The obligor's consentshall not be required if the third party has a lawful interest in completing performance.

(2) In such case, the collateral securing the claim shall remain in force if the claim passes to athird person who affects performance or if such third person is entitled to demandreimbursement from the obligor.

Section 287

(1) If the identity of the obligee is uncertain, his domicile or registered office is unknown, orif he is late, an obligation to pay cash or deliver securities or other documents can also beperformed through deposit in court.

(2) When making the deposit, the obligor shall be entitled to stipulate that the deposit can onlybe surrendered to the obligee upon his performance of consideration or upon the provision of

security therefor; the deposit may be withdrawn until the obligee is notified thereof.(3) The deposit shall be affected at the court of jurisdiction for place of performance or thedomicile or registered office of the obligor. The costs of performance by deposit in court shallbe borne by the obligee.

Performance of Services Defined by Type and Quantity

Section 288

If the parties have not stipulated the quality of the object defined by type and quantity,

performance must be made in accordance with commercially available things of standardgood quality.

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Section 289

If a person undertakes an obligation for the delivery of a specific type of thing of his ownproduction but is unable to deliver it in its entirety or in part, he shall not have to procure the

missing thing from another source in order to affect performance. This provision shall notapply to liability for breach of contract.

Section 290

(1) If an obligor has several debts to an obligee and his performance does not cover all of these debts, the performance shall be reckoned in accordance the obligor's instructions, and, inthe absence of such instructions, it must be applied to offset the debt for which the obligor hasdiscernibly intended it.

(2) If an obligor has not issued instructions thereto and his intention is indiscernible,performance shall be applied to offset

a) the claim that expired the earliest,b) in the case of simultaneous maturity, the claim more burdensome for the obligor,c) the least secured claim from among equally burdensome debts.

(3) Equally secured claims shall be proportionally reduced by performance.

Section 291

(1) If a person is to deliver a specific type and quantity of things to the same person but todifferent locations, and he is unable to deliver the entire quantity; he shall distribute theavailable quantity as instructed by the obligee.

(2) If the obligee fails to issue instructions in spite of being requested to do so, the obligorshall reduce the quantities allocated to any location proportionately, unless the interests of thenational economy as known to him justify another distribution.

Performance of Cash Debts

Section 292

(1) Unless otherwise provided by legal regulation, the place of performance of a cash debt isthe obligee's domicile or registered office.

(2) Obligees shall also accept performance that is provided before the deadline or prior to theinitial date of the performance period; in such cases, no interest or compensation is due for theperiod between performance and the deadline. Any agreement between the parties concerninginterest or compensation, as they are not permitted by law, shall be null and void; invalidityshall not affect other provisions of the contract.

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Section 293

If an obligor owes both interest and costs and the sum paid is insufficient to cover the entiredebt, this sum shall be applied to offset the costs first, then the interest, and, finally, theprincipal debt. Any instructions given by the obligor to the contrary shall be inoperative.

Section 294

The provisions pertaining to payments by organizations included in the system of accounts of state financial institutions shall be contained in a separate legal regulation.

Legal Statements

Section 295

If there is an obligation to make a legal statement, performance shall be substituted by a courtdecision.

Setoffs

Section 296

(1) Unless otherwise provided by legal regulation, an obligor shall be entitled to include thoseof his overdue claims that are of the same type due from the obligee to offset his debts by astatement addressed to the obligee or issued in the course of court proceedings.

(2) Obligations shall cease to exist up to the value of setoffs.

Section 297

(1) No setoffs can be applied against a service to be allocated for a definite purpose on thebasis of an agreement or, with the exception of overpayment, against claims for support, lifeannuity, or accident benefits, as well as for compensation for wilfully caused damages.

(2) Obligees shall not be entitled to include claims that cannot be enforced in court; they may,however, offset their lapsed claims if they have not yet lapsed by the time the counter-claimcomes into existence.

(3) Only claims originating from the same legal title can offset claims exempt from execution.

(4) Only counter-claims of the same nature or those incorporated in a public document canoffset claims established by a writ of execution or concession.

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Chapter XXV Breach of Contract

Default by the Obligor

Section 298

An obligor shall be in defaulta) if the time of performance, as stipulated in the contract or as can be inferred beyond

doubt from the intended purpose of the service, has elapsed without any result;b) in other cases, if he does not perform his obligation in spite being requested to do so

by the obligee.

Section 299

(1) The obligor shall reimburse the obligee for damages caused by his default, unless he isable to prove that he has acted in the manner that can generally be expected in the givensituation in order to prevent such default.

(2) If the obligor is unable to offer any reasonable excuse for his default, he shall be liable forall damages incurred in the object of the service during the period of default, unless he is ableto prove that such damage would have occurred regardless.

Section 300

(1) An obligee shall be entitled to demand performance, or, if performance no longer serveshis interest, he shall be entitled to rescind from the contract irrespective of whether or not theobligor has offered an excuse for his default.

(2) It shall not be necessary to prove the cessation of an interest in performance if, accordingto the agreement of the parties or due to the imminent purpose of the service, the contract hadto be performed at a definite time and none other, or if the obligee has stipulated a reasonabledeadline for subsequent performance and this period too elapsed without result.

Section 301

(1) In respect of a monetary debt, the obligor, unless otherwise provided by law, shall pay an

annual interest at the central bank base rate in effect on the last day preceding the calendarhalf-year to which it pertains, even if the debt is otherwise free of interest. The obligation topay interest shall be effective even if the obligor justifies his default.

(2) If, on the basis of a legal regulation or contract, any interest is due to the obligee up to thedate of default, the obligor, unless otherwise provided by law, shall be liable to pay additionalinterest as of the due date at a rate equal to one-third of the central bank base rate in effect onthe last day preceding the calendar half-year to which it pertains, and the combined amount of these shall be no less than the interest specified in Subsection (1).

(3) The court shall be entitled to reduce the rate of the default interest if the interest fixed by

parties is excessive.

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(4) Obligees shall be entitled to demand compensation for losses in excess of the defaultinterest.

Section 301/A

(1) The provisions on interest for late payment shall apply to economic organizations with theexceptions laid down in this Section.

(2) Interest for late payment shall be calculated by the central bank base rate in effect on thelast day preceding the calendar half-year to which it pertains, plus seven per cent.

(3) Interest shall become payable thirty days following the date of the debtor's receipt of theinvoice or an equivalent request for payment or thirty days after the date of receipt of thegoods or services if the debtor receives the invoice or the equivalent request for paymentearlier than the goods or the services or if the date of the receipt of the invoice or theequivalent request for payment is uncertain.

(4) Any statutory deviation from the provisions of Subsection (2) and (3) must be made to thebenefit of the creditor.

(5) If the rate of interest determined by the parties is substantially lower than what is definedin Subsection (2) or if the due date of the interest for late payment differs from that specifiedin Subsection (3), they may be corrected by court order unless deviation from statutoryprovisions have been necessitated by the circumstances prevailing at the time of contracting.

Default by the Obligee

Section 302

An obligee is in default if a) he refuses to accept performance offered according to the terms of the contract;b) he fails to take measures or make the required statements for enabling the obligor to

perform his obligation properly;c) he does not issue a receipt or does not return the securities.

Section 303

(1) An obligee shall pay reimbursement to the obligor for those of his losses originating fromthe default, unless he is able to prove that he has acted in the manner that can generally beexpected in the given situation in order to prevent the default.

(2) An obligee, irrespective of whether he has been able to excuse his default,a) shall reimburse the expenses originating from obligor's responsible custody;b) shall bear the risks for the destruction, loss, or damage of a thing as if he had accepted

performance;c) shall not be entitled to demand any interest for the duration of his default.

(3) Default of the obligee excludes any simultaneous default of the obligor.

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Section 304

The provisions pertaining to the default of the obligee must also be applied if a service hasbeen specified by type and quantity, even though the parties have marked the thingsdesignated for performance or have separated them from similar things for the obligee.

Deficient Performance

Section 305

(1) On the basis of a contract in which the parties owe mutual services to one another, lack of conformity occurs on the part of the obligor if the goods provided do not, at the time of performance, correspond to the requirements stipulated by law or by the contract.

(2) Any lack of conformity resulting from incorrect installation of the consumer goods shallbe deemed to be equivalent to lack of conformity of the goods if installation forms part of thecontract of sale of the goods and the goods were installed by the obligor or under hisresponsibility. This shall apply equally if the product, intended to be installed by theconsumer, is installed by the consumer and the incorrect installation is due to a shortcomingin the installation instructions. Any clause of a consumer contract that deviates from theseprovisions to the detriment of the consumer shall be null and void.

(3) The obligor shall be subject to liability for lack of conformity (implied warranty).

Section 305/A

(1) If the consumer was or could reasonably have been aware of a defect at the time thecontract was concluded, the obligor shall be excused of liability. The obligor shall also beexcused of liability if lack of conformity has its origin in materials supplied by the consumer,provided that the consumer had been informed that the material was defective.

(2) Unless proved otherwise, any lack of conformity that becomes apparent within six monthsof delivery of the goods shall be presumed to have existed at the time of delivery unless thispresumption is incompatible with the nature of the goods or the nature of the lack of conformity. Any agreement of the parties to the contrary shall be null and void.

Section 306

(1) In the case of non-conformity with the contract,a) consumers shall, in the first place, be entitled to choose either repair or replacement

unless this is impossible or it results in disproportionate expenses on the part of theobligor as compared to the alternative remedy, taking into account the value the goodswould have had there been no lack of conformity, the significance of the lack of conformity, and whether the alternative remedy could be completed withoutsignificant inconvenience to the consumer;

b) if the consumer is entitled to neither repair nor replacement or if the obligor refuses toprovide repair or replacement or is unable to meet the conditions described inSubsection (2), the consumer may require an appropriate reduction of the price or have

the contract rescinded. The consumer is not entitled to have the contract rescinded if the lack of conformity is minor.

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(2) Any repair or replacement shall be completed within a reasonable time and without anysignificant inconvenience to the consumer, taking account of the nature of the goods and thepurpose for which the consumer required the goods.

(3) If the obligor is unable or unwilling to repair the goods within a reasonable time, theconsumer shall be entitled to repair the goods himself or have them repaired by others at theexpense of the obligor.

(4) Until repair or replacement is completed, consumers shall be entitled to withhold aproportionate portion of the purchase price of the goods in question.

(5) Any clause in a consumer contract that deviates from the sequence of statutory guaranteerights to the detriment of the consumer shall be null and void.

Section 306/A

A consumer shall be entitled to switch from the remedy he has selected to the alternativeremedy. The costs of the obligor incurred thereby shall be reimbursed unless it was madenecessary by the obligor's conduct or for other reasons.

Section 307

(1) Consumers shall be required to inform the obligor of any lack of conformity within theshortest time permitted by the prevailing circumstances.

(2) In the case of consumer contracts, if notification of the lack of conformity is made withintwo months of the time it is detected, it shall be deemed that notification was made in duetime. Any agreement of the parties to the contrary shall be null and void.

(3) The consumer shall be liable for any damage that results from late notification.

Section 308

(1) The consumer shall be entitled to enforce his guarantee rights in a six-month limitationperiod that commences upon delivery of the goods or services. If the minimum useful life isdetermined by official regulation, standard, or statutory technical specifications (statutory use

period) and it is less than six months, this time period shall apply to the enforcement of theclaim.

(2) In the case of contracts for the delivery of animals, the limitation period shall last for sixtydays from the date of delivery.

(3) The limitation period shall be suspended for the time during which the goods are beingrepaired and the consumer cannot use them. If the goods or any major component of thegoods is replaced or repaired, the guarantee period shall recommence for the goods or majorcomponents that have been replaced or repaired as well as for any defect resulting inconsequence of the repair.

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(4) By way of derogation from Subsections (1) and (2), the consumer shall, in the case of consumer contracts, be entitled to enforce his guarantee rights in a two-year period of limitation that commences upon delivery of the goods or services. Any clause stipulating ashorter period shall be null and void. If the goods supplied under contract are second-hand,the parties may agree on a shorter limitation period, which may not be less than one year.

Section 308/A

(1) If the consumer is unable to enforce his claim for an excusable reason, particularly if lack of conformity, owing to its character or the nature of the goods, is not apparent within thetime limit described in Section 308, the consumer may enforce his guarantee rights within oneyear or, in the case of goods designated for long-term use, within three years of delivery. If the statutory use period exceeds three years, this time limit shall apply to the enforcement of such claim. The omission of these time limits shall result in forfeiture of rights.

(2) Any clause in consumer contracts stipulating a period shorter than the three-year perioddefined in Subsection (1) shall be null and void.

Section 308/B

Any guarantee claim that is made for a specific defect shall be deemed satisfied in due timefor all other associated defects. If, however, the consumer files a guarantee claim only for aspecific (in terms of the given defect) part of the item, the guarantee claim shall not bedeemed as having been made for the item's other parts.

Section 308/C

Guarantee rights can be enforced, as an exception, against a claim originating from the samelegal grounds, even after the time limit.

Section 309

(1) The costs incurred in bringing goods into conformity with the guarantee particularly thecosts of postage; labour and materials shall be borne by the obligor. In the case of consumercontracts, any agreement of the parties to the contrary shall be null and void.

(2) When the goods are replaced or the contract is rescinded, the consumer shall not be liable

to compensate for the loss in value resulting from proper use.Section 310

Apart from guarantee rights, consumers shall be entitled to demand reimbursement fordamages resulting from lack of conformity under the rules of indemnification.

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Section 311

(1) If lack of conformity in a consumer contract is the result of non-conformity by a thirdparty (previous obligor) acting under contract with the obligor, the obligor of the consumercontract shall be entitled to demand compensation from the previous obligor for those costs of

bringing the goods into conformity that are attributable to the previous obligor, provided thatthe obligor has fulfilled his obligation to conduct a quality inspection.

(2) The obligor of a consumer contract shall be entitled to enforce the claim referred to inSubsection (1) within sixty days of the date of bringing the goods into conformity. Thelimitation period for enforcing such claims shall be five years from the date of delivery by theprevious obligor; failure to do so within the above deadline shall result in forfeiture of thisright.

(3) The previous obligor shall also be entitled to demand compensation pursuant to inSubsection (1) from the previous obligor who was contracting with him within the deadlinesspecified in Subsection (2).

Section 311/A

The provisions pertaining to the legal consequences of non-conformity shall be duly appliedto the supply of services as well; in such cases, replacement shall be construed as repeatedperformance of the service.

Impossibility of Performance

Section 312

(1) If performance has become impossible for a reason that cannot be attributed to either of the parties, the contract shall be extinguished. The party gaining knowledge of theimpossibility of performance shall immediately notify the other party thereof. The partyfailing to notify shall be liable for damages originating therefore.

(2) If performance has become impossible for a reason for which the obligor is liable, theobligee may demand indemnification for non-performance.

(3) If performance has become impossible for a reason for which the obligee is liable, the

obligor shall be relieved of his obligation and shall be entitled to demand compensation fordamages therefore.

(4) If performance of any of the alternative services becomes impossible, the contract shall belimited to the other services.

(5) If the party who has no right to choose is liable for subsequent impossibility, the otherparty may choose either the possible service or the consequences of subsequent impossibility.

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(6) If the remnants of the object of a service that has become impossible have remained in thepossession of the obligor, or if the obligor has received or might demand compensationinstead of the object of the service from another person, the obligee shall be entitled todemand surrender of the remainder or compensation against a proportional part of theconsideration.

Repudiation of Performance

Section 313

If an obligor repudiates performance without legitimate reason, the obligee shall be entitled toapply the consequences of either default, or subsequent impossibility.

Common Provisions Pertaining to Breach of Contract

Section 314

(1) Liability for a breach of contract damaging life, physical well-being, or health that hasbeen caused wilfully, by gross negligence, or by a felony offence cannot be validly excluded.

(2) Unless otherwise prescribed by law, liability for breach of contract shall not be excludedor restricted, unless the disadvantage incurred thereby can be offset by the adequate reductionof the consideration or by some other advantage.

(3) Legal regulations on domestic contracts connected with foreign trade contracts canprovide for breach of contract and for its consequences differently from this Act and canallow limitation or exclusion of liability with the exception of the provision included inSubsection (1).

Section 315

A person who employs another person to perform his obligations or exercise his rights shallbe liable for the conduct of that person.

Section 316

(1) If an obligee accepts performance while having knowledge of a breach of contract, he can

later raise a claim on the basis of the breach only if he has retained his rights to that effect.Section 317

(1) In the case of a breach of contract concerning a part of a divisible service, theconsequences of breach shall stand only in respect of that part. However, the obligee shall beentitled to exercise his rights originating from the breach of contract with regard to the entirecontract if he is able to prove that further performance no longer serves his interest due to thebreach of contract.

(2) If a breach of contract concerns a part of an indivisible service, its consequences shall

stand in respect of the entire contract.

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Section 318

(1) The provisions of liability for damages independent of contract shall be applied to liabilityfor breach of contract and to the extent of indemnification, with the difference that suchindemnification may not be reduced, unless otherwise prescribed by legal regulation.

(2) The enforcement of claims based on a breach of contract is compulsory if theconsideration stipulated in the contract is performed in part or in whole from the centralbudget. Unless otherwise provided by legal regulation, an obligee shall be entitled to forebearenforcement of a claim, if he has made certain on the basis of available information that thebreach of contract is the consequence of conditions for which the obligor is not liable, or if thebreach of contract has no significance in terms of the national economy and cooperationbetween the parties.

(3) If the enforcement of claims based on a breach of contract is compulsory and the obligeefails to perform this obligation without good reason, a monetary claim (indemnification,default penalty, price reduction) can be enforced on behalf of the state by the financialinstitution making the payments from the central budget.

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Title II LIABILITY FOR DAMAGE INDEPENDENT OF CONTRACT AND FOR ILLICIT

GAINS

Chapter XXIX General Rules of Indemnification

Section 339

(1) A person who causes damage to another person in violation of the law shall be liable forsuch damage. He shall be relieved of liability if he is able to prove that he has acted in amanner that can generally be expected in the given situation.

(2) The court shall, under special and equitable circumstances, be entitled to grant partialexemption from liability to a person liable for damages.

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Title III EXPRESS CONTRACTS

Chapter XXXIII Sale and Exchange

1. Sale

Section 365

(1) By concluding a sale contract, a seller shall be obliged to transfer ownership and cedepossession of a thing to a buyer, and the buyer shall be obliged to pay the purchase price andtake possession of the thing.

(2) All things that are not withdrawn from circulation can be subject to sale.

(3) Real property sale contracts shall only be valid if concluded in writing.

(4) The effect of real property sale contracts shall only include agricultural implements andlivestock if the parties have expressly agreed to do so.

Section 366

(1) If the market price has been stipulated as the purchase price, the average price prevailingon the date of performance in the market regarded as the place of performance shall be paid.

(2) Unless otherwise provided by law, a purchase price that has been determined according toweight shall be calculated on the basis of net weight.

Rights and Obligations of Parties

Section 367

(1) Sellers shall inform buyers regarding the essential characteristics of and all importantrequirements pertaining to the thing, particularly any potential rights in connection with orany encumbrances on the thing. Sellers must also convey the documents concerning suchcircumstances, rights, or encumbrances to the buyers.

(2) Sellers shall bear all of the costs related to the transfer of a real property and the correctionof the status recorded in the property register.

(3) Buyers shall bear the contract costs, title transfer fees, the costs of conveyance, and thecosts of changing ownership registration in the property register.

Section 368

(1) Sellers shall only be entitled to retain title of ownership only on conclusion of the contract,in writing, until the purchase price is paid in full.

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Special Modes of Sale

Section 371

(1) If a thing has been bought for the purposes of review or testing, the effect of the contract

shall be contingent upon the buyer's statement. No explanation shall be required from buyersregarding such statements.

(2) A seller shall be entitled to set a deadline for filing the statement; a buyer's failure to meetthis deadline shall render the contract inoperative.

(3) If a buyer has received a thing for testing and has not made a statement within the periodset by the seller, the contract shall be operative.

(4) Sellers shall not be liable for defects that could be recognized by buyers.

Section 372

(1) If purchase is made on the basis of a sample, the seller shall deliver things that correspondto the sample.

(2) Sellers shall be liable under warranty for any latent defect in a thing, even if the defectalso existed in the sample.

(3) The buyer, if he fails to present the sample, shall be liable for proving that the thing doesnot correspond to the sample.

Section 373

(1) If an owner grants a right of pre-emption to a specific thing in a written agreement andwishes to sell the thing, he shall notify the person who has the right of pre-emption of theoffer he has received before he concludes the contract. The owner shall not be subject to thisobligation if compliance would imply extraordinary difficulties or a substantial delay onaccount of the location of the beneficiary's domicile or other circumstances.

(2) If the person with the right of pre-emption issues a statement of acceptance to the ownerregarding the conditions of the offer, the contract shall be deemed concluded between them. If

the beneficiary fails to issue a statement within the period generally established for acceptanceof a proposal, the owner shall be entitled to sell the thing according to the offer or under betterterms.

(3) If a right of pre-emption is recorded in the property register, it shall affect everybody whoacquires any right to the real property following such registration.

(4) Unless otherwise provided by law, transfer of a right of pre-emption shall be null andvoid; however, economic organizations shall be entitled to designate a person who isauthorized to exercise this right.

(5) Unless otherwise provided by law, a right of pre-emption shall not pass to heirs.

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(6) The provisions on the right of pre-emption shall also be applied to rights of pre-emptionbased on legal regulation. Rights of pre-emption based on legal regulation shall precedecontractual rights of pre-emption.

Section 374

(1) The right to repurchase a thing sold shall be put in writing simultaneously with the salescontract. Repurchase shall be effected upon the seller's statement to the buyer.

(2) The right of repurchase can be stipulated for a maximum of five years; any agreement tothe contrary shall be null and void.

(3) The repurchase price shall be the same as the original sale price; the original buyer,however, shall be entitled to demand, in addition to the repurchase price, his expenditure onthe thing up to the date of repurchase, resulting in actual increase of value, while therepurchaser shall be entitled to deduct any depreciation of the thing incurred during the sameperiod.

(4) The original buyer shall be responsible for any forfeiture or restraint of the right of repurchase; however, if the thing is destroyed due to reasons not attributable to the buyer, theright of repurchase shall be abrogated.

(5) Concerning other issues, the regulations governing the rights of pre-emption shall beapplied to the rights of repurchase.

Section 375

(1) If an owner grants a right of purchase (option) to another person, the beneficiary shall beentitled to buy the thing with a unilateral statement. Agreements on options to purchase shallbe put in writing with the thing and the purchase price specifically indicated.

(2) An option to purchase stipulated for an indefinite period of time shall expire after sixmonths; any agreement to the contrary shall be null and void.

(3) Unless otherwise provided by law, the court may relieve an owner of his obligationderiving from the option to purchase if the owner is able to prove that, after granting theoption, his circumstances have altered significantly, as a consequence of which performance

of his obligation cannot be reasonably expected.(4) Concerning other issues, the regulations governing the rights of repurchase shall beapplied to the rights of option to purchase.

Section 376

(1) Parties shall be entitled to agree that the buyer shall pay the purchase price in severalinstalments at specific dates and the thing shall be delivered before the purchase price is fullypaid (instalment sale).

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(2) A seller shall be entitled to stipulate in writing the right to cancel a contract or revoke theadvantage of payment by instalments if the buyer fails to make an instalment paymentpunctually. A seller shall be entitled to exercise this right the first time an instalment paymentis defaulted only if the buyer has been informed thereof in advance and sufficient time hasbeen allowed for performance.

(3) If a seller rescinds a contract, the buyer shall pay a charge for use as well as compensationfor any loss in value that exceeds depreciation from the proper use of the thing.

(4) Any risk of destruction or depreciation of a thing conveyed to a buyer shall be borne bythe buyer even if the title is retained.

Section 377

If the seller has received an article for selling through door-to-door sales from a third party,the law prescribes the joint and several liabilities of the third party and the sales persontoward the buyer.

2. Exchange

Section 378

If contracting parties undertake reciprocal transfer of the ownership of things, the provisionspertaining to sale shall be duly applied. In such cases each party shall be deemed as the sellerin respect of his own service and the buyer in respect of the other party's service.

Chapter XXXIV Supply and Public Utility Contracts

1. Supply Contracts

Section 379

(1) By concluding a supply contract, a seller shall be obliged to deliver the thing definedtherein to a customer at a later agreed date or period, and the customer shall be obliged toaccept delivery of the thing and pay its price.

----------2. Public Utility Contracts

Section 387

By concluding public utility contracts, service providers shall be obliged to provide users withpublic utility services (particularly gas, electricity, and water) on a safe and regular basis as of a specific date and in a volume determined according to the user's needs, and users shall beobliged to make periodic payments for such services.

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Chapter XXXV Professional Services

1. General Rules

Section 389

By concluding contracts for professional services, contractors shall be obliged to design,fabricate, process, convert, install, or repair things or to create some other result by work, andcustomers shall be obliged to accept delivery of such services and pay the contracted fee forthem.

Rights and Obligations of Parties

Section 390

(1) Parties shall be entitled to agree that the contractor will prepare a proposal containingdetailed technical and financial data and the customer will accept the proposal and pay a feetherefore.

(2) Unless otherwise provided by law or otherwise agreed by the parties, customers shall befree to use proposals even if no contract is concluded with the contractor on the basis thereof.

(3) Parties may also define services with reference to technical plans and budget.

Section 391

(1) Contractors shall perform work at their own expense. Contractors shall organize work inorder to ensure that the work will be completed efficiently and rapidly.

(2) Contractors shall be entitled to employ subcontractors.

(3) Contractors shall be as responsible for the work of legitimately employed subcontractorsas they are for their own work; in respect of any illegitimate employment of a subcontractor,contractors shall be liable for all damages that would not otherwise have occurred.

Section 392

(1) Contractors shall proceed in accordance with the customers' instructions. Instructionscannot be given for the organization of work and shall not render performance moreburdensome. The parties shall be entitled to deviate from these provisions.

(2) Contractors shall immediately notify customers regarding all instances that jeopardize orimpede the success of the undertaking or completion by the due date. Contractors shall beliable for all damages caused by any failure to communicate.

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Section 395

(1) Customers shall be entitled to cancel contracts at any time, but they shall be liable forpaying compensation for any damages suffered by contractors.

(2) If the situation prevailing before the conclusion of the contract cannot be restored or if theinterest of the national economy or any other substantial interest so justifies it, the court shallterminate the contract with regard to the future if the customer rescinds it (or at the request of any of the parties). The customer shall indemnify the contractor at such time.

(3) If a customer rescinds a contract because it becomes obvious before the contracted date of completion that the contractor cannot carry out the work without a considerable delay thatwould make completion no longer in the customer's interest, the customer shall be entitled todemand punitive damages according to the regulations governing breach of contract.

(4) If, while the work is being done, the circumstances would make it possible to concludethat performance will be deficient, the customer shall be entitled to exercise the rights thatproceed from deficient performance after the period for eliminating the insufficiencies haslapsed without result.

Section 396

(1) At the time service is delivered, the parties shall jointly perform the customaryprofessional tests that are warranted and necessary for verifying the suitable quality of performance.

(2) Unless it is otherwise customary for a particular profession, the customer shall, atcontractor's expense, provide the necessary conditions for the contractor to conduct the tests.

(3) Contractors shall provide customers with the necessary information for utilizing andmaintaining the thing delivered.

(4) If the thing cannot be properly used without such information, customers shall not beobliged to pay remuneration until the contractor has performed his obligation to discloseinformation.

Section 397 (1) Unless otherwise provided by law, remuneration shall be due on completion of performance.

(2) Contractors have liens for service charges on the property of customers that comes intotheir possession in consequence of contracts for professional services.

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Section 398

On the grounds of the deficient performance of a subcontractor or contributor, the contractorshall be entitled to enforce his rights to the extent to which the contractor is liable to thecustomer for breach of contract, provided that the contractor has performed his obligation to

make a quality inspection.

Section 399

If performance becomes impossible for a reason that cannot be attributed to either party anda) the cause of impossibility has occurred within or without the sphere of interests of

both parties, the contractor shall be entitled to a proportionate amount of theremuneration for the work done and for his expenses;

b) the cause of impossibility has occurred within the sphere of interests of the contractor,he shall not be entitled to demand remuneration;

c) the cause of impossibility has occurred within the sphere of interests of the customer;the contractor shall be entitled to remuneration, but the customer shall be entitled todeduct the amount that the contractor had saved in expenses because of impossibilityand the amount that the contractor had earned or could, without great difficulty, haveearned elsewhere in the time gained.

Section 400

(1) Risk of loss regarding a work that has been started or completed but not delivered shall bedivided between the customer and the contractor in accordance with the regulations pertainingto the impossibility of performance.

(2) Contractors shall not be obliged to re-create a work that has been destroyed for a reasonthat cannot be attributed to anybody, and customers shall not be obliged to accept delivery of such.

(3) The general regulations must be applied in the matter of damages sustained in material andequipment that are necessary for performance of a contract.

Section 401

By concluding business contracts for implementing a complex economic or technical unit

suitable for performing independent functions, contractors shall be obliged to provide thenecessary conditions for the efficient and expeditious execution of work in coordination withother contractors working on the same project and, moreover, to conclude the necessarycontracts for determining the terms and conditions of cooperation with the other contractors.The contractor's liability for the fulfilment of the technical, financial, and other conditionsstipulated in such a business contract shall obtain even if the contractor has not himself prepared, in full or in part, the necessary plans for fulfilment (general contracting).

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2. Construction Contracts

Section 402

Construction contracts shall be concluded to oblige contractors to do construction and

installation work and to oblige customers to receive delivery of and pay the contracted feesfor such work.

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3. Installation Contracts

Section 407

(1) By concluding installation contracts, contractors shall be obliged to carry outtechnological installation work, and customers shall be obliged to accept delivery of and paythe contracted fees for such work.

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4. Design Contracts

Section 408

By concluding design contracts, contractors shall be obliged to provide engineering-commercial design services, and customers shall be obliged to accept delivery of and pay thecontracted fees for such services.

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5. Research Contracts

Section 412

(1) By concluding research contracts, contractors shall be obliged to perform researchactivities, and customers shall be obliged to pay the contracted fees for such activities. Theparties shall be entitled to agree that remuneration is due even if these activities fail to

produce any results.----------

6. Contracts for Travel Services

Section 415

(1) By concluding contracts for travel services, travel agencies shall be obliged to performcontractually specified travel-related services, including transportation, accommodations atpoints of excursion, and all related services (particularly lodging and meals); and customers

shall be obliged to pay the contracted fees for such services.

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Chapter XXXVII Leases

1. Lease of Things Section 423

By concluding lease contracts, lessors shall be obliged to grant the use of things to lessees fora period of time, and lessees shall be obliged to make the appropriate lease paymentstherefore.

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Chapter XXXIX Deposit

Section 462

(1) By concluding deposit contracts, depositaries shall be obliged to safeguard things that aretemporarily put into their care by depositors.

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Chapter XL Agency

Section 474

(1) Agency contracts shall be concluded to oblige an agent to carry out the matters entrustedto him.

(2) An agent must fulfil the principal's instructions and represent his interests regarding theauthority conferred upon him.

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Chapter XLI Carriage of Freight

Section 488

(1) By concluding carriage contracts, carriers shall be obliged to convey cargo to itsdestination and deliver it to consignees in return for remuneration.

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Chapter XLIII Freight Forwarding

Section 514

(1) By concluding freight forwarding contracts, forwarding agents shall be obliged toconclude, in their own name and in favour of a principal, carriage and other contractsnecessary for forwarding cargo and performing other tasks related to forwarding the cargo;and principals shall be obliged to pay the forwarding fee appropriate therefore.

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Chapter XLIV Bank and Credit Relations

1. Credit and Loan Contracts

Section 522

(1) Bank credit contracts shall be concluded so that a financial institution will assume anobligation to maintain a specific line of credit, for a commission, in favour of the othercontracting party and, if the conditions stipulated in the contract are satisfied, to conclude loancontracts or effect other credit transactions charged to the line of credit.

(2) Bank credit contracts shall only be valid if concluded in writing.

Section 523

(1) By concluding loan contracts, financial institutions or other creditors shall be obliged toplace a certain amount of money at the disposal of a debtor, and debtors shall be obliged torepay loans in accordance with the contract.

(2) Unless otherwise provided by legal regulation, debtors shall pay interest if the creditor is afinancial institution (bank loan).

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2. Checking Account and Deposit Contracts

Section 529

(1) By concluding checking account contracts, financial institutions shall assume anobligation to manage and keep records of the cash assets of the other contracting parties(account holders), execute proper payment and transfer orders from these assets, and furnishstatements to the account holders regarding any sums debited or credited to their account aswell as the account balance.

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3. Current Account Contracts

Section 531

(1) By concluding current account contracts, parties shall assume an obligation to settle their

mutual monetary claims, originating from a specific legal relationship in a consolidatedaccount.

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4. Savings Deposit Contracts

Section 533

(1) By concluding savings deposit contracts, financial institutions shall be obliged to receivemoney from depositors, record it in a savings book or some other document, and repay suchmoney as specified in the contract.

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Chapter XLV Insurance

1. Common Provisions

Section 536

(1) By concluding insurance contracts, insurers shall be obliged to pay a certain amount of money or perform another service upon the occurrence of a specific future event (insuranceevent), and the insured or other contracting parties shall be obliged to pay an insurancepremium therefore.

(2) An insurance event can be:a) an event of loss defined in the contract;b) death or attainment of a certain age;c) an accident causing injury, disability, or death.

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CHAPTERTHREE

EXTRACTS OF THEHUNGARIANCOMPANYACT

Act CXLIV of 1997 on Business Associations

PART ONE JOINT REGULATIONS ON BUSINESS ASSOCIATIONS

Chapter I General Provisions

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Section 2

(1) Business associations may only be founded in the forms regulated in this Act.

(2) Business associations without legal personality are: unlimited partnerships and limitedpartnerships. Business associations with legal personality are: joint enterprises, limitedliability companies and companies limited by shares.

(3) Under its company name, a business association has legal capacity, may acquire rights andundertake obligations, in particular, may acquire property, conclude contracts, and may sueand be sued.

(4) Only a company limited by shares may issue securities representing ownership in thecompany.

Section 3

(1) Business associations may be founded by foreign and domestic natural persons, legalpersons or business associations without legal personality for the purpose of pursuing

business-like economic activity and such persons may join these business associations as amember, or acquire participation (shares) therein.

(2) With the exception of limited liability companies and companies limited by shares, at leasttwo members are required for the foundation of a business association.

(3) Business associations may also be founded by the members (shareholders) of the businessassociation resolving the termination of such association and the simultaneous foundation of alegal successor business association, or by some of the members of the business associationresolving to found a legal successor business association.

(4) The law may prescribe or render possible the foundation of business associations forpublic interest activities not aimed at profit, or for the discharge of other public duties.

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Section 4

(1) A natural person may be a member with unlimited liability in only one businessassociation at a given point in time.

(2) A minor may not be a member with unlimited liability in a business association.

(3) An unlimited partnership or limited partnership may not be a member with unlimitedliability in a business association.

(4) Unless otherwise provided by law, a single-member business association may not be thesole member or shareholder of a business association.

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Chapter II Foundation of Business Associations

Title 1 Articles of Association (Deed of Foundation, Statutes)

Section 10

(1) The foundation of business associations is subject to the conclusion of the articles of association; for single-member business associations and close companies limited by shares tothe approval of the deed of foundation, and for public companies limited by shares, to theapproval of the statutes.

(2) The articles of association and the deed of foundation shall be signed by all members(founders). The articles of association (deed of foundation) may be signed on behalf of amember by a representative of such member having an authorization in a notarial document orprivate document representing conclusive evidence. The statutes of a company limited byshares shall be adopted by the statutory general meeting.

(3) The articles of association (deed of foundation, statutes) shall be drawn up in a notarialdocument prepared by a notary public, or shall be countersigned by a lawyer or the legal

advisor of the founder.(4) If the articles of association (deed of foundation, statutes) do not provide for the durationof the business association, such business association shall be considered to have beenestablished for an unlimited duration.

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(2) The executive officers of the business association to be established, as appointed in thearticles of association (deed of foundation, statutes) shall act on behalf and for the benefit of the business association to be established until the registration of such. However, during theregistration proceedings of the company, the character of the pre-company shall be indicatedwith the affix "registration in progress" on the business association's documents and in the

course of its legal transactions.

(3) A pre-company may pursue business-like economic activities only after submitting theapplication for the registration of the business association, whereby it may not pursueactivities subject to official license until registration.

Section 15

(1) The rules applicable for the business association to be established shall apply to the pre-company, with the following deviations:

a) with the exception of the cases required by the Act, no changes may take place in theperson of the members of the pre-company;

b) with the exception of fulfilling insufficient information orders by the court of registration, the articles of association (deed of foundation, statutes) may not bealtered;

c) legal proceedings for the exclusion of a member may not be initiated;d) no resolution may be made on termination without legal successor, or transformation

into any other business association or into a non-profit company.

(2) If the application for registration of the business association is refused, the businessassociation may not acquire further rights or assume new obligations, and shall be obliged toterminate its operation. The members (shareholders) shall accept liability for debts arisingfrom the undertakings of the executive officers according to the rules applicable to thetermination of business associations. This provision shall also apply to settlement of themembers (shareholders) inter se.

(3) If, as a consequence of the form of the business association to be established, the liabilityof the members for the obligations of the business association is limited, and outstandingclaims remain despite the members (shareholders) accepting liability, the executive officers of the business association to be established shall bear unlimited, joint and several liabilitytowards third parties.

Title 4 Court Registration of the Foundation of Business Associations

Section 16

(1) Unless otherwise provided by the Act on Company Registration, Public CompanyInformation and Court Registration Proceedings, the foundation of a business associationshall be reported to the county courts (Municipal Court of Budapest) maintaining the registerof companies (hereinafter referred to as "court of registration"), for registration andpublication, within a maximum of thirty days after conclusion of the articles of association(deed of foundation, statutes). If a license for foundation is required for the establishment of

the business association, such report to the court of registration shall be effected within thirtydays after receipt of the license.

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(2) Business associations shall be established upon entry into the register of companies as of the date of such entry. Rules governing the registration of business associations are set forthin the Act on Company Registration, Public Company Information and Court RegistrationProceedings.

(3) Following registration, the Act on Company Registration, Public Company Informationand Court Registration Proceedings shall apply to the avoidance of the articles of association(deed of foundation, statutes) and the alteration thereof.

Section 17

The rights, facts and data constituting a part of the company registration records which relateto business associations, and the members, executive officers and supervisory board membersthereof are public information, and shall be published in the official publication entitledCompany Gazette, pursuant to the provisions of the Act on Company Registration, PublicCompany Information and Court Registration Proceedings.

Chapter III Joint Regulations on the Bodies and Executive Officers of Business Associations

Title 1 Supreme Body of Business Associations

Section 18

(1) For unlimited partnerships and limited partnerships the business association's supremebody is the meeting of members; for joint enterprises the council of directors; for limitedliability companies the members' meeting; and for companies limited by shares the generalmeeting. Issues falling within the exclusive competence of the supreme body of businessassociations are regulated by the provisions on the individual forms of business associations.

(2) All members (shareholders) of a business association are entitled to take part in theactivity of the business association's supreme body.

(3) Unless otherwise provided by this Act, the supreme body of a business association maydiscuss any issue not contained in the invitation to (announcement of) the meeting only if all

members (shareholders) are present at the meeting, and unanimously agree to discuss suchissue on the agenda.

(4) If, by law or pursuant to the provisions of the articles of association (deed of foundation,statutes), a member (shareholder) may not vote on a particular subject, the member concernedshall be disregarded when stating whether there is a quorum for passing a resolution on suchsubject.

(5) When passing a resolution, a member (shareholder) who is relieved from an obligation orresponsibility through the resolution, or is granted some other benefit to the detriment of thebusiness association, as well as a member (shareholder) with whom an agreement is to be

concluded, or against whom legal proceedings are to be initiated as per the resolution, maynot cast a vote.

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Section 19

(1) Unless otherwise provided by law or the articles of association (deed of foundation,statutes), the supreme body of business associations shall pass resolutions by a simple

majority of votes.

(2) Members (shareholders) who have passed a resolution, in respect of which they knew, orshould have known given reasonable care that such resolution was obviously contrary to thesignificant interests of the business association, shall bear unlimited, joint and several liabilityfor resulting damages.

(3) Upon the foundation of the business association, the executive officers and the supervisoryboard members, as well as the auditor shall be appointed by the founders (members,shareholders) in the articles of association (deed of foundation, statutes). Thereafter, theexecutive officers, supervisory board members and the auditor of the business associationshall be elected by the business association's supreme body, with the exception of the casecontained in Section 33.

(4) No members' meeting (general meeting) shall function in the case of single-memberbusiness associations. The sole member or shareholder shall decide on the issues fallingwithin the competence of the business association's supreme body.

Section 20

(1) Unless otherwise provided by this Act, the business association's supreme body shalldecide on the alteration of the articles of association (deed of foundation, statutes), wherebysignature of the members is not required. The articles of association (deed of foundation,statutes) altered on the basis of a resolution of the supreme body may also be countersignedby the legal advisor of the business association.

(2) When altering the registered office (business premises) and branch office, or the scope of activities of the business association, the provisions of Subsection (1) shall apply wherebysuch alteration shall be entered in the minutes drawn up at the meeting of the businessassociation's supreme body, and the decision shall be passed by the business association'ssupreme body by a simple majority of votes.

(3) Unless otherwise provided by the Act on Company Registration, Public CompanyInformation and Court Registration Proceedings, alteration of the articles of association (deedof foundation, statutes) shall be reported to the court of registration within thirty days after thechange taking place.

Title 2 Management of Business Associations

Section 21

(1) The executive officers shall conduct the management of the business association pursuantto the provisions governing the individual forms of business associations.

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(2) Executive officers shall be understood as the member(s) entitled to management atunlimited partnerships and limited partnerships, the director at joint enterprises, and themanaging director (managing directors) at limited liability companies.

(3) Unless otherwise provided by the deed of foundation of a close company limited byshares, management of a company limited by shares shall be carried out by the board of directors, and the members of the board of directors shall qualify as executive officers.

Section 22

(1) The same person may be elected as an executive officer in three business associations atthe most. The person elected shall inform in writing the business associations, at which he isalready an executive office, within fifteen days after his acceptance of the new position.

(2) In his capacity as such, an executive officer may not be instructed by the members(shareholders) or the employer of the business association.

(3) Unless otherwise provided by this Act, an executive officer may only be a natural person.The duties of an executive officer may only be carried out in person, no representation isadmissible.

(4) The supreme body of a business association may deprive an executive officer (the board of directors) of his competence falling within the scope of management only in the cases and tothe extent rendered possible in the articles of association (deed of foundation, statutes).

(5) The provisions of Subsection (2) and (4) may not be applied in the case of single-memberbusiness associations. In respect of single-member business associations, the member(shareholder) may deprive an executive officer of his competence and may instruct him inwriting. In such cases, the executive officer shall be exempted from the obligation set forth inSection 29 by the decision of the member (shareholder).

(6) The provisions of Subsection (4) may not be applied to the executive officers of businessassociations, in which a member (shareholder) holds a majority of three-quarters or more of the votes.

Section 23

(1) A person who has been sentenced to imprisonment by a final judgment due to thecommission of a crime may not be an executive officer of a business association until suchperson is relieved from the detrimental legal consequences related to his criminal record.

(2) A person who has been barred from a certain profession by a final judgment may not be anexecutive officer in a business association pursuing the activity indicated in such judgmentduring the force of such sentence.

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(3) For a period of three years after the establishment of the insolvency (order of liquidation)of a business association by final judgment, a person who acted as an executive officer at thebusiness association to be liquidated for one year or more during the period of two years priorto the date of the final judgment ordering such liquidation may not be an executive officer of another business association, unless he was specifically appointed as executive officer for the

purpose of avoiding the liquidation.

(4) For a period of two years after cancellation of a business association from the register of companies based on cancellation proceedings ex officio, a person who, during the yearpreceding such cancellation, acted as an executive officer of the terminated businessassociation by the cancellation may not be an executive officer of another businessassociation.

Section 24

(1) Executive officers shall be elected, or appointed by the articles of association (deed of foundation, statutes), for a definite period of time, but for a period of no more than five years.If no provisions are made in the articles of association (deed of foundation, statutes) on theduration of the mandate of the executive officers by the members (shareholders), theexecutive officers shall be considered to have been elected for a period of five years, unlessthe business association is established for a shorter period of time.

(2) The mandate of an executive officer shall take effect by its acceptance by the personconcerned. Executive officers may be re-elected, and may be removed by the businessassociation's supreme body.

(3) Unless forbidden by law, performance of the duties of an executive officer may be subjectto remuneration. No remuneration may be granted to executive officers during the period of the liquidation proceedings following the establishment of the insolvency of the businessassociation by a final judgment.

Section 25

(1) With the exception of acquiring shares in a public company limited by shares, anexecutive officer may not acquire interest in another business association pursuing an activityidentical to that of the business association, furthermore, may not be an executive officer inanother economic organization pursuing an activity identical to that of the business

association, unless rendered possible in the business association's articles of association (deedof foundation, statutes), or the business association's supreme body grants its consent.

(2) An executive officer and his close relatives [Paragraph b) of Section 685 of the CivilCode] may not conclude transactions falling within the scope of activities of the businessassociation in his own name or to his own benefit, unless specifically permitted in the articlesof association (deed of foundation, statutes).

(3) An executive officer and his close relatives [Paragraph b) of Section 685 of the CivilCode] may not be elected as a member of the supervisory board at the same businessassociation.

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(4) Indemnification claims for damages caused to the business association by violation of therules set forth in Subsections (1)-(3) may be enforced for a period of one year from theoccurrence of such damage.

Section 26

(1) The executive officers shall be responsible for reporting to the court of registration thefoundation of the business association, alteration of the articles of association (deed of foundation, statutes), the rights, facts and data entered in the register of companies andchanges therein, as well as any other data required by law.

(2) Executive officers shall bear joint and several liability for any damage resulting from theincorrectness of the data, rights or facts reported, or from the delay in filing or failure to filethe report.

Section 27

(1) Executive officers shall treat business secrets in the strictest confidentiality.

(2) Upon request by the members (shareholders), executive officers shall provide informationon the affairs of the business association, and allow inspection of its books and documents. Inthe event that executive officers do not comply with such request, upon request of the memberconcerned, the court of registration shall oblige the business association to provideinformation or to provide for inspection.

(3) Exercise of the right pursuant to Subsection (2) by the members (shareholders) may notinfringe upon the business interests or business secrets of the business association.

Section 28

(1) Unless otherwise provided by the articles of association (deed of foundation, statutes),executive officers shall exercise employer's rights over the employees of the businessassociation. For companies limited by shares, employer's rights shall be exercised by theboard of directors within the framework set forth in the deed of foundation (statutes).

(2) The articles of association (deed of foundation) or a resolution by the businessassociation's supreme body may, if there are several executive officers, transfer exercise of

the employer's rights to a single executive officer, or to another person employed by thebusiness association.

Section 29

(1) Executive officers shall conduct the management of the business association with theincreased care generally expected from persons occupying such positions, and give priority tothe interests of the business association. Executive officers shall be liable to the businessassociation in accordance with the general rules of civil law for damages caused to such byviolation of the law, or breach of the articles of association (deed of foundation, statutes), theresolutions of the business association's supreme body, or their management obligations.

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(2) Establishment of a supervisory board shall be obligatory:a) for companies limited by shares;b) for limited liability companies, if the initial capital of the company exceeds fifty

million HUF;c) for any business association, if the annual average of the number of full-time

employees employed by the business association exceeds two-hundred.

(3) For a single-man limited liability company, establishment of a supervisory board shall beobligatory only on the basis of Paragraph c) of Subsection (2).

Section 32

(1) A person elected as a member of the supervisory board shall inform in writing thebusiness associations, at which he is already a supervisory board member, within fifteen daysafter his acceptance of the new position.

(2) The supervisory board supervises the management of the business association for thebusiness association's supreme body. The supervisory board may request information from theexecutive officers or the managerial employees of the business association, and may inspectthe books and documents of the business association.

(3) The supervisory board shall examine all substantial business policy reports on the agendaof the meeting of the business association's supreme body, as well as any proposals relating toissues falling within the exclusive competence of the business association's supreme body.The business association's supreme body may pass resolution on the report preparedaccording to Act XVIII of 1991 on Accounting (hereinafter referred to as the "AccountingAct"), and on the appropriation of after-tax profits only in possession of the written report of the supervisory board.

(4) If, in the judgment of the supervisory board, the activity of the management is contrary tothe law, the articles of association (deed of foundation, statutes) or the resolutions of thebusiness association's supreme body, or otherwise infringes on the interests of the businessassociation or its members (shareholders), the supervisory board shall call an extraordinarymeeting of the business association's supreme body and shall propose its agenda.

(5) Members of the supervisory board shall take part in the meeting of the businessassociation's supreme body with a right of consultation.

Section 33

(1) The deed of foundation (statutes) of a company limited by shares, or the articles of association of a limited liability company may transfer to the competence of the supervisoryboard the election and removal of the members of the board of directors (managing director),the establishment of their remuneration, as well as the approval of the legal transactions setforth in the deed of foundation (statutes, articles of association).

(2) The supervisory board shall report at the next meeting of the business association'ssupreme body on the measures it has taken within the competence transferred to it.

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(3) If, within its competence pursuant to Subsection (1), the supervisory board has refused toapprove a legal transaction, the executive officers of the business association or the board of directors are entitled to convene the business association's supreme body. In such cases, themembers' meeting (general meeting) of the business association may approve the legaltransaction by a majority of three-quarters or more of the votes.

Section 34

(1) The supervisory board shall act as an independent body. Unless otherwise prescribed bylaw, the supervisory board shall elect a chairman (if necessary, deputy chairman or deputychairmen) from among its members. The supervisory board shall have a quorum if two-thirdsof its members, but at least three members, are present. The supervisory board shall passresolutions with a simple majority.

(2) The members of the supervisory board shall act in person, representation is not admissible.A member of the supervisory board may not be instructed in his capacity as such by themembers (shareholders) or the employer of the business association.

(3) Meetings of the supervisory board shall be convened and chaired by the chairman. Anymember of the supervisory board may request the chairman in writing to convene suchmeeting, indicating the reason and the purpose thereof. The chairman shall, within a period of eight days after receipt of such request, call a meeting of the supervisory board at a datewithin a period of thirty days. If the chairman fails to comply with such request, the membershall have the right to convene the meeting himself.

(4) In other respects, the supervisory board shall establish its rules of procedure itself, whichshall be approved by the business association's supreme body.

(5) If the number of supervisory board members falls below the number set forth in thearticles of association (deed of foundation, statutes), or there is no person to convene themeeting of the supervisory board, the management of the business association shall convenethe business association's supreme body in the interest of restoring proper operation of thesupervisory board.

Section 35

The supervisory board may entrust any of its members to fulfil certain supervisory tasks, or

may divide supervisory duties among its members on a permanent basis. Such division of supervisory duties shall not concern the responsibility of the supervisory board member, norhis right to extend his supervision to other activities falling within the supervisory duties of the supervisory board.

Section 36

(1) In the case set forth in Paragraph c) of Subsection (2) of Section 31, the employees of thebusiness association shall take part in the supervision of the operation of the businessassociation by way of the supervisory board. In such cases, one-third of the members of thesupervisory board shall be comprised of employees' representatives. In the event of an uneven

number, such one-third shall be calculated in such a manner which is more favourable for theemployees.

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(2) If the business association is established through transformation from an organization, atwhich employees were not represented in the supervisory board, but the conditions set forth inParagraph c) of Subsection (2) of Section 31 were fulfilled, it shall be ensured in the articlesof association (deed of foundation, statutes) that employees take part in the operation of the

supervisory board immediately following transformation.

(3) Employees' representatives taking part in the supervisory board shall, with the exceptionof business secrets, inform the company's employees by way of the works council.

Section 37

(1) Following a statement of opinion of the trade unions operating at the business association,the employees' representatives in the supervisory board shall be nominated by the workscouncil from among the employees.

(2) Persons nominated by the works council shall be elected as members of the supervisoryboard by the business association's supreme body at its first meeting following suchnomination, unless statutory grounds for disqualification exist in respect of the nominees. Inthis case, a new nomination shall be requested.

(3) In the supervisory board, employees' representatives shall have the same rights and sameobligations as all other members. If the opinion of the employees' representativesunanimously differs from the majority standpoint of the supervisory board, the minoritystandpoint of the employees shall be stated at the meeting of the business association'ssupreme body.

(4) Membership of an employees' representative in the supervisory board shall terminatetogether with the termination of his labour relationship. Employee representatives may onlybe dismissed by the business association's supreme body upon the proposal of the workscouncil, unless the works council fails to meet its obligation to make such proposal despitestatutory grounds for disqualification.

Section 38

(1) The period of the mandate of supervisory board members may differ from the period withregard to which the business association's supreme body has elected the executive officers.

(2) With the exception of employee representation, employees of a business association maynot become supervisory board members.

(3) In other respects, Subsections (1)-(2) of Section 23, Section 24 and Section 30 shall applycorrespondingly with regard to the formation and termination of supervisory boardmembership, and Section 25 and Subsection (1) of Section 27 with regard to the contents of the legal relationship.

(4) Supervisory board members shall bear unlimited, joint and several liability for damagescaused to the business association through the violation of their supervisory obligation.

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Chapter IV Legal Representation of Business Associations; Authorization to Sign for the Company

Section 39

(1) Business associations are represented by their executive officers before third parties andbefore the court and other authorities. The right of representation of executive officers may berestricted in the articles of association (deed of foundation, statutes), or may be distributedamong several executive officers. Any restriction of the right of representation shall be voidbefore third parties.

(2) The business association's supreme body may confer the right of general representationupon an employee appointed by it (hereinafter referred to as "company secretary").Employees who otherwise satisfy the requirements of executive officers may be appointed ascompany secretary. If the business association pursues activities at business premises orbranch offices other than its registered office, more than one company secretary may beappointed.

(3) The company secretary shall carry out his duties independently, on the basis of theinstructions of the executive officers. If the company secretary questions the legality orexpediency of an instruction given to him by an executive officer, he may refer to thesupervisory board.

(4) In respect of particular groups of issues, executive officers may invest employees of thebusiness association with the right of representation.

(5) The company secretary and employees entitled to representation may not transfer the rightof representation to any other party.

Section 40

(1) Unless otherwise provided by the articles of association (deed of foundation, statutes), theright of the executive officers of the business association and the company secretary to signfor the company, including disposal over the bank account, shall be exclusive, whereas the

joint signature of two persons having the right of representation shall be required for thevalidity of other representatives signing for the company.

(2) The articles of association (deed of foundation, statutes) may stipulate that an executiveofficer with joint authorization to sign for the company may jointly sign for the companytogether with an employee entitled to representation.

(3) Signature for the business association shall be effected on the documents of the businessassociation by the persons entitled to represent the business association signing suchdocuments under the company name of the business association, in accordance with theircertified specimen signature.

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Chapter V Guarantees for the Lawful Operation of Business Associations

Title 1 The Auditor

Section 41

(1) Election of an auditor shall be obligatorya) for companies limited by shares,b) for limited liability companies, the initial capital of which exceeds fifty million HUF,

furthermore, in the case of single-man limited liability companies, andc) if so prescribed by law.

(2) The business association's supreme body may decide on the election of an auditor even if this is not obligatory.

(3) Persons included in the register of auditors in accordance with the relevant legalregulations may be elected as an auditor.

(4) The auditor shall be elected, or appointed in the articles of association (deed of foundation,statutes) for a definite period, such period not to exceed five years. Following election(appointment) of the auditor, the management of the business association shall conclude acontract in accordance with the general rules of civil law.

(5) If the auditor is an economic organization, it shall indicate the member, executive officeror employee thereof who is personally responsible for auditing. Such person may beappointed only with the consent of the business association's supreme body.

Section 42

(1) In the case set forth in Section 41, the business association shall have the authenticity andlegal compliance of the report prepared pursuant to the Accounting Act examined by theauditor. Without a statement of opinion by the auditor, the business association's supremebody may not decide on the report prepared pursuant to the Accounting Act. Furthermore, theauditor shall examine all substantial business reports proposed to the business association'ssupreme body from the point of view of whether such contain true data and comply with all

legal regulations.(2) The auditor may inspect the books of the business association, may request informationfrom the executive officers, supervisory board members and employees, and may examine thebank account, the petty cash, the stocks of securities and goods, and the contracts of thebusiness association.

(3) The auditor shall treat all business secrets related to the operation of the businessassociation in the strictest confidentiality.

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Chapter VI Termination of Business Associations

Section 53

(1) The business association shall terminate,a) if the period of time set forth in the articles of association (deed of foundation,

statutes) expires or any other condition of termination is realized;b) if it resolves its termination without legal successor;c) if it resolves its termination with legal succession (transformation);d) if the number of its members declines to one person, unless otherwise provided by the

provisions on the individual forms of business associations;e) upon being declared terminated by the court of registration;

f) upon the order of the court of registration on its cancellation ex officio; g) if terminated by the court in liquidation proceedings;h) if so prescribed by the provisions of this Act on the individual forms of business

associations.

(2) Business associations shall be terminated upon cancellation from the register of companies.

Section 54

(1) In the event of termination of a business association, claims to be enforced on the basis of obligations of the business association being terminated shall lapse after a period of fiveyears, unless legal regulations establish a shorter limitation period for certain claims.

(2) If the liability of a member for obligations of the business association was unlimitedduring the existence of the business association, and his membership was terminated prior tothe termination of the business association, the limitation period shall be reckoned from thetermination of the membership.

Section 55

(1) In the event of termination of a business association with legal succession, the legalsuccessor business association shall be responsible for the obligations of the legal predecessorbusiness association. The liability of the members (shareholders) of the legal predecessor

business association may be established only if the legal successor business association failedto fulfil its obligation to accept liability.

(2) Members (shareholders) of business associations shall be liable for the obligations of business associations terminated without legal successor.

Section 56

(1) If the liability of a member for the obligations of the business association was unlimited, joint and several during the existence of the business association, his obligation to acceptliability shall also be unlimited and joint and several for the obligations of the terminated

business association. A debt incurred with regard to the obligation to accept liability among

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members shall be divided proportionately to their share in the assets of the businessassociation.

(2) If the liability of a member for the obligations of the business association was limitedduring the existence of the business association, the liability of the member (shareholder) for

the obligations of the terminated business association shall be limited to that share of theassets distributed upon the termination of the business association which is due to suchmember (shareholder).

(3) A member who has abused his limited liability may not make reference to such limitedliability. Therefore, a member of a limited liability company or a company limited by shares,who has abused the separate legal personality and limited liability of the business associationto the detriment of creditors, shall bear unlimited, joint and several liabilities for theunsatisfied obligations of such business association.

(4) The liability of the members according to Subsection (3) shall be valid in particular, if such members disposed over the assets of the business association as if they had been theirown, or, if they reduced the assets of the business association for the benefit of others or theirown in a way, in which they knew or should have known with due care that the businessassociation would not be able to satisfy its obligations towards third parties as a result thereof.

Section 57

(1) With the exception of liquidation proceedings and cancellation by the court of registrationex officio, upon the termination of a business association without legal successor, voluntarydissolution is admissible.

(2) In its resolution on the commencement of voluntary dissolution, the business association'ssupreme body shall appoint the person in charge of voluntary dissolution. In addition to theexecutive officers of the business association, other persons may also be appointed as theperson in charge of voluntary dissolution.

(3) Any of the creditors of the business association, or the members (shareholders)representing one-tenth or more of the subscribed capital may, indicating the reason thereof,request the court of registration in writing to appoint a different person to be in charge of voluntary dissolution. The articles of association (deed of foundation, statutes) may also grantthis right to members (shareholders) representing a smaller proportion of the subscribed

capital.(4) The court of registration shall render a decision on requests pursuant to Subsection (3)within eight days. There shall be no appeal against a judgment of the court of registrationadmitting such request.

(5) The detailed regulations for voluntary dissolution are contained in Act IL of 1991 onBankruptcy Proceedings, Liquidation Proceedings and Voluntary Dissolution.

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PART TWO REGULATIONS PERTAINING TO INDIVIDUAL FORMS OF BUSINESS

ASSOCIATIONS

Chapter VIII

Unlimited Partnerships

Section 81

(1) By virtue of articles of association for the establishment of an unlimited partnership(hereinafter referred to in this Chapter as "partnership"), the members of the partnershipundertake to pursue joint business-like economic activities with unlimited, joint and severalliability, and to make available to the partnership the contribution necessary for suchactivities.

(2) The designation "unlimited partnership" ( közkereseti társaság ), or its abbreviation "kkt.",shall be indicated in the company name.

Foundation of Partnerships

Section 82

In addition to the items listed under Section 11, if so required, the method and content of thepersonal assistance undertaken by the members, and the rules of the operation of themembers' meeting shall also be set forth in the articles of association.

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Chapter IX Limited Partnerships

Section 101

(1) By virtue of articles of association for the establishment of a limited partnership(hereinafter referred to in this Chapter as "partnership"), the members of the partnershipundertake to pursue joint business-like economic activities in a way in which the liability of atleast one member (general partner) for the obligations not covered by the assets of the

partnership is unlimited, and is joint and several with all other general partners, while at leastone other member (limited partner) is only obliged to provide the contribution undertaken inthe articles of association, and, with the exceptions set forth in this Act, is not liable for theobligations of the partnership.

(2) The designation "limited partnership" ( betéti társaság ), or its abbreviation "bt.", shall beindicated in the company name of the partnership.

(3) Unless otherwise provided by this Chapter, the regulations on unlimited partnerships shallapply to limited partnerships.

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Section 102

With the exception of the case contained in Subsection (1) of Section 103, limited partners arenot entitled to the management of the partnership. However, limited partners may also takepart in the activity of the meeting of members (members' meeting).

Section 103

(1) Limited partners shall bear the same liability as general partners if their names appear inthe company name of the partnership.

(2) If a limited partner has not provided his contribution indicated in the articles of association, or has provided such only in part, he shall be liable with his private property up tothe value of the contribution not provided.

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Chapter XI Limited Liability Companies

Section 121

(1) Limited liability companies (hereinafter referred to in this Chapter as "company") arebusiness associations founded with an initial capital (subscribed capital) consisting of capitalcontributions of a pre-determined amount, in the case of which the obligation of members tothe company extends only to the provision of their capital contributions, and to other possiblecontributions as set forth in the articles of association. With the exceptions set forth in thisAct, members shall not be liable for the obligations of the company.

(2) The designation "limited liability company" ( korlátolt felel ő sség ű társaság ), or itsabbreviation "kft.", shall be indicated in the company's name.

Title 1 Foundation of Companies

Section 122

Members may not be recruited by public invitation.Section 123

(1) In addition to the items listed under Subsection (1) of Section 11, the following shall alsobe defined in the articles of association:

a) the amount of the initial capital and the capital contributions of the individualmembers;

b) the method and due date of the payment of the contributions in cash not paid up infull;

c) the extent of voting rights;

d) the first managing director, and in the case of several managing directors, the methodof representation;

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e) the method of signing for the company; f) if establishment of a supervisory board is obligatory, the members of the first

supervisory board; g) if election of an auditor is obligatory, the person of the first auditor;h) the order of calling repeated members' meetings.

(2) If so required, the articles of association shall provide for the following:a) the contributions in kind and the value thereof;b) other services representing pecuniary value (ancillary services) owed by members, the

conditions thereof, as well as the amount of penalty payable in the event of the non-performance or insufficient performance of ancillary services;

c) the authorization of the members' meeting to order additional payments and to definethe conditions thereof;

d) the business shares securing distinct membership rights;e) the exclusion or restriction of the transferability of business shares, and making the

transfer of such shares subject to the consent of the company; f) in the case of legal succession, the exclusion of the devolution or division of business

shares; g) the permission to withdraw business shares;h) employees' business shares, and preferential rights attached thereunto;i) the rules on quorum and the method of passing resolutions;

j) the rules of calling the members' meeting at a place other than the registered office, aswell as the deadline for passing resolutions outside a meeting;

k) the indication of a value limit, above which transactions shall fall within the exclusivecompetence of the members' meeting;

l) the distribution of after-tax profits, and the proportion of assets due to members uponthe termination of the company, if the method of calculating such is different from theproportion of capital contributions;

m) the entitlement of all members to management and representation;n) the restriction of the representation rights of managing directors;o) if a supervisory board is established, the appointment of the members of the first

supervisory board; p) if an auditor is elected, the appointment of the first auditor;q) in the case of an initial capital increase, the method of exercising preferential rights.

Section 124

(1) The initial capital of the company consists of the amount of capital contributions of theindividual members.

(2) Capital contributions are the contributions of the members, which consists of contributionsin cash and contributions in kind.

(3) Contributions in kind constituting a part of the subscribed capital may be any marketableobject or intellectual work of pecuniary value, or any right representing pecuniary value. Onlysuch objects, intellectual works or rights which are subject to execution may be taken intoaccount as a contribution in kind and which may be subsequently transferred by the businessassociation without the consent (permission) of a third party. A permission granted upon the

provision of the contribution in kind shall qualify as such a case.

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(4) The amount of initial capital may not be less than three million HUF.

(5) Upon foundation, the amount of contributions in cash may not be less than thirty per centof the initial capital or one million HUF.

Section 125

(1) The capital contributions of members may be of varying value, but the value of eachcapital contribution may not be less than one-hundred thousand HUF. Capital contributionsshall be expressed in HUF and shall be exactly divisible by ten thousand.

(2) Each member shall have one capital contribution. However, according to the regulationsof joint property, one capital contribution may have several owners.

Section 126

(1) A company may be registered only if, prior to the submission of the application forregistration,

a) contributions in kind have been made available to the company in full, andb) at least half of each contribution in cash, and an amount of one million HUF in total

have been deposited into the company's bank account.

(2) Simultaneously upon submission for registration to the court of registration, the managingdirectors shall certify fulfilment of the conditions contained in Subsection (1).

Section 127 If the full amount of contributions in cash was not paid up at the time of the foundation of thecompany, the method and due date of the payment of the remaining amounts shall be set forthin the articles of association. All contributions in cash shall be paid up within a period of oneyear following registration of the company, which shall be reported by the managing directorto the court of registration.

Section 128

Members of a company, who have knowingly had the contribution of any member approvedby the company at a value exceeding its value at the time of the provision thereof, or whootherwise acted fraudulently in the course of the foundation, shall bear unlimited, joint and

several liability for all resulting damages.----------

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Chapter XII Companies Limited by Shares

Title 1 General Provisions

Section 175

(1) Companies limited by shares are business associations founded with a share capital(subscribed capital) consisting of shares of a pre-determined number and face value, in thecase of which the obligation of members (shareholders) to the company limited by sharesextends to the provision of the face value or issue value of shares. With the exceptions definedin this Act, shareholders shall not bear liability for the obligations of a company limited byshares.

(2) The designation "company limited by shares" ( részvénytársaság ), or its abbreviation "rt.",shall be indicated in the company's name.

Section 176

(1) The sum of the face value of all shares shall be the share capital (subscribed capital) of acompany limited by shares.

(2) Issue of shares below face value is null and void. Any damage resulting therefrom shall beborne by the issuers jointly and severally.

Section 177

(1) A company limited by shares may be a close company or a public company.

(2) A company limited by shares is a close company if its shares are not issued publicly.

(3) A company limited by shares is a public company if its shares are issued publicly in partor in full.

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Title 4 Foundation of Companies Limited by Shares

Section 203

(1) The share capital of a company limited by shares may not be less than twenty millionHUF.

(2) Upon foundation, the amount of contributions in cash may not be less than thirty per centof the share capital or ten million HUF.

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Section 204

A company limited by shares may be founded privately (Section 206) or by public procedure(Section 212).

Section 205

(1) A company limited by shares may not grant credit or undertake suretyship in order forthird parties to acquire shares issued by the company limited by shares.

(2) The prohibition contained in Subsection (1) shall not apply to the issue of employees'shares, or the issue or transfer of registered shares for the employees of the company underthe preferential conditions set forth in the statutory provisions on securities.

Private Foundation

Section 206

(1) In the course of private foundation, the founders undertake to receive all shares of theclose company.

(2) Founders shall provide for the foundation of the company limited by shares, and theirobligation to receive the shares, as well as for the organization and operation of the companyin the deed of foundation.

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Public Foundation

Section 212

(1) A public company limited by shares may be founded by means of share subscriptionthrough public procedure, according to the conditions set forth in the statutory provisions onsecurities.(2) Share subscriptions shall take place in accordance with the memorandum, and accordingto the method contained therein. The original of the memorandum shall be drawn up in anotarial document or private document representing conclusive evidence, and any copies

thereof shall be certified by a notary public.(3) The following shall be defined in the memorandum:

a) the company name, registered office, scope of activities and duration of the company;b) the name (company names) and domicile (registered office) of founders;c) the planned amount of share capital;d) the type, number and face value of shares, the method of production, and, if so

required, the rights attached to the shares, other than ordinary shares, to be issued, andto the individual classes of shares, as well as possible restriction of shareholders'rights;

e) if so required, the benefits granted to founders, that is, with due consideration of the

contents of Sections 208-209, the right to provide contribution in kind, to appoint the

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board of directors, the members of the supervisory board and the auditor for the firstthree years, and to render decision on the approval or refusal of oversubscription;

f) the objects and values of contributions in kind, the number and face value of shares tobe subscribed in exchange for such, the name (company) and domicile (registeredoffice) of parties providing such contributions, and the name (company) and domicile

(registered office) of the auditor responsible for preliminary valuations; g) procedures to be followed in the event of oversubscription;h) if so required, the number of shares necessary for the share subscription to be

successful, if the share capital is undersubscribed (minimum subscription);i) the method of calling the statutory general meeting;

j) the expected costs of the public foundation.

(4) The memorandum shall be published by the founders as a part of the prospectus preparedaccording to the statutory provisions on securities.

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Section 5

It is prohibited to make an unfair appeal to another party which is aimed at dissolving aneconomic relationship maintained with a third party or at preventing the establishment of such

a relationship.

Section 6

Without the express prior consent of the competitor, goods or services (hereinafter jointlyreferred to as: goods) may not be produced, placed on the market or advertised with suchtypical outside appearance, packaging or marking (including the indication of origin); or anysuch name, marking or indication of goods may not be used by which the competitor or itsgoods are normally recognized.

Section 7

It is prohibited to interfere with the integrity and fairness of bidding, (in particular, publictender, invitation to tender), auctions and transactions effected on an exchange in any way.This prohibition shall only apply to the conducts which are not regulated by another provisionof this Act or by a separate Act.

Chapter III Prohibition of the Unfair Influencing of Consumer Decisions

Section 8

(1) It is prohibited to mislead the consumers in the economic competition. For the purposes of this Act, consumers shall be customers, buyers and users.

(2) The following shall in particular constitute the misleading of consumers:a) in respect of the price and material qualities of the goods (in particular, the

composition and use thereof, the effect thereof on health and the environment, thehandling thereof, as well as the origin, place of origin, source or manner of thepurchase of the goods), untrue facts are stated or true facts are stated in a mannercapable of misleading the consumer, the goods are presented with attributes of goodscapable of misleading the consumer, or any other information capable of misleading

the consumer is provided in respect of the material qualities of the goods;b) it is concealed that the goods do not satisfy the provisions of the legal rules or theusual requirements set in respect of the goods, and that the use thereof requires theimplementation of conditions substantially different from the usual;

c) information capable of misleading the consumer is provided in respect of circumstances related to the sale and distribution of the goods and influencing theconsumer's decision, in particular, in respect of the method of distribution, the terms of payment, the attached gifts, the discounts granted and the chances of winning;

d) misrepresenting a purchase as a highly advantageous bargain.

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Section 9

In establishing whether the information provided is capable of misleading the consumers, thegeneral meaning of the terms used, as accepted in everyday life and/or in the trade shall apply.

Section 10

It is prohibited to employ business methods restricting unjustifiably the consumer's freedomof choice. The following shall in particular qualify as such a method: where suchcircumstances are created which make it substantially more difficult to assess objectively theactual worth of the goods or the offer, and to compare the goods or the offer with other goodsor another offer.

Chapter IV Prohibition of Agreements Restricting Economic Competition

Section 11

(1) Agreements between undertakings and coordinated practices, as well as the decisions of the social organizations of undertakings, public corporations, unions and other similarorganizations of undertakings, unions (hereinafter collectively "agreements"), which areaimed at the prevention, restriction or distortion of economic competition, or which maydisplay or do display such an effect, are prohibited. An agreement concluded betweenundertakings that are not unrelated shall not be construed as such.

(2) This prohibition shall in particular apply to the following:a) fixing the purchase or sales prices, and defining other business conditions directly or

indirectly;b) restricting or keeping manufacture, distribution, technical development or investment

under control;c) dividing the sources of purchases and restricting the freedom of choosing from among

them, as well as excluding a set circle of consumers from the purchase of certaingoods;

d) dividing the market, excluding anybody from selling, and restricting the choice of sales opportunities;

e) collusion between competitors in connection with a bidding process; f) preventing anybody from entering the market;

g)

the case where, in respect of transactions to an identical value or of the same nature,certain partners are discriminated against, including the use of prices, paymentdeadlines, discriminatory sales or purchase conditions or the employment of methodswhich cause disadvantage to certain business partners in the competition;

h) rendering the conclusion of a contract dependent upon the assumption of obligationswhich, due to their nature or with regard to the usual contractual practice, do not formpart of the subject of the contract.

(3) The legal consequences which are attached by this Act to the violation of the prohibitiondefined in subsection (1) shall apply together with the legal consequences prescribed in the(Hungarian) Civil Code in connection with contracts violating the provisions of the legal

rules.

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Section 13

(1) Agreements of minor importance shall not be subject to prohibition.

(2) An agreement shall be construed of minor importance if the total joint share of the parties

concluding the agreement and of the undertakings that are not unrelated to such parties doesnot exceed ten percent in the market in question, except if it pertains to

a) directly or indirectly fixing buying or selling prices between competitors, orb) dividing the market among competitors.

(3) The requirement of market share of ten per cent or less shall be satisfied during theoperative term of the agreement or in each calendar year if said term covers more than oneyear.

(4) Notwithstanding the provisions of Subsections (1)-(3), if an agreement creates anenvironment together with other like agreements whereby competition in the market to whichit pertains is substantially obstructed, restricted or distorted, it shall be subject to prohibition.The Office of Economic Competition shall have the authority to declare an agreement assubject to prohibition, in which case no fine shall be imposed.

Section 14

(1) The market concerned shall be defined with regard to the goods subject to the agreementand to the geographical territory.

(2) In addition to the goods for which the agreement is concluded, the goods considered asreasonable substitutes in terms of use, price, quality and the conditions of performance(substitution in demand) shall also be taken into account, as well as the factors involved insubstitution in supply.

(3) A geographical territory is an area, outside of whicha) the consumer is unable to purchase the goods, or is only able to purchase the goods

under substantially less favourable conditions, orb) the seller of the goods is unable to sell the goods, or is only able to sell the goods

under substantially less favourable conditions.

Section 15

(1) The undertakings are not unrelated (independent) if, according to Subsection (2) or (3) of Section 23,

a) one controls the other, orb) they are controlled by one and the same undertaking, or they are controlled by the

same undertakings jointly.

(2) However, the undertakings mentioned in Section 25, as well as the undertakings, themajority of which is owned by the State or local governments, which have an independentdecision-making power in respect of defining their market attitude [Section 27, subsection(3)], shall be regarded as unrelated (independent).

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Section 16

Certain groups of such agreements may be exempted by the Government in a decree from theprohibition defined in Section 11. The Government may provide for the exemption of groupsof agreements with regard to the aspect defined in Section 17 of the Act.

Section 16/A

(1) Aggregate exemption from the prohibition of restrictive market practices shall not apply toan agreement if the conditions laid down in Subsection (1) of Section 17 are not satisfied asresult of the impact it creates in the particular market in conjunction with other likeagreements.

(2) The Office of Economic Competition shall have the authority to declare that, with a viewto Subsection (1), aggregate exemption shall not apply to an agreement in the future, in whichcase no fine shall be imposed.

Section 17

(1) The Office of Economic Competition shall exempt an agreement or planned agreementfrom the prohibition defined in Section 11 in a decision taken on the basis of an individualapplication if

a) it contributes to a more reasonable organization of production or distribution, or to thepromotion of technical or economic development, or to the improvement of thesituation of environmental protection or competitiveness;

b) a fair part of the benefits arising from the agreement is channelled to the consumer;c) the concomitant restriction or exclusion of economic competition does not exceed the

extent required for attaining the economically justified common goals;d) it does not enable the complete exclusion of competition in connection with a

considerable part of the goods concerned.

(2) The term of exemption shall be specified in the resolution in which it is granted. Its scopemay depend on a prior or subsequent condition, and obligations may be prescribed.

(3) The effect of the decision exempting the agreement shall be retroactive to the date of theconclusion of the agreement. If exemption depends on a prior condition, it shall becomeoperative once the condition is satisfied. An exemption subject to a subsequent condition shall

become operative when granted, but it shall be cancelled if the condition is not satisfied.Section 18

(1) The Office of Economic Competition may be requested to state that the agreement or theplanned agreement

a) does not qualify as an agreement restricting economic competition, as defined inSection 11,

b) does not fall under prohibition on the basis of Section 13, orc) is exempted from the prohibition on the basis of Section 16.

(2) The Office of Economic Competition shall be requested to exempt the agreement or theplanned agreement from the prohibition on the basis of Section 17.

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Section 19

(1) The Office of Economic Competition shall revoke its decision passed on the basis of Section 18 if

a) the obligor did not satisfy any of the obligations prescribed in the decision,b) the decision, not reviewed by the court, was based on false or misleading information

of relevance, orc) relevant market conditions have changed to an extent by virtue of which the conditions

set forth in Subsection (1) of Section 17 are no longer satisfied.

(2) The Office of Economic Competition may amend its decision passed on the basis of Section 18 if the obligor has failed to perform any of the obligations or is unable to satisfy anyof the conditions laid down in the decision for reasons that are not attributable to him.

(3) In the cases defined under Paragraphs a) and b) of Subsection (1), the Office of EconomicCompetition may revoke its decision retroactively to the day on which it was passed.

Section 20

The burden of proving that an agreement or a planned agreement does not qualify as anagreement restricting economic competition in accordance with Section 11, does not fallunder prohibition on the basis of Section 12, or is exempted from the prohibition on the basisof Section 16 or Section 17, shall lie with the party who requests the finding of the above.

Chapter V Prohibition of Abuse of Dominant Position

Section 21

It is prohibited to abuse dominant position, in particular:a) to establish purchase or sales prices unfairly in business relations, including the case

of the use of general contractual conditions, or to stipulate unjustified advantages inanother manner, or to force the acceptance of disadvantageous terms and conditions onanother party;

b) to restrict production, distribution or technical development to the detriment of theconsumers;

c)

to refuse to establish or maintain business relations adequate for the nature of thetransaction without any justification;d) to influence the other party's economic decisions for the purpose of gaining unjustified

advantages;e) to withdraw goods from general circulation or to withhold goods without justification

prior to price rises or for the purpose of causing prices to rise, or in a way otherwisecapable of securing unjustified advantages or causing a disadvantage in competition;

f) to render the supply and acceptance of goods dependent upon the supply or acceptanceof other goods, or to render the conclusion of a contract dependent upon theassumption of obligations which, due to their nature, or with regard to the usualcontractual practice, do not form part of the subject of the contract;

g) in the case of transactions to an identical value or of the same nature, to discriminateagainst certain business partners without justification, including the use of prices,

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Section 25

The temporary (not to exceed one year) acquisition of control or assets by an insurancecompany, credit institution, financial holding company, mixed-activity holding company,investment firm or property management organization shall not be deemed interlocking

directorates, if such acquisition is made in preparation of resale, and if control is notexercised, or it is limited to an extent that is absolutely necessary. The Office of EconomicCompetition may authorize the extension of said one-year period if the undertaking inquestion provides proof that alienation could not be accomplished within one year.

Section 26

(1) The undertakings concerned are the undertakings involved directly and indirectly in theinterlocking.

(2) Direct participants are the ones between whom the interlocking takes place.

(3) Indirect participants are thosea) who are controlled by a direct participant as defined in Subsection (2) or (3) of Section

23;b) who control a direct participant as defined in paragraph a) ;c) who are controlled by an indirect participant as defined in paragraph b), in addition to

a direct participant, in accordance with paragraph a) ;d) who are controlled by two or more participants jointly, regardless of whether they are

direct participants or indirect participants as listed in paragraphs a) to c).

(4) In the course of determining the circle of direct participants, those whose right of controlexpires as a result of the interlocking shall be disregarded.

Section 27

(1) For the purposes of Subsections (1) of Section 24, in the course of calculating the net salesrevenues, the turnover between the undertakings concerned (Section 26) or between the partsthereof shall be disregarded.

(2) In the course of calculating the net sales revenues of (non-resident) undertakings whosecorporate domicile is abroad, the net sales revenues generated in the previous business year

from the goods sold in the territory of the Republic of Hungary shall be taken into account.(3) In calculating the net sales revenues of the undertakings concerned, majority owned by theState or by local governments, that undertaking comprising an economic unit shall be takeninto account which has an independent right of decision-making in respect of defining itsmarket attitude.

(4) In respect of the alienation of business units, the net revenue received by the undertakingfrom the utilization of assets and rights shall be taken into consideration.

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Section 28

(1) In the case of merger or fusion, the direct participant or, in all other cases, the partyacquiring the business unit or direct control must – as prescribed under Section 24 – apply forauthorization for interlocking directorates.

(2) The application for permission shall be submitted within thirty (30) days reckoned fromthe earliest of the following dates: the publication of the public invitation to tender, theconclusion of the contract or the acquisition of the right of control.

(3) In the case of the interlocking of credit institutions as well as of insurance companies, theapplication for permission shall be submitted to the Office of Economic Competition at thesame date as the application for the permit of the supervisory agency defined in a separatelegal rule.

Section 29

The permission of the Office of Economic Competition is required for the conclusion of acontract resulting in an interlocking as defined in Section 24.

Section 30

(1) When assessing an application for permission, the advantages and disadvantages resultingfrom the interlocking shall be assessed. In the course of this, the following shall be examinedin particular:

a) the structure of the markets concerned; the existing or potential competition, thepurchase and sales opportunities on the markets concerned; the costs and risks, as wellas the technical, economic and legal conditions, of entry into the market and exittherefore; the expected effect of the interlocking upon the competition on the marketsconcerned;

b) the market situation and strategy of the undertakings concerned, their economic andfinancial capability, their business attitude, their competitiveness on domestic andforeign markets, and any expected changes therein;

c) the effect of the interlocking upon the suppliers, the intermediate and final consumers.

(2) The Office of Economic Competition may not refuse to grant authorization if, with regardto the contents of Subsection (1), the interlocking directorates do not create or intensify

dominant position in so far as to prevent the development, maintenance or expansion of effective competition in the given market (Section 14) or in a considerable fraction thereof.

(3) In the interest of reducing the disadvantageous effects of interlocking directorates, theOffice of Economic Competition may make its authorization contingent upon prior orsubsequent conditions; certain obligations, such as having to alienate certain business units orother assets within a prescribed deadline; or termination of control over an undertaking that isindirectly involved.

(4) If authorization is granted as contingent on any prior condition, it shall become operativeonce the condition has been satisfied. An authorization contingent on any subsequent

condition shall become operative when it is granted; however, it shall be cancelled if thecondition is not satisfied.

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(5) The scope of authorization granted for interlocking directorates shall include therestrictive market practices necessary for carrying out such interlocking directorates.

Section 31

If, in the course of a competition control procedure, it is established that unauthorizedinterlocking directorates (which, according to Section 24, require authorization) could nothave been authorized, the Office of Economic Competition, in order to restore effectivecompetition, may prescribe the separation or alienation of the merged undertakings or assetsand business units; termination of joint control; or some other obligation, and it shall set anappropriate deadline for doing so.

Section 32

(1) The Office of Economic Competition shall withdraw its decision passed on the basis of Section 30, if

a) granting of the permission in a decision not reviewed by the court is based upon themisleading communication of a fact important from the respect of making thedecision, or

b) the obliged undertaking has failed to perform any of the obligations stipulated in thedecision.

(2) The Office of Economic Competition may amend its decisions passed on the basis of Section 30 if the obligor has failed to perform any of the obligations or is unable to satisfy anyof the conditions laid down in the decision for reasons beyond his control.

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CHAPTERFIVE

CONVENTION ONC. I. S. G.

United Nations Convention on

Contracts for the International Sale of Goods

PREAMBLE

The States Parties to this Convention, Bearing in mind the broad objectives in the resolutions adopted by the sixth special session of the General Assembly of the United Nations on the establishment of a New InternationalEconomic Order,Considering that the development of international trade on the basis of equality and mutualbenefit is an important element in promoting friendly relations among States,

Being of the opinion that the adoption of uniform rules which govern contracts for theinternational sale of goods and take into account the different social, economic and legalsystems would contribute to the removal of legal barriers in international trade and promotethe development of international trade,

Have agreed as follows:

Part I Sphere of application and general provisions

CHAPTER 1SPHERE OF APPLICATION

Article 1

(1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States:(a) when the States are Contracting States; or(b) when the rules of private international law lead to the application of the law of aContracting State.

(2) The fact that the parties have their places of business in different States is to bedisregarded whenever this fact does not appear either from the contract or from any dealingsbetween or from information disclosed by, the parties at any time before or at the conclusionof the contract.

(3) Neither the nationality of the parties nor the civil or commercial character of the parties orof the contract is to be taken into consideration in determining the application of thisConvention.

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Article 2

This Convention does not apply to sales:(a) of goods bought for personal, family or household use, unless the seller, at any time beforeor at the conclusion of the contract, neither knew nor ought to have known that the goods

were bought for any such use;(b) by auction;(c) on execution or otherwise by authority of law;(d) of stocks, shares, investment securities, negotiable instruments or money;(e) of ships, vessels, hovercraft or aircraft;(f) of electricity.

Article 3

(1) Contracts for the supply of goods to be manufactured or produced are to be consideredsales unless the party who orders the goods undertakes to supply a substantial part of thematerials necessary for such manufacture or production.

(2) This Convention does not apply to contracts in which the preponderant part of theobligations of the party who furnishes the goods consists in the supply of labour or otherservices.

Article 4

This Convention governs only the formation of the contract of sale and the rights andobligations of the seller and the buyer arising from such a contract. In particular, except asotherwise expressly provided in this Convention, it is not concerned with:(a) the validity of the contract or of any of its provisions or of any usage;(b) the effect which the contract may have on the property in the goods sold.

Article 5

This Convention does not apply to the liability of the seller for death or personal injury causedby the goods to any person.

Article 6

The parties may exclude the application of this Convention or, subject to article 12, derogatefrom or vary the effect of any of its provisions.

CHAPTER II GENERAL PROVISIONS

Article 7

(1) In the interpretation of this Convention, regard is to be had to its international characterand to the need to promote uniformity in its application and the observance of good faith ininternational trade.

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(2) Questions concerning matters governed by this Convention which are not expressly settledin it are to be settled in conformity with the general principles on which it is based or, in theabsence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

Article 8

(1) For the purposes of this Convention statements made by and other conduct of a party areto be interpreted according to his intent where the other party knew or could not have beenunaware what that intent was.

(2) If the preceding paragraph is not applicable, statements made by and other conduct of aparty are to be interpreted according to the understanding that a reasonable person of the samekind as the other party would have had in the same circumstances.

(3) In determining the intent of a party or the understanding a reasonable person would havehad, due consideration is to be given to all relevant circumstances of the case including thenegotiations, any practices which the parties have established between themselves, usages andany subsequent conduct of the parties.

Article 9

(1) The parties are bound by any usage to which they have agreed and by any practices whichthey have established between themselves.

(2) The parties are considered, unless otherwise agreed, to have impliedly made applicable totheir contract or its formation a usage of which the parties knew or ought to have known andwhich in international trade is widely known to, and regularly observed by, parties tocontracts of the type involved in the particular trade concerned.

Article 10

For the purposes of this Convention:(a) if a party has more than one place of business, the place of business is that which has theclosest relationship to the contract and its performance, having regard to the circumstancesknown to or contemplated by the parties at any time before or at the conclusion of thecontract;

(b) if a party does not have a place of business, reference is to be made to his habitualresidence.

Article 11

A contract of sale need not be concluded in or evidenced by writing and is not subject to anyother requirement as to form. It may be proved by any means, including witnesses.

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Article 12

Any provision of article 11, article 29 or Part II of this Convention that allows a contract of sale or its modification or termination by agreement or any offer, acceptance or otherindication of intention to be made in any form other than in writing does not apply where any

party has his place of business in a Contracting State which has made a declaration underarticle 96 of this Convention. The parties may not derogate from or vary the effect of thisarticle.

Article 13

For the purposes of this Convention "writing" includes telegram and telex.

Part II Formation of the contract

Article 14

(1) A proposal for concluding a contract addressed to one or more specific persons constitutesan offer if it is sufficiently definite and indicates the intention of the offeror to be bound incase of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly orimplicitly fixes or makes provision for determining the quantity and the price.

(2) A proposal other than one addressed to one or more specific persons is to be consideredmerely as an invitation to make offers, unless the contrary is clearly indicated by the personmaking the proposal.

Article 15

(1) An offer becomes effective when it reaches the offeree.

(2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offereebefore or at the same time as the offer.

Article 16

(1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree

before he has dispatched an acceptance.(2) However, an offer cannot be revoked:(a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it isirrevocable; or(b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offereehas acted in reliance on the offer.

Article 17

An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror.

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Article 18

(1) A statement made by or other conduct of the offeree indicating assent to an offer is anacceptance. Silence or inactivity does not in itself amount to acceptance.

(2) An acceptance of an offer becomes effective at the moment the indication of assentreaches the offeror. An acceptance is not effective if the indication of assent does not reachthe offeror within the time he has fixed or, if no time is fixed, within a reasonable time, dueaccount being taken of the circumstances of the transaction, including the rapidity of themeans of communication employed by the offeror. An oral offer must be acceptedimmediately unless the circumstances indicate otherwise.

(3) However, if, by virtue of the offer or as a result of practices which the parties haveestablished between themselves or of usage, the offeree may indicate assent by performing anact, such as one relating to the dispatch of the goods or payment of the price, without notice tothe offeror, the acceptance is effective at the moment the act is performed, provided that theact is performed within the period of time laid down in the preceding paragraph.

Article 19

(1) A reply to an offer which purports to be an acceptance but contains additions, limitationsor other modifications is a rejection of the offer and constitutes a counteroffer.

(2) However, a reply to an offer which purports to be an acceptance but contains additional ordifferent terms which do not materially alter the terms of the offer constitutes an acceptance,unless the offeror, without undue delay, objects orally to the discrepancy or dispatches anotice to that effect. If he does not so object, the terms of the contract are the terms of theoffer with the modifications contained in the acceptance.

(3) Additional or different terms relating, among other things, to the price, payment, qualityand quantity of the goods, place and time of delivery, extent of one party's liability to theother or the settlement of disputes are considered to alter the terms of the offer materially.

Article 20

(1) A period of time of acceptance fixed by the offeror in a telegram or a letter begins to runfrom the moment the telegram is handed in for dispatch or from the date shown on the letter

or, if no such date is shown, from the date shown on the envelope. A period of time foracceptance fixed by the offeror by telephone, telex or other means of instantaneouscommunication begins to run from the moment that the offer reaches the offeree.

(2) Official holidays or non-business days occurring during the period for acceptance areincluded in calculating the period. However, if a notice of acceptance cannot be delivered atthe address of the offeror on the last day of the period because that day falls on an officialholiday or a non-business day at the place of business of the offeror, the period is extendeduntil the first business day which follows.

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Article 21

(1) A late acceptance is nevertheless effective as an acceptance if without delay the offerororally so informs the offeree or dispatches a notice to that effect.

(2) If a letter or other writing containing a late acceptance shows that it has been sent in suchcircumstances that if its transmission had been normal it would have reached the offeror indue time, the late acceptance is effective as an acceptance unless, without delay, the offerororally informs the offeree that he considers his offer as having lapsed or dispatches a notice tothat effect.

Article 22

An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the sametime as the acceptance would have become effective.

Article 23

A contract is concluded at the moment when an acceptance of an offer becomes effective inaccordance with the provisions of this Convention.

Article 24

For the purposes of this Part of the Convention, an offer, declaration of acceptance or anyother indication of intention "reaches" the addressee when it is made orally to him ordelivered by any other means to him personally, to his place of business or mailing address or,if he does not have a place of business or mailing address, to his habitual residence.

Part III Sale of goods

CHAPTER I GENERAL PROVISIONS

Article 25

A breach of contract committed by one of the parties is fundamental if it results in such

detriment to the other party as substantially to deprive him of what he is entitled to expectunder the contract, unless the party in breach did not foresee and a reasonable person of thesame kind in the same circumstances would not have foreseen such a result.

Article 26

A declaration of avoidance of the contract is effective only if made by notice to the otherparty.

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Article 27

Unless otherwise expressly provided in this Part of the Convention, if any notice, request orother communication is given or made by a party in accordance with this Part and by meansappropriate in the circumstances, a delay or error in the transmission of the communication or

its failure to arrive does not deprive that party of the right to rely on the communication.

Article 28

If, in accordance with the provisions of this Convention, one party is entitled to requireperformance of any obligation by the other party, a court is not bound to enter a judgement forspecific performance unless the court would do so under its own law in respect of similarcontracts of sale not governed by this Convention.

Article 29

(1) A contract may be modified or terminated by the mere agreement of the parties.

(2) A contract in writing which contains a provision requiring any modification or terminationby agreement to be in writing may not be otherwise modified or terminated by agreement.However, a party may be precluded by his conduct from asserting such a provision to theextent that the other party has relied on that conduct.

CHAPTER II OBLIGATIONS OF THE SELLER

Article 30 The seller must deliver the goods, hand over any documents relating to them and transfer theproperty in the goods, as required by the contract and this Convention.

Section I. Delivery of the goods and handing over of documents

Article 31

If the seller is not bound to deliver the goods at any other particular place, his obligation todeliver consists:(a) if the contract of sale involves carriage of the goods--in handing the goods over to the first

carrier for transmission to the buyer;(b) if, in cases not within the preceding subparagraph, the contract relates to specific goods, orunidentified goods to be drawn from a specific stock or to be manufactured or produced, andat the time of the conclusion of the contract the parties knew that the goods were at, or were tobe manufactured or produced at, a particular place--in placing the goods at the buyer'sdisposal at that place;(c) in other cases--in placing the goods at the buyer's disposal at the place where the seller hadhis place of business at the time of the conclusion of the contract.

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(3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for anylack of conformity of the goods if at the time of the conclusion of the contract the buyer knewor could not have been unaware of such lack of conformity.

Article 36

(1) The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time.

(2) The seller is also liable for any lack of conformity which occurs after the time indicated inthe preceding paragraph and which is due to a breach of any of his obligations, including abreach of any guarantee that for a period of time the goods will remain fit for their ordinarypurpose or for some particular purpose or will retain specified qualities or characteristics.

Article 37

If the seller has delivered goods before the date for delivery, he may, up to that date, deliverany missing part or make up any deficiency in the quantity of the goods delivered, or delivergoods in replacement of any non-conforming goods delivered or remedy any lack of conformity in the goods delivered, provided that the exercise of this right does not cause thebuyer unreasonable inconvenience or unreasonable expense. However, the buyer retains anyright to claim damages as provided for in this Convention.

Article 38

(1) The buyer must examine the goods, or cause them to be examined, within as short a periodas is practicable in the circumstances.

(2) If the contract involves carriage of the goods, examination may be deferred until after thegoods have arrived at their destination.

(3) If the goods are redirected in transit or redispatched by the buyer without a reasonableopportunity for examination by him and at the time of the conclusion of the contract the sellerknew or ought to have known of the possibility of such redirection or redispatch, examinationmay be deferred until after the goods have arrived at the new destination.

Article 39 (1) The buyer loses the right to rely on a lack of conformity of the goods if he does not givenotice to the seller specifying the nature of the lack of conformity within a reasonable timeafter he has discovered it or ought to have discovered it.

(2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if hedoes not give the seller notice thereof at the latest within a period of two years from the dateon which the goods were actually handed over to the buyer, unless this time-limit isinconsistent with a contractual period of guarantee.

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Article 40

The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which hedid not disclose to the buyer.

Article 41

The seller must deliver goods which are free from any right or claim of a third party, unlessthe buyer agreed to take the goods subject to that right or claim. However, if such right orclaim is based on industrial property or other intellectual property, the seller's obligation isgoverned by article 42.

Article 42

(1) The seller must deliver goods which are free from any right or claim of a third party basedon industrial property or other intellectual property, of which at the time of the conclusion of the contract the seller knew or could not have been unaware, provided that the right or claimis based on industrial property or other intellectual property:(a) under the law of the State where the goods will be resold or otherwise used, if it wascontemplated by the parties at the time of the conclusion of the contract that the goods wouldbe resold or otherwise used in that State; or(b) in any other case, under the law of the State where the buyer has his place of business.

(2) The obligation of the seller under the preceding paragraph does not extend to cases where:(a) at the time of the conclusion of the contract the buyer knew or could not have beenunaware of the right or claim; or(b) the right or claim results from the seller's compliance with technical drawings, designs,formulae or other such specifications furnished by the buyer.

Article 43

(1) The buyer loses the right to rely on the provisions of article 41 or article 42 if he does notgive notice to the seller specifying the nature of the right or claim of the third party within areasonable time after he has become aware or ought to have become aware of the right orclaim.

(2) The seller is not entitled to rely on the provisions of the preceding paragraph if he knew of the right or claim of the third party and the nature of it.

Article 44

Notwithstanding the provisions of paragraph (1) of article 39 and paragraph (1) of article 43,the buyer may reduce the price in accordance with article 50 or claim damages, except for lossof profit, if he has a reasonable excuse for his failure to give the required notice.

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Section III. Remedies for breach of contract by the seller

Article 45

(1) If the seller fails to perform any of his obligations under the contract or this Convention,

the buyer may:(a) exercise the rights provided in articles 46 to 52;(b) claim damages as provided in articles 74 to 77.

(2) The buyer is not deprived of any right he may have to claim damages by exercising hisright to other remedies.

(3) No period of grace may be granted to the seller by a court or arbitral tribunal when thebuyer resorts to a remedy for breach of contract.

Article 46

(1) The buyer may require performance by the seller of his obligations unless the buyer hasresorted to a remedy which is inconsistent with this requirement.

(2) If the goods do not conform with the contract, the buyer may require delivery of substitutegoods only if the lack of conformity constitutes a fundamental breach of contract and arequest for substitute goods is made either in conjunction with notice given under article 39 orwithin a reasonable time thereafter.

(3) If the goods do not conform with the contract, the buyer may require the seller to remedythe lack of conformity by repair, unless this is unreasonable having regard to all thecircumstances. A request for repair must be made either in conjunction with notice givenunder article 39 or within a reasonable time thereafter.

Article 47

(1) The buyer may fix an additional period of time of reasonable length for performance bythe seller of his obligations.

(2) Unless the buyer has received notice from the seller that he will not perform within theperiod so fixed, the buyer may not, during that period, resort to any remedy for breach of

contract. However, the buyer is not deprived thereby of any right he may have to claimdamages for delay in performance.

Article 48

(1) Subject to article 49, the seller may, even after the date for delivery, remedy at his ownexpense any failure to perform his obligations, if he can do so without unreasonable delay andwithout causing the buyer unreasonable inconvenience or uncertainty of reimbursement by theseller of expenses advanced by the buyer. However, the buyer retains any right to claimdamages as provided for in this Convention.

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(2) The buyer may declare the contract avoided in its entirety only if the failure to makedelivery completely or in conformity with the contract amounts to a fundamental breach of the contract.

Article 52

(1) If the seller delivers the goods before the date fixed, the buyer may take delivery or refuseto take delivery.

(2) If the seller delivers a quantity of goods greater than that provided for in the contract, thebuyer may take delivery or refuse to take delivery of the excess quantity. If the buyer takesdelivery of all or part of the excess quantity, he must pay for it at the contract rate.

CHAPTER III OBLIGATIONS OF THE BUYER

Article 53

The buyer must pay the price for the goods and take delivery of them as required by thecontract and this Convention.

Section I. Payment of the price

Article 54

The buyer's obligation to pay the price includes taking such steps and complying with suchformalities as may be required under the contract or any laws and regulations to enablepayment to be made.

Article 55

Where a contract has been validly concluded but does not expressly or implicitly fix or makeprovision for determining the price, the parties are considered, in the absence of anyindication to the contrary, to have impliedly made reference to the price generally charged atthe time of the conclusion of the contract for such goods sold under comparablecircumstances in the trade concerned.

Article 56 If the price is fixed according to the weight of the goods, in case of doubt it is to bedetermined by the net weight.

Article 57

(1) If the buyer is not bound to pay the price at any other particular place, he must pay it to theseller:(a) at the seller's place of business; or(b) if the payment is to be made against the handing over of the goods or of documents, at the

place where the handing over takes place.

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(2) The seller must bear any increase in the expenses incidental to payment which is causedby a change in his place of business subsequent to the conclusion of the contract.

Article 58

(1) If the buyer is not bound to pay the price at any other specific time, he must pay it whenthe seller places either the goods or documents controlling their disposition at the buyer'sdisposal in accordance with the contract and this Convention. The seller may make suchpayment a condition for handing over the goods or documents.

(2) If the contract involves carriage of the goods, the seller may dispatch the goods on termswhereby the goods, or documents controlling their disposition, will not be handed over to thebuyer except against payment of the price.

(3) The buyer is not bound to pay the price until he has had an opportunity to examine thegoods, unless the procedures for delivery or payment agreed upon by the parties areinconsistent with his having such an opportunity.

Article 59

The buyer must pay the price on the date fixed by or determinable from the contract and thisConvention without the need for any request or compliance with any formality on the part of the seller.

Section II.Taking delivery

Article 60

The buyer's obligation to take delivery consists:(a) in doing all the acts which could reasonably be expected of him in order to enable theseller to make delivery; and(b) in taking over the goods.

Section III. Remedies for breach of contract by the buyer

Article 61

(1) If the buyer fails to perform any of his obligations under the contract or this Convention,the seller may:(a) exercise the rights provided in articles 62 to 65;(b) claim damages as provided in articles 74 to 77.

(2) The seller is not deprived of any right he may have to claim damages by exercising hisright to other remedies.

(3) No period of grace may be granted to the buyer by a court or arbitral tribunal when theseller resorts to a remedy for breach of contract.

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Article 62

The seller may require the buyer to pay the price, take delivery or perform his otherobligations, unless the seller has resorted to a remedy which is inconsistent with thisrequirement.

Article 63

(1) The seller may fix an additional period of time of reasonable length for performance bythe buyer of his obligations.

(2) Unless the seller has received notice from the buyer that he will not perform within theperiod so fixed, the seller may not, during that period, resort to any remedy for breach of contract. However, the seller is not deprived thereby of any right he may have to claimdamages for delay in performance.

Article 64

(1) The seller may declare the contract avoided:(a) if the failure by the buyer to perform any of his obligations under the contract or thisConvention amounts to a fundamental breach of contract; or(b) if the buyer does not, within the additional period of time fixed by the seller in accordancewith paragraph (1) of article 63, perform his obligation to pay the price or take delivery of thegoods, or if he declares that he will not do so within the period so fixed;

(2) However, in cases where the buyer has paid the price, the seller loses the right to declarethe contract avoided unless he does so:(a) in respect of late performance by the buyer, before the seller has become aware thatperformance has been rendered; or(b) in respect of any breach other than late performance by the buyer, within a reasonabletime:

(i) after the seller knew or ought to have known of the breach; or(ii) after the expiration of any additional period of time fixed by the seller in

accordance with paragraph (1) of article 63, or after the buyer has declared that hewill not perform his obligations within such an additional period.

Article 65

(1) If under the contract the buyer is to specify the form, measurement or other features of thegoods and he fails to make such specification either on the date agreed upon or within areasonable time after receipt of a request from the seller, the seller may, without prejudice toany other rights he may have, make the specification himself in accordance with therequirements of the buyer that may be known to him.

(2) If the seller makes the specification himself, he must inform the buyer of the detailsthereof and must fix a reasonable time within which the buyer may make a differentspecification. If, after receipt of such a communication, the buyer fails to do so within thetime so fixed, the specification made by the seller is binding.

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CHAPTER V

PROVISIONS COMMON TO THE OBLIGATIONS OF THE SELLER AND OF THE BUYER

Section I. Anticipatory breach and instalment contracts Article 71

(1) A party may suspend the performance of his obligations if, after the conclusion of thecontract, it becomes apparent that the other party will not perform a substantial part of hisobligations as a result of:(a) a serious deficiency in his ability of perform or in his creditworthiness; or(b) his conduct in preparing to perform or in performing the contract.

(2) If the seller has already dispatched the goods before the grounds described in thepreceding paragraph become evident, he may prevent the handing over of the goods to thebuyer even though the buyer holds a document which entitles him to obtain them. The presentparagraph relates only to the rights in the goods as between the buyer and the seller.

(3) A party suspending performance, whether before or after dispatch of the goods, mustimmediately give notice of the suspension to the other party and must continue withperformance if the other party provides adequate assurance of his performance.

Article 72

(1) If prior to the date for performance of the contract it is clear that one of the parties willcommit a fundamental breach of contract, the other party may declare the contract avoided.

(2) If time allows, the party intending to declare the contract avoided must give reasonablenotice to the other party in order to permit him to provide adequate assurance of hisperformance.

(3) The requirements of the preceding paragraph do not apply if the other party has declaredthat he will not perform his obligations.

Article 73

(1) In the case of a contract for delivery of goods by instalments, if the failure of one party toperform any of his obligations in respect of any instalment constitutes a fundamental breachof contract with respect to that instalment, the other party may declare the contract avoidedwith respect to that instalment.

(2) If one party's failure to perform any of his obligations in respect of any instalment givesthe other party good grounds to conclude that a fundamental breach of contract will occurwith respect to future instalments, he may declare the contract avoided for the future,provided that he does so within a reasonable time.

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(3) A buyer who declares the contract avoided in respect of any delivery may, at the sametime, declare it avoided in respect of deliveries already made or of future deliveries if, byreason of their interdependence, those deliveries could not be used for the purposecontemplated by the parties at the time of the conclusion of the contract.

Section II. Damages Article 74

Damages for breach of contract by one party consist of a sum equal to the loss, including lossof profit, suffered by the other party as a consequence of the breach. Such damages may notexceed the loss which the party in breach foresaw or ought to have foreseen at the time of theconclusion of the contract, in the light of the facts and matters of which he then knew or oughtto have known, as a possible consequence of the breach of contract.

Article 75

If the contract is avoided and if, in a reasonable manner and within a reasonable time afteravoidance, the buyer has bought goods in replacement or the seller has resold the goods, theparty claiming damages may recover the difference between the contract price and the price inthe substitute transaction as well as any further damages recoverable under article 74.

Article 76

(1) If the contract is avoided and there is a current price for the goods, the party claimingdamages may, if he has not made a purchase or resale under article 75, recover the differencebetween the price fixed by the contract and the current price at the time of avoidance as wellas any further damages recoverable under article 74. If, however, the party claiming damageshas avoided the contract after taking over the goods, the current price at the time of suchtaking over shall be applied instead of the current price at the time of avoidance.

(2) For the purposes of the preceding paragraph, the current price is the price prevailing at theplace where delivery of the goods should have been made or, if there is no current price at thatplace, the price at such other place as serves as a reasonable substitute, making due allowancefor differences in the cost of transporting the goods.

Article 77

A party who relies on a breach of contract must take such measures as are reasonable in thecircumstances to mitigate the loss, including loss of profit, resulting from the breach. If hefails to take such measures, the party in breach may claim a reduction in the damages in theamount by which the loss should have been mitigated.

Section III. Interest

Article 78

If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to

interest on it, without prejudice to any claim for damages recoverable under article 74.

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Section IV. Exemption

Article 79

(1) A party is not liable for a failure to perform any of his obligations if he proves that the

failure was due to an impediment beyond his control and that he could not reasonably beexpected to have taken the impediment into account at the time of the conclusion of thecontract or to have avoided or overcome it or its consequences.

(2) If the party's failure is due to the failure by a third person whom he has engaged toperform the whole or a part of the contract, that party is exempt from liability only if:(a) he is exempt under the preceding paragraph; and(b) the person whom he has so engaged would be so exempt if the provisions of thatparagraph were applied to him.

(3) The exemption provided by this article has effect for the period during which theimpediment exists.

(4) The party who fails to perform must give notice to the other party of the impediment andits effect on his ability to perform. If the notice is not received by the other party within areasonable time after the party who fails to perform knew or ought to have known of theimpediment, he is liable for damages resulting from such nonreceipt.

(5) Nothing in this article prevents either party from exercising any right other than to claimdamages under this Convention.

Article 80

A party may not rely on a failure of the other party to perform, to the extent that such failurewas caused by the first party's act or omission.

Section V. Effects of avoidance

Article 81

(1) Avoidance of the contract releases both parties from their obligations under it, subject toany damages which may be due. Avoidance does not affect any provision of the contract for

the settlement of disputes or any other provision of the contract governing the rights andobligations of the parties consequent upon the avoidance of the contract.

(2) A party who has performed the contract either wholly or in part may claim restitution fromthe other party of whatever the first party has supplied or paid under the contract. If bothparties are bound to make restitution, they must do so concurrently.

Article 82

(1) The buyer loses the right to declare the contract avoided or to require the seller to deliversubstitute goods if it is impossible for him to make restitution of the goods substantially in the

condition in which he received them.

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(2) The preceding paragraph does not apply:(a) if the impossibility of making restitution of the goods or of making restitution of the goodssubstantially in the condition in which the buyer received them is not due to his act oromission;(b) the goods or part of the goods have perished or deteriorated as a result of the examination

provided for in article 38; or(c) if the goods or part of the goods have been sold in the normal course of business or havebeen consumed or transformed by the buyer in the course of normal use before he discoveredor ought to have discovered the lack of conformity.

Article 83

A buyer who has lost the right to declare the contract avoided or to require the seller to deliversubstitute goods in accordance with article 82 retains all other remedies under the contract andthis Convention.

Article 84

(1) If the seller is bound to refund the price, he must also pay interest on it, from the date onwhich the price was paid.

(2) The buyer must account to the seller for all benefits which he has derived from the goodsor part of them:(a) if he must make restitution of the goods or part of them; or(b) if it is impossible for him to make restitution of all or part of the goods or to makerestitution of all or part of the goods substantially in the condition in which he received them,but he has nevertheless declared the contract avoided or required the seller to deliversubstitute goods.

Section VI. Preservation of the goods

Article 85

If the buyer is in delay in taking delivery of the goods or, where payment of the price anddelivery of the goods are to be made concurrently, if he fails to pay the price, and the seller iseither in possession of the goods or otherwise able to control their disposition, the seller musttake such steps as are reasonable in the circumstances to preserve them. He is entitled to retain

them until he has been reimbursed his reasonable expenses by the buyer. Article 86

(1) If the buyer has received the goods and intends to exercise any right under the contract orthis Convention to reject them, he must take such steps to preserve them as are reasonable inthe circumstances. He is entitled to retain them until he has been reimbursed his reasonableexpenses by the seller.

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(2) If goods dispatched to the buyer have been placed at his disposal at their destination andhe exercises the right to reject them, he must take possession of them on behalf of the seller,provided that this can be done without payment of the price and without unreasonableinconvenience or unreasonable expense. This provision does not apply if the seller or a personauthorized to take charge of the goods on his behalf is present at the destination. If the buyer

takes possession of the goods under this paragraph, his rights and obligations are governed bythe preceding paragraph.

Article 87 A party who is bound to take steps to preserve the goods may deposit them in a warehouse of a third person at the expense of the other party provided that the expense incurred is notunreasonable.

Article 88

(1) A party who is bound to preserve the goods in accordance with article 85 or 86 may sellthem by any appropriate means if there has been an unreasonable delay by the other party intaking possession of the goods or in taking them back or in paying the price or the cost of preservation, provided that reasonable notice of the intention to sell has been given to theother party.

(2) If the goods are subject to rapid deterioration or their preservation would involveunreasonable expense, a party who is bound to preserve the goods in accordance with article85 or 86 must take reasonable measures to sell them. To the extent possible he must givenotice to the other party of his intention to sell.

(3) A party selling the goods has the right to retain out of the proceeds of sale an amountequal to the reasonable expenses of preserving the goods and of selling them. He mustaccount to the other party for the balance.

Part IV Final provisions

Article 89

The Secretary-General of the United Nations is hereby designated as the depositary for thisConvention.

Article 90

This Convention does not prevail over any international agreement which has already been ormay be entered into and which contains provisions concerning the matters governed by thisConvention, provided that the parties have their places of business in States parties, to suchagreement.

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Article 91

(1) This Convention is open for signature at the concluding meeting of the United NationsConference on Contracts for the International Sale of Goods and will remain open forsignature by all States at the Headquarters of the United Nations, New York until 30

September 1981.

(2) This Convention is subject to ratification, acceptance or approval by the signatory States.

(3) This Convention is open for accession by all States which are not signatory States as fromthe date it is open for signature.

(4) Instruments of ratification, acceptance, approval and accession are to be deposited with theSecretary-General of the United Nations.

Article 92

(1) A Contracting State may declare at the time of signature, ratification, acceptance, approvalor accession that it will not be bound by Part II of this Convention or that it will not be boundby Part III of this Convention.

(2) A Contracting State which makes a declaration in accordance with the precedingparagraph in respect of Part II or Part III of this Convention is not to be considered aContracting State within paragraph (1) of article 1 of this Convention in respect of mattersgoverned by the Part to which the declaration applies.

Article 93

(1) If a Contracting State has two or more territorial units in which, according to itsconstitution, different systems of law are applicable in relation to the matters dealt with in thisConvention, it may, at the time of signature, ratification, acceptance, approval or accession,declare that this Convention is to extend to all its territorial units or only to one or more of them, and may amend its declaration by submitting another declaration at any time.

(2) These declarations are to be notified to the depositary and are to state expressly theterritorial units to which the Convention extends.

(3) If, by virtue of a declaration under this article, this Convention extends to one or more butnot all of the territorial units of a Contracting State, and if the place of business of a party islocated in that State, this place of business, for the purposes of this Convention, is considerednot to be in a Contracting State, unless it is in a territorial unit to which the Conventionextends.

(4) If a Contracting State makes no declaration under paragraph (1) of this article, theConvention is to extend to all territorial units of that State.

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(4) Any State which makes a declaration under this Convention may withdraw it at any timeby a formal notification in writing addressed to the depositary. Such withdrawal is to takeeffect on the first day of the month following the expiration of six months after the date of thereceipt of the notification by the depositary.

(5) A withdrawal of a declaration made under article 94 renders inoperative, as from the dateon which the withdrawal takes effect, any reciprocal declaration made by another State underthat article.

Article 98

No reservations are permitted except those expressly authorized in this Convention.

Article 99

(1) This Convention enters into force, subject to the provisions of paragraph (6) of this article,on the first day of the month following the expiration of twelve months after the date of deposit of the tenth instrument of ratification, acceptance, approval or accession, including aninstrument which contains a declaration made under article 92.

(2) When a State ratifies, accepts, approves or accedes to this Convention after the deposit of the tenth instrument of ratification, acceptance, approval or accession, this Convention, withthe exception of the Part excluded, enters into force in respect of that State, subject to theprovisions of paragraph (6) of this article, on the first day of the month following theexpiration of twelve months after the date of the deposit of its instrument of ratification,acceptance, approval or accession.

(3) A State which ratifies, accepts, approves or accedes to this Convention and is a party toeither or both the Convention relating to a Uniform Law on the Formation of Contracts for theInternational Sale of Goods done at The Hague on 1 July 1964 (1964 Hague FormationConvention) and the Convention relating to a Uniform Law on the International Sale of Goods done at The Hague on 1 July 1964 (1964 Hague Sales Convention) shall at the sametime denounce, as the case may be, either or both the 1964 Hague Sales Convention and the1964 Hague Formation Convention by notifying the Government of the Netherlands to thateffect.

(4) A State party to the 1964 Hague Sales Convention which ratifies, accepts, approves or

accedes to the present Convention and declares or has declared under article 92 that it will notbe bound by Part II of this Convention shall at the time of ratification, acceptance, approval oraccession denounce the 1964 Hague Sales Convention by notifying the Government of theNetherlands to that effect.

(5) A State party to the 1964 Hague Formation Convention which ratifies, accepts, approvesor accedes to the present Convention and declares or has declared under article 92 that it willnot be bound by Part III of this Convention shall at the time of ratification, acceptance,approval or accession denounce the 1964 Hague Formation Convention by notifying theGovernment of the Netherlands to that effect.

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