Central Asia Law Initiative

Bishkek May 8, 1996, # 15

CIVIL CODE OF THE KYRGYZ REPUBLIC
(As amended by the Laws of the Kyrgyz Republic of
April 29, 1997 # 29 and October 15, 1997 # 76)

SECTION III. OBLIGATIONS LAW (General Part)
Chapter 16. Definition And Parties To Obligations
Chapter 17. Enforcement Of Obligations
Chapter 18. Exchange Of Persons In Obligation. Transfer Of Debt
Chapter 19. Securing Performance Of Obligations
Chapter 20. Liability For Breach Of Obligations
Chapter 21. Termination Of Obligations
Chapter 22. General Provisions About Contract

SECTION III
OBLIGATIONS LAW
(General Part)

CHAPTER 16
DEFINITION AND PARTIES TO OBLIGATIONS

Article 296. Definition of Obligation

By means of an obligation, one person (obligor) shall be obliged to commit a certain action in favor of the other person (obligee) such as: to transfer property, to perform work, to pay money and so on, or to restrain from a certain action, and the obligee shall have the right to demand performance from the obligor.

Article 297. Grounds for Obligation

An obligation shall emerge:

1) from a contract;

2) as a result of creating works of science, literature, art, purchasing, and other results of intellectual activity;

3) as result of damage to another person;

4) as a result of inheriting property of a deceased citizen;

5) from other grounds specified in Article 7 of this Code.

Article 298. Parties to Obligation

1. One or more persons may be parties to an obligation.

2. If each of the parties to a contract has an obligation in favor of the other party, each party shall be deemed an obligor to the other party with respect to what it is obliged to do in favor of that party, and it shall simultaneously be the obligee to that party with respect to that which it is entitled to demand from the other party.

3. An obligation shall not create obligations to persons who do not participate in the liability as a party (for third persons).

In cases provided in legislation or by the contract between the parties, an obligation may be created in favor of third parties with respect to one or both parties to the obligation.

CHAPTER 17
ENFORCEMENT OF OBLIGATIONS

Article 299. Ways of Enforcing Obligations

Obligations should be enforced in a proper manner and within the established period in accordance with the terms of the contract and requirements of legislation, and in the event such terms and requirements are absent, in accordance with business norms and other usually provided requirements.

Article 300. Prohibition of Refusal by One Party to Perform Obligation

Neither of the parties shall be allowed to refuse the performance of an obligation nor shall it be allowed to alter terms of the contract except in cases envisaged by legislation or by the contract.

Article 301. Partial Performance of Obligations

The obligee shall have the right not to accept partial performance of an obligation unless otherwise provided by the legislation, by the terms of the liability itself, or arises from business norms or the essence of the obligation.

Article 302. Performance of Obligation in Favor of Proper Person

Unless otherwise provided by the contract between the parties and not derived from business norms, or from the essence of the obligation, the obligor shall have the right to demand, upon performance of his obligations, evidence verifying that performance is accepted by the obligee himself or by an authorized person, and he shall risk the consequences for the failure to demand this.

Article 303. Performance of Obligation by Third Person

1. If not provided by legislation, conditions of an obligation, or its essence that the obligor should personally perform his obligation, a third person may be obliged to perform the obligation. In that event, the obligee shall be obliged to accept the performance proposed by the third person for the obligor.

2. A third person who is susceptible to losing his right to the property of the obligor (leasing, pledge right or others) as a result of the imposition of levy by an obligee to that property, may comply on his own account with the demand of the obligee without the obligor's consent. In that case the obligee's rights on obligation shall transfer to the third person according to Article 313 of this Code.

Article 304. Performance of Obligations in the Most Efficient Manner. Assistance on Performance

Each of the parties to the obligation shall perform its obligations in the most efficient manner and provide assistance to the other party in the performance of its obligations.

Article 305. Term for Performance of Obligation

1. If the obligation provides or makes it possible to identify the date of its performance or a period of time within which the obligation should be performed, the obligation shall be performed on that day, or correspondingly on any day within that time period.

2. In cases when a obligation does not specify a time period for its performance and does not contain conditions which could make it possible to identify that time period, it shall be performed within a reasonable time period after the obligation has arisen.

In the event of failure to perform an obligation within a reasonable time period, or an obligation within the time period determined by the moment of demand, the obligor shall be obliged to perform the obligation within seven days from the date the obligee demanded performance of the obligation if any other time period to perform the obligation is not provided by legislation, by terms of the obligation, by business norms, or by the essence of the obligation.

3. The obligee shall have the right to perform an obligation prior to the time period unless otherwise provided by legislation or by the terms of the obligation, or contemplated from the essence of the obligation. However, early performance of an obligation related to business activity shall be allowed only in the event that the possibility to perform the obligation prior to the time period is provided by legislation, or the terms of the obligation, or is derived from business norms, or from the essence of the obligation.

Article 306. Place of Performance of Obligation

1. If the place of performance has not been determined by the legislation or contract and is not clear from business norms, local customs and traditions or from the essence of the obligation, performance shall take place:

1) for an obligation to transfer real property - at the place where the property is located;

2) for an obligation to transfer goods and other property, including its carriage - at the place where the property is transferred to the first carrier for delivery to the obligee;

3) for other liabilities of the obligor to transfer goods and other property - at the place where the property is produced or stored, if such place was known to the obligee at the time when the obligation emerged;

4) for monetary obligation - at the place where the obligee resides at the time when the obligation arose, or, if the obligee is a corporation - at the place where the corporation is located at the time when the obligation emerged; or, if the obligee changed the place of residence or location by the time the obligation is to be performed at the new place of residence or location of the obligee and in such event, the expenses resulting from changing the place of performance shall be borne by the obligee;

5) for all other obligations - at the place where the obligor resides or place where the company is located if the obligor is a legal entity.

Article 307. Currency in which Obligations are Performed

1. A monetary obligation shall be converted and paid in the national currency. Use of foreign currency as well as payment documents in foreign currency, when paying on a obligation in the territory of the Kyrgyz Republic, shall be allowed under the conditions and according to the procedure established by the legislation.

2. A monetary obligation may provide that it shall be paid in the national currency in an amount equivalent to the same amount in a foreign currency or in conventional monetary units. In such event, the amount payable in a foreign currency shall be determined according to the official exchange rate for the corresponding currency or monetary units on the day of payment, if another rate or other date is not provided by the legislation or by the agreement between the parties.

Article 308. Increase in Citizens's Maintenance

The amount directly paid on a monetary obligation for a citizens's maintenance (compensation for damages to health and life based on the contract of maintenance thereto) shall increase in accordance with the increase in minimal wage rate stipulated by the law.

Article 309. Priority of Payment on Monetary Obligation

If insufficient to perform an obligation completely, a payment amount shall cover first, the costs to the obligee on acceptance of performance, then, the interest and penalty, and in the remaining part, the principal amount of the debt.

Article 310. Performance of Obligation by Transfer of Debt to Deposit

1. The obligor shall have the right to deposit money or securities due, into a notary office, and in cases envisaged by law, into court, if the obligation cannot be performed by the obligor as a result of:

- absence of the obligee or a person authorized to make a decision at the place where the obligation should be performed;

- disability of the obligee or the absence of his representative;

- obvious uncertainty as to who is the obligee to the obligation, in particular, in connection with the dispute in that regard between the obligee and other persons;

- evasion by the obligee from acceptance of performance or by virtue of other delay by the obligee.

2. Deposit of money or securities into a notary office shall be considered performance of the obligation.

The notary or court in which the money or securities have been deposited shall notify the obligee.

Article 311. Conditions for Creation of Joint and Several Responsibility or Joint and Several Claims

Joint and several responsibility or joint and several claims shall arise if the jointness or severalness of the responsibility (liability) or claim is provided by a contract or established by law, particularly in the event the subject-matter of the obligation is indivisible.

Article 312. Joint and Several Responsibility or Joint and Several Claim Under Obligation Related to Business Activity

Responsibility of several obligors under an obligation related to business activity, as well as claims of several obligees to such obligation, shall be joint and several, unless otherwise provided by legislation or by the conditions of the obligation.

Article 313. Responsibility of Obligor on Joint and Several Liability. Obligee's Rights on Joint and Several Liability

1. In the event of joint and several responsibility of obligors, the obligee shall have the right to demand performance both from all obligors simultaneously and from every individual obligor with respect both to the entire debt and to a part of the debt.

2. The obligee who has not received full satisfaction from one of the joint and several obligors shall have the right to demand the unreceived obligation from the rest of the joint and several obligors.

Joint and several obligors shall remain obliged until the obligation is liquidated completely.

3. In cases of joint and several responsibility, an obligor shall have no right to object to the demand of the obligee by referring to a relationship that the other obligors may have with the obligee, but in which the obligor is not a participant.

4. The complete performance of a joint and several obligation by one of the obligors shall release the rest of the obligors from performance to the obligee.

5. Unless otherwise arising from the relationship between joint and several obligors:

1) the obligor, who has performed the joint and several obligation, shall have the right to claim over the co-obligors in equal shares less his share;

2) an amount, which was not paid by one of the co-obligors to the obligor, who performed the joint and several obligation, shall be equally imposed on that obligor and on the rest of the co-obligors.

6. The rules of this Article shall correspondingly apply to the termination of the joint and several obligation through set-off for the counterclaim of one of the obligors.

CHAPTER 18
EXCHANGE OF PERSONS IN OBLIGATION
TRANSFER OF DEBT

Article 314. Grounds for Transfer of Obligee's Rights to Another Person

1. The right (claim) belonging to the obligee by virtue of an obligation may be transferred by the obligee to another person by transaction (assignment of claim) or transferred to another person by operation of the law.

2. The obligee's rights on the obligation shall transfer to another person on the following grounds:

1) as a result of universal succession to the obligee's rights;

2) upon the decision of the court to transfer the obligee's right to another person when the possibility of such a transfer is provided by law;

3) as a result of performance of the obligor's obligation by his surety (Article 345) or by his pledgor, who is not the obligor to that obligation;

4) on subrogation (transfer) of the obligee's rights to the insurer responsible for the insured case;

5) in other cases provided by law.

Article 315. Procedure for Transfer of Obligee's Rights to Another Person

1. The consent of the obligor shall not be required for the transfer of the obligee's rights to another person, unless otherwise provided by the law or the contract.

2. Unless the obligor has been notified in writing that the rights of the obligee have been transferred to another person, the new obligee shall bear the risk of unfavorable consequences. In such event, performance of an obligation in favor of the original obligee shall be recognized as performance of an obligation in favor of the proper obligee.

3. Transfer to another person of rights directly related to the person of an obligee, in particular alimony claims and claims for compensation for damage to health and life, shall not be allowed.

4. Unless otherwise provided by law or contract, the right of the original obligee shall transfer to a new obligee in the same amount and on the same conditions which existed at the time of transfer of the right. Such rights shall include in particular, the rights securing for the performance of the obligation, as well as other rights related to the claim, including the right to unpaid interest.

5. The rules about transfer of the obligee's rights to another person shall not apply to regressive (claimover) claims.

Article 316. Conditions and Form of Assignment of Obligee's Rights

1. Assignment of the obligee's rights to another person shall be allowed, unless it contradicts the legislation or the contract.

2. Assignment of a claim on an obligation in which the personal nature of the obligee has a significant importance to the obligor shall not be allowed without the consent of the obligor.

3. The obligee who assigned the claim to another person must transfer to that person documents certifying the right to claim and provide data which are significant to the performance of the claim.

4. The original obligee who has assigned the claim shall be held liable to the new obligee for the invalidity of the claim assigned, but he shall not be held liable for the obligor's failure to perform that claim, except when the original obligee assumed the surety for the obligor with respect to the new obligee.

5. An assignment of a claim based on a transaction concluded in writing (simple or notarized) must be in the same form.

Assignment of a claim on a transaction requiring government registration must be registered in the procedure established for registration of that transaction.

Assignment of a claim on an order security shall be carried out through endorsement on that security.

Article 317. Obligor's Objection to Claim by New Obligee

1. The obligor shall have the right not to perform the obligation to the new obligee until he is presented with evidence certifying the transfer of the claim to that person.

2. At the time he receives notice about the assignment of rights under the obligation to a new obligee, the obligor shall have the right to object to claims of the new obligee on the basis of objections which he had against the original obligee.

Article 318. Transfer of Debt

1. Obligor's transfer of his debt to another person shall be allowed only with the consent of the obligee.

2. The rules on the form of claim assignment shall apply respectively to the form of transfer of the debt.

3. The new obligor shall have the right to object to the obligee's claim on the basis of the relationship between the obligee and the original obligor.

CHAPTER 19
SECURING PERFORMANCE OF OBLIGATIONS

1. GENERAL PROVISIONS

Article 319. Ways of Securing Performance of Obligations

1. Performance of an obligation may be secured by penalty, pledge, retention of obligor's property, surety, guaranty, advance or any other way established by the legislation or the contract.

2. Invalidity of an agreement on securing an obligation shall not result in invalidity of the obligation (principle obligation).

3. Invalidity of the principle obligation results in invalidity of the obligation securing the same.

2. PENALTY

Article 320. Concept of Penalty

1. Penalty (fine) shall be a sum of money or any other piece of property determined by the legislation or the contract, which the obligor must pay or transfer to the obligee, in the event of the failure to perform or improper performance of an obligation. Upon a claim for penalty, the obligee must not prove damages suffered.

2. The obligee shall have no right to claim for penalty, if the obligor is not liable for the failure to perform or improper performance of the obligation.

Article 321. Lawful Penalty

1. The obligee shall have the right to claim for penalty established by law (lawful penalty) irrespective of whether the obligation to pay the same is established in the agreement between the parties.

2. The amount of the lawful penalty may be increased by the agreement of the parties, unless it is prohibited by law.

Article 322. Form of Agreement on Penalty

An agreement on penalty must be made in writing irrespective of the form of the principle obligation.

Failure to comply with the written form shall invalidate the agreement on penalty.

Article 323. Reduction of Penalty

If the penalty payable is obviously disproportionate to the consequences of the violation of the obligation, the court shall have the right to reduce the penalty assigned.

Rules of this Article shall not affect the rights of the obligor to reduce the amount of his liability by operation of Article 356 of this Code and the rights of the obligee to receive compensation for the damages as provided by Article 358 of this Code.

3. PLEDGE

Article 324. Concept of Pledge and Grounds for Its Creation

1. By virtue of pledge, in the event of the obligor's failure to perform the obligation, the obligee of a secured obligation (pledgeholder) shall have the right to receive satisfaction from the value of the pledged property prior to all other obligees of the person who owns the pledged property (pledgor), except as established by law.

The pledgeholder shall have the right to obtain satisfaction from the insurance compensation for the loss of or damage to the pledged property irrespective of whose benefit it is insured for, unless the pledgeholder is liable for occurrence of the loss or damage.

2. The pledge shall arise by virtue of a contract or by operation of Law.

The rules of this Code on pledge arising by virtue of the contract shall correspondingly apply to a pledge arising by operation of law, unless otherwise established by the law.

Article 325. Types of Pledge

A pledge may be in the form of a possessory pledge, mortgage, as well as pledge of rights, securities, and cash, etc.

A possessory pledge is a form of pledge which envisages delivery of the pledgor's property into the possession of the pledgeholder.

Mortgage is a form of pledge according to which the pledgor or a third party retains the possession and use of the pledged property. The subject of a mortgage may include enterprises, buildings, constructions, structures, apartments in a multi-apartment building, vehicles, goods in turnover, and other property which has not been removed from civil turnover. The subject of pledge of goods in turnover may include raw materials, semifinished produce, associated items, and finished products.

Pledge of land parcels, enterprises, buildings, structures, apartments and other immovable property (mortgage) shall be regulated by the legislation on pledge.

The subject of a pledge of rights shall include property rights which may be alienated, in particular the rights to develop and exploit deposits of mineral resources, lease rights to enterprises, buildings, constructions, structures, debt claims, copyrights, inventor's rights and other property rights.

Unless otherwise established by the legislative acts or by an agreement of the parties, a pledge of securities shall be effected by delivering a security to the pledgeholder and issuing a pledge certificate to the pledgor.

Cash which is the subject of pledge shall be kept on a deposit account in a bank or a notary office. Interest accrued to that sum shall belong to the pledgor.

Article 326. Pledgor

1. The obligor himself or a third party may become a pledgor.

2. The owner of the thing or a third party which has the right of economic management to such thing may become the pledgor of the same.

A person who holds the thing on the right of economic management shall have the right to pledge the same with the consent of the owner.

3. The person holding property rights may become the pledgor of the same.

Pledge of the lease right or any other right to other person's thing shall not be allowed without the consent of its owner, if the law or the contract prohibits alienation of this right without the consent of the said persons.

Article 327. Property to Which Pledgeholder's Rights Extend

1. The rights of a pledgeholder to a thing (pledge right) which is a subject of pledge shall extend to its accessories, unless otherwise established in the contract.

The pledge right shall extend to fruits, products and income received as a result of using the pledged property as established in the contract.

2. In the event of a mortgage of an enterprise or any other property complex as a going concern, the pledge right shall extend to all its assets, both movable and immovable, including the right to claim and exclusive rights, including those acquired during the period of the mortgage, unless otherwise established by the law or the contract.

3. The mortgage of a building, or structure shall be allowed only with a simultaneous mortgage under the same contract of the right to the land parcel where the building or structure is located, or of the right to a part of the land parcel securing the functioning of the pledged facility.

4. The contract on pledge, or the law, if the pledge arises by operation of the law, may provide for the extension of the pledge onto things and rights which the pledgor acquires in the future.

Article 328. Contract on Pledge

1. The contract on pledge must specify the parties, the subject of pledge and its assessment, essence, scope and period of performance of the obligation secured by the pledge. It shall also contain an indication as to which of the parties should keep the pledged property.

2. The contract on pledge must be in writing.

Mortgage contracts, as well as contracts on pledge of the movable property or rights to the property in securing obligations under a contract, which must be notarized, shall be subject to notarization.

3. A mortgage contract must be registered in the procedure established for registration of rights to the corresponding property and transactions therewith (Article 180).

4. Failure to comply with the rules set forth in points 2 and 3 of this Article shall result in invalidity of the pledge contract.

5. Unless otherwise established in a pledge contract, a pledge right shall arise in relation to the property which pledge is subject to registration from the time of registration of the contract, and in relation to other property - from the time of transfer of that property to the pledgeholder, and if the property is not subject to transfer, then from the time of entering into the pledge contract .

Article 329. Subsequent Pledge

1. A subsequent pledge shall be allowed, unless it is prohibited by the prior pledge contracts.

2. If the pledged property becomes a subject of another pledge to secure other claims (subsequent pledge), claims of the subsequent pledgeholder shall be satisfied from the value of the subject of the pledge after the claims of the prior pledgeholders.

3. The pledgor must inform every subsequent pledgeholder about all existing pledges of the property and shall be liable for damages caused to pledgeholders as a result of failure to meet this responsibility.

Article 330. Maintenance and Safeguard of Pledged Property

1. Unless otherwise established by the law or the contract, the pledgor or the pledgeholder, depending on who keeps the pledged property, must:

1) insure the pledged property at the expense of the pledgor for its full value against the risk of loss or damage, and if the full value of the property exceeds the amount of the secured claim - for an amount not less than the amount of the claim;

2) take measures necessary to safeguard the pledged property including its protection against takings and claims of third parties;

3) inform immediately the other party about the danger of loss of or damage to the pledged property.

2. The pledgeholder and the pledgor shall have the right to check by reference to documents and physical presence, the size, state and conditions of storage of the pledged property held by the other party.

3. In the event of gross violations by any party of obligations set forth in point 1 of this Article, which violations create the danger of loss of or damage to the pledged property, the other party shall have the right to demand an early termination of the pledge.

Article 331. Consequences of Loss of or Damage to Pledged Property

1. The pledgor shall bear the risk of accidental loss of or damage to the pledged property, unless otherwise established by the pledge contract.

2. Unless he can prove, that he may be released from the liability in accordance with Article 356 of this Code, the pledgeholder shall be held liable for complete or partial loss of or damage to the subject of the pledge which has been delivered to him.

The pledgeholder shall be liable for the loss of the subject of pledge in the amount of its real value, and in case of damage - in the amount by which its value was diminished, irrespective of the value of the same assessed at the time of its delivery to the pledgeholder.

If, as a result of the damage to the subject of pledge, the subject has changed to such an extent that it may no longer be used according to its direct purpose, the pledgor shall have the right to reject the subject and claim compensation for its loss.

The contract may provide for the pledgeholder's obligation to compensate the pledgor for other damages caused by the loss of, or damage to, the subject of pledge.

The pledgor, who is an obligor under the secured obligation, shall have the right to credit the amount of his claim to the pledgeholder for compensation of damages caused by the loss of, or damage to, the subject of the pledge, against the amount of the secured obligation.

3. Replacement of the subject of pledge shall be allowed only with the consent of the pledgeholder.

If the subject of pledge was destroyed or damaged, or the ownership right or the right of economic management to the same was terminated on grounds established by law, the pledgor shall have the right to restore or to replace the subject of pledge within a reasonable time period by any other property of equal value.

Article 332. Use and Disposal of Subject of Pledge

1. Unless otherwise established by a contract and arising from the essence of the pledge, the pledgor shall have the right to use the subject of pledge according to its purpose, as well as to benefit from its fruits and profit.

2. Unless otherwise established by the law or the contract and arising from the essence of the pledge, the pledgor shall have the right to alienate the subject of pledge to ownership, economic or operative management, to lease or transfer for gratuitous use to another person or to dispose of the same otherwise only with the consent of the pledgeholder.

An agreement restricting the pledgor's right to bequeath the pledged property shall be void.

3. A pledgeholder shall have the right to use the subject of pledge which has been delivered to him only as provided by the contract, while reporting to the pledgor periodically regarding its use. The contract may impose an obligation on the pledgeholder to take fruits and profits from the subject of pledge in order to recover the principle obligation, or for the pledgor's benefit.

Article 333. Protection of His Rights to Subject of Pledge by Pledgeholder

1. The pledgeholder, who keeps or should have kept the pledged property, shall have the right to demand the property from other person's illegal possession as well as from the pledgor himself (Article 291, 294).

2. In cases when according to the conditions of the contract the pledgeholder is granted the right to use the subject of pledge which has been transferred to him, he may demand from other persons, including the pledgor, that they eliminate any violations of his right, even if those violations are not connected with loss of possession (Article 294).

Article 334. Grounds for Execution Against Pledged Property

1. Execution against the pledged property with the purpose of meeting the pledgeholder's (obligee's) claims may take place, in the event the obligor fails to perform or improperly performs a secured obligation due to the circumstances for which he is answerable.

2. Execution against the pledged property may be denied if the violation of a secured obligation committed by the obligor is extremely insignificant, and the amount of the pledgeholder's claim caused by such violation is clearly disproportionate to the value of the pledged property. In case of the denial of an execution against the pledged property, the pledgor must replace the subject of pledge with another property.

Article 335. Procedure for Execution Against Pledged Property

1. Claims of the pledgeholder (obligor) shall be satisfied from the value of the pledged immovable property by the court decision, unless otherwise provided by law.

Unless otherwise provided by law, claims of pledgeholder may be satisfied from the pledged property, without recourse to the court, based on the notarized agreement between the pledgeholder and the pledgor, entered into after emergence of the grounds for execution against the subject of the pledge.

Such agreement may be acknowledged by the court invalid at the claim of the person whose rights are violated by such agreement.

2. Claims of the pledgeholder shall be satisfied from the value of the pledged movable property, by the court decision, unless otherwise provided by law or agreement between the pledgor and the pledgeholder. However, the subject of pledge transferred to the pledgeholder may be collected in compliance with the procedure established by the pledge agreement, unless other procedure is established by law.

3. The subject of pledge may be collected only based on the decision of the court, in the instances when:

1) the consent or permission from a third person or agency is required to enter into pledge agreement;

2) the subject of pledge is a property of significant historical, artistic or any other cultural value for the society;

3) the pledgor is missing and it is impossible to establish his location.

Article 336. Sale of Pledged Property

1. Sale of the pledged property which is executed against according to Article 335 of this Code shall be carried out through public auctions (torgi), unless otherwise established by law or the contract.

2. At the request of the pledgor, the court shall have the right to postpone a public sale for the period of up to one year in its decision on execution against the pledged property. The postponement shall not affect the rights and duties of the parties to the secured obligation and shall not exempt the obligor from compensation of the obligee's losses, which increased during the period of postponement and the amount of penalty.

3. The starting sale price of the pledged property at the auctions shall be determined by an agreement between the pledgor and the pledgeholder (point 2, Art 335) or by a court decision, (point 1, Art 335).

The pledged property shall be sold to the highest bidder.

4. In the event the auctions, though scheduled, are declared as not taken place, the pledgeholder shall have the right to purchase the pledged property and to credit his secured claims against the purchase price based on the agreement with the pledgor. The rules concerning a sale contract shall apply to such an agreement.

In the event a second auction is declared as not taken place, the pledgeholder shall have the right to keep the subject of pledge, with it being evaluated at an amount of not more than 10 percent below the starting sales price at the second auction.

The pledge contract shall be terminated, if the pledgeholder fails to use his right to keep the subject of pledge during one month from the date the second auction was declared as not taken place.

5. If the proceeds of the sale of the pledged property are insufficient to meet the claims of the pledgeholder, he shall have the right, unless otherwise established by law or by contract, to receive the remaining amount from other obligor's property without using the pledge preference.

6. If the proceeds of the sale of the pledged property exceed the amount of the pledgeholder's secured claim, the balance shall be paid back to the pledgor.

7. The obligor and the pledgor, who is a third party, shall have the right at any time before the actual sale of the subject of pledge, to stop execution against, and sale of, the same by performing the secured obligation, or of that part of the obligation which performance was delayed. An agreement restricting this right shall be void.

Article 337. Early Performance of Secured Obligation and Execution Against Pledged Property

1. The pledgeholder shall have the right to demand early performance of the secured obligation in the event:

1) the subject of pledge was taken from possession of the pledgor where it was left against the terms of the pledge contract;

2) of violation by the pledgor of the rules concerning the replacement of the pledge;

3) of loss of the subject of pledge under circumstances for which the pledgeholder is not responsible, unless the pledgor used his right;

4) other cases provided by the Law on Pledge.

2. The pledgeholder shall have the right to demand early performance of the secured obligation, and if his demand is not satisfied, to execute against the subject of pledge in the event of:

1) violation by the pledgor of the rules concerning a subsequent pledge;

2) pledgor's failure to perform his responsibility;

3) violation by the pledgor of the rules concerning disposal of the pledged property;

4) other cases provided by the Law on Pledge.

Article 338. Termination of Pledge

1. The pledge shall terminate:

1) as a result of termination of the secured obligation;

2) upon the demand of the pledgor where there are grounds therefor;

3) in case of loss of the pledged property or termination of the pledged right, unless the pledgor used his right;

4) in case of sale of the pledged property at public auctions, as well as where the sale of the same proved impossible.

2. An entry about the termination of a pledge must be made in the register where the pledge contract was registered.

3. Upon the termination of a pledge as a result of performance of the secured obligation, or upon the demand of the pledgor, the pledgeholder in possession of the pledged property must immediately return the same to the pledgor.

Article 339. Survival of Pledge

1. The pledge shall remain in force, in the event on any ground set forth in the law the property or property rights which are the subject of pledge transfer to another person.

2. The pledgor's successor shall replace the pledgor and bear all his obligations unless otherwise established by the contract between the pledgor and the pledgeholder.

Article 340. Pledge of Goods in Turnover

1. A pledge of goods in turnover shall be recognized as the pledge of goods in the possession of a pledgor who has the right to change the composition and natural form of the pledged property (commodity stock, raw materials, materials, semi-finished goods, finished products, etc) provided that their total value does not fall below the one specified in the pledge contract.

Reduction of the value of the pledged goods in turnover shall be allowed proportionally to the performed part of the secured obligation, unless otherwise provided by contract.

2. When alienated by the pledgor, goods in turnover shall cease being the subject of pledge from the time of their transfer to ownership, economic or operative management of a purchaser, and goods purchased by the pledgor which have been specified in the pledge contract shall become the subject of pledge from the time the pledgor acquired the right of ownership or economic management to the same.

Article 341. Pledge of Things in Pawnshops

1. Specialized organizations - pawnshops licensed to do so may, as a part of their business activity, receive from citizens a pledge of movable property which has been designated for personal use, in order to secure short-term loans.

2. A contract on pledge of things in a pawnshop shall be formalized by issuing a pledge ticket by the pawnshop.

3. Pledged things shall be transferred to the pawnshop.

The pawnshop must, in favor of the pledgor, insure at its own expense the pledged things for their full value to be established in accordance with prices for things of similar kind and quality, which prices are usually established in trade at the time of pledge of the same.

The pawnshop shall have no right to use and dispose of the pledged things.

4. The pawnshop shall be held liable for the loss of and damage to the pledged things, unless it proves that the loss or damage occurred as a result of insuperable force.

5. In case of the failure to return the amount of the loan secured by the things pledged in the pawnshop within an established period, the pawnshop shall have the right to sell this property according to the procedure established for sale of the pledged property based on the notarial writ of execution upon expiration of a grace one month period. After that, all of the pawnshop's claims to the obligor-pledgor shall be recovered, even if the proceeds received as a result of the sale of the property are not sufficient to satisfy the same in full.

Article 342. Retention

1. In the event of obligor's failure to perform his obligation on paying for the thing or on compensating the obligee for damages and losses related to this thing within the specified period, the obligee in possession of the thing subject to transfer to the obligor or to another person specified by the obligor shall have the right to retain the same until the corresponding obligation is performed.

2. The right to retain may also be effectuated to secure such demands which, although not associated with payment of the price for the thing or compensation of expenditures on the thing, arise from an obligation in which both parties participate.

3. The claims of the obligee retaining the thing shall be satisfied in the volume or procedure established for satisfaction of the secured claims.

4. The rules set forth in this Article shall apply, unless otherwise provided by contract.

4. SURETY (GUARANTY)

Article 343. Contract of Surety (Guaranty)

1. According to a contract of surety (guaranty), the surety (guarantor), jointly with the obligor, shall undertake to guarantee to the obligee of another person the performance of an obligation by that person in full or in part.

A contract of surety may also be entered into to secure a future obligation.

2. A contract of surety must be writing. Failure to comply with the written form shall result in the invalidity of a contract of surety.

Article 344. Liability of Surety (Guarantor)

1. In the event of the obligor's failure to perform or improper performance of the guaranteed obligation, both the surety(guarantor) and the obligor shall be held jointly and severally liable to the obligee, unless the contract of surety(guaranty) provides for the secondary liability of the surety.

2. The surety (guarantor) shall be liable to the obligee to the same extent as the obligor, including payment of interest, compensation of court expenses on debt collection, and other damages to the obligee caused by the obligor's failure to perform or improper performance of the obligation, unless otherwise established by the contract of surety.

3. Persons who gave a joint surety shall be held jointly and severally liable to the obligee, unless otherwise established by the contract of surety.

Article 345. Surety's Right to Object to Obligee's Claim

1. The surety shall have the right to bring an objection against the obligee's claim which could have been brought by the obligor, unless otherwise established by the contract of surety. The surety shall not forfeit the right to object, even if the obligor refused the same or admitted his debt.

2. Before the obligee's claim is satisfied, the surety must notify the obligor thereof, and if the suit is brought against the surety, he must involve the obligor in the case.

3. Unless the surety performed the obligations, specified in point 2 of this Article, the obligor shall have the right to file objections against the surety's claimover which he had against the obligee.

Article 346. Rights of Surety Who Performed Obligation

1. All the obligee's rights on an obligation shall transfer to the surety who has performed that obligation. The surety shall also have the right to demand that the obligor pay interest on the amount paid to the obligee, and compensate for other damages suffered due to the obligor's liability.

2. The obligee shall, upon the performance of an obligation by the surety, deliver documents to the surety certifying the claim to the obligor, and transfer the rights securing such claim.

3. The rules established by points 1 and 2 of this Article shall apply, unless otherwise established by legislation or by contract between the surety and the obligor, or arises from the relationship between the same.

Article 347. Surety's Notice about Performance of Obligation by Obligor

The obligor who performed an obligation secured by the surety must immediately notify the surety thereof. Otherwise the surety, who performed the obligation, shall have the right to collect from the obligee what he unjustly received, or to claimover the obligor. In the latter case, the obligor shall have the right to collect from the obligee only what he has unjustly received.

Article 348. Termination of Surety

1. A surety shall terminate upon termination of the guaranteed obligation, as well as in the event of its alteration leading to an increased liability, or other consequences unfavorable to the surety without the consent of the same.

2. A surety shall terminate with the assignment of the debt on the guaranteed obligation to another person, unless the surety agrees to be held answerable for the new obligor.

3. A surety shall terminate, in the event the guaranteed obligation is due, and the obligee refused to accept proper performance proposed by the obligor or the surety.

4. The surety shall terminate upon expiration of the period specified in the contract of surety. If such period has not been established, the surety shall terminate, if the obligee fails to bring a suit against the surety within one year after the date when the guaranteed obligation becomes due. When the performance period for the primary obligation is not specified and may not be established, or when it is determined by the moment of claim, the surety shall terminate, unless the obligee brings a suit against the surety within two years from the date of entering into the contract of surety.

5. BANK GUARANTY

Article 349. Concept of Bank Guaranty

1. By virtue of a bank guaranty a bank, other financial institution or insurance company shall, at the request of another person, take a written obligation to pay an amount of money, upon an obligee's written request for payment, in accordance with the conditions of the obligation undertaken by the guarantor.

2. A person to whom a bank guaranty is issued shall pay a fee to the guarantor.

3. A bank guaranty may not be recalled by the guarantor, unless otherwise provided therein.

4. The obligee's right to claim against the guarantor on the basis of a bank guaranty may not be transferred to another person, unless otherwise provided in the guaranty.

5. A bank guaranty shall become effective from the day of its issuance, unless otherwise provided in the guaranty.

Article 350. Independence of Bank Guaranty from Primary Obligation

The obligation of a guarantor to an obligee, as provided by a bank guaranty, shall not depend in their relationship on the primary obligation for the performance of which it has been issued, even if the guaranty includes reference to that obligation.

Article 351. Filing Claims Based on Bank Guaranty

1. The obligee's claim concerning the payment of a bank guaranty must be filed to the guarantor in writing attached with the documents specified in the guaranty. The obligee must indicate in his claim or the attachment thereto the essence of violation of the primary guaranteed obligation committed by the person at whose request the guaranty was issued.

2. The obligee's claim must be filed to the guarantor prior to the expiration of the effective period of the guaranty, as established in the same.

3. Upon receipt of the obligee's claim, the guarantor must immediately inform thereof the person to whom the guaranty is issued, and deliver to the same copies of the claim and all related documents.

4. The guarantor must consider the obligee's claim with the attached documents within a reasonable period of time and with the reasonable care necessary to establish that the claim and attached documents meet the conditions of the guaranty.

Article 352. Limits of Guarantor's Obligation on Bank Guaranty

1. The guarantor's obligation to the obligee as provided in a bank guaranty shall be limited by the amount of money for which the bank guaranty is issued.

2. Unless otherwise provided in the guaranty, the guarantor's liability to the obligee for guarantor's failure to perform, or for its improper performance of the obligation specified in the guaranty, shall not be limited by the amount for which the guaranty is issued.

3. The guarantor shall deny the obligee's claim, if such claim or the documents attached to the same do not meet the conditions of the guaranty, or have been submitted to the guarantor after expiration of the time period specified in the guaranty.

The guarantor shall immediately inform the obligee of a denial of his claim.

4. If prior to satisfaction of the obligee's claim, the guarantor becomes knowledgeable that the primary obligation guaranteed by a bank guaranty was performed in full or partially, was terminated on other grounds or became invalid, he shall immediately inform the obligee and the person at whose request the guaranty has been issued.

A second claim from the obligee received by the guarantor after such notice shall be subject to satisfaction by the guarantor.

Article 353. Termination of Bank Guaranty

1. The guarantor's obligation to the obligee on a guaranty shall terminate:

1) by payment to the obligee of the amount for which the guaranty is issued;

2) by expiration of the fixed period for which it was issued;

3) as a result of a waiver by the obligee of his rights to the guaranty and return of the same to the guarantor;

4) as a result of a waiver by the obligee of his rights to the guaranty by a written request to release the guarantor from his obligations.

The termination of the guarantor's obligations on grounds specified in sub-points 1, 2 and 4 of this point shall not depend on whether the guaranty has been returned to the same.

2. A guarantor who becomes knowledgeable of the termination of a guaranty shall immediately inform thereof the person at whose request the guaranty was issued.

3. The guarantor's right to claim over the person at whose request the bank guaranty has been issued for reimbursement of an amount paid to an obligee on this guaranty shall be established by an agreement between the guarantor and such person.

4. The guarantor shall not have the right to demand from the person at whose request the guaranty was issued reimbursement of the amount paid to the obligee in violation of the conditions of the guaranty, or for a violation of the guarantor's obligation to the obligee, unless otherwise provided by the agreement between the guarantor and such person.

6. ADVANCE

Article 354. Concept of Advance. Form of Agreement on Advance

1. An advance shall be a sum of money paid from his payment account by one of the contracting parties to the other party as evidence of entering into the contract and of securing performance of the same.

2. An agreement about an advance irrespective of the amount of advance must be in writing.

3. In case of doubt as to whether the amount paid from the payment account of one of the parties under the contract is an advance, in particular as a result of the failure to comply with the rule established by point 2 of this Article, such amount shall be recognized as paid in advance, unless proved otherwise.

Article 355. Consequences of Termination and Failure to Perform Obligation Guaranteed by Advance

1. An advance shall be returned, in the event of a termination of an obligation prior to its performance upon agreement between the parties, or as a result of an impossibility to perform.

2. An advance shall remain with the other party, if the party that paid the advance is responsible for the non-performance of the contract. If the party which received an advance is responsible for the non-performance of the contract, it must pay double the amount of the advance to the other party.

In addition, the party responsible for the non-performance of the contract shall compensate the other party for losses crediting the amount of the advance, unless otherwise provided by contract.

CHAPTER 20
LIABILITY FOR BREACH OF OBLIGATIONS

Article 356. Grounds for Liability for Breach of Obligation

1. A person who fails to perform an obligation or performs it improperly shall be liable on the grounds of fault (intent or negligence), except for cases when other grounds for liability are provided by law or by contract.

A person shall be found not liable, if he took all necessary measures for proper performance of the obligation with the degree of care and prudence required by the nature of the obligation and by the conditions of the transaction.

2. The absence of liability shall be proved by the person who breached the obligation.

3. Unless otherwise provided by law or by contract, the person who fails to perform or improperly performs an obligation while engaged in business activity shall be liable, if he fails to prove that proper performance was impossible due to insuperable force, i.e. extraordinary and inevitable circumstances under the given conditions. Such circumstances shall not include, in particular, violation of obligations on the part of the obligor's contra-agents, unavailability at the market of goods which were necessary for performance, unavailability to the obligor of the necessary funds.

The contract or legislation may provide for other conditions of excuse from liability of business activity participants.

4. A prior agreement concerning the excuse from, or limitation of, liability for intentional violation of obligations shall be void.

Article 357. Consequences of Breach of Obligation at Fault of Both Parties

1. If the non-performance or improper performance occurred at the fault of both parties, the court shall reduce the amount of the obligor's liability accordingly. The court shall also have the right to reduce the amount of the obligor's liability, if the obligee intentionally or by negligence contributed to an increase in the amount of losses caused by the non-performance or improper performance, or did not take reasonable measures to reduce the same.

2. The rules of point 1 of this Article shall correspondingly apply in cases where by operation of law or contract the obligor is held liable for the failure to perform or for improper performance of the obligation irrespective of his fault.

Article 358. Obligor's Responsibility to Compensate for Loss

1. The obligor must compensate the obligee for losses (Art 14) caused by the non-performance or improper performance of an obligation.

2. Unless otherwise provided by law or by contract, in order to determine the losses, the prices existing at the place where the obligation was to take place shall be accounted as of the date of voluntary satisfaction of the obligee's obligation by the obligor, or as of the date of bringing a suit, if the claim was not satisfied voluntarily. Based on circumstances, the court may satisfy the claim for compensation of losses taking into account the prices as of the date when the decision was made.

3. All measures and preparations made by the obligee, in order to receive profit shall be taken into account in determining lost benefit.

Article 359. Losses and Penalty

1. If a penalty is established for non-performance or improper performance of an obligation, losses shall be paid for that part which has not been covered by penalty.

Legislation or contract may provide for such cases as: when only penalty, rather than losses, is collected; when losses may be collected in a full amount above the penalty; when at the obligee's choice either a penalty or losses may be collected.

2. In cases when limited liability is established for non-performance or improper performance of an obligation (Article 365), losses subject to compensation only in that part which has not been covered by the penalty, or losses above the penalty, or losses instead of the penalty, may be collected up to the limits established by such restriction.

Article 360. Liability for Failure to Perform Monetary Obligation

1. In the event of delay in payment of used other person's money, illegal withholding of the same, evasion from returning the same, or illegal receiving or saving money at the expense of another person, interest shall be paid on such amount of money.

The amount of interest shall be determined on the basis of an appropriate banking interest rate existing at the place of residence of the obligee, or if the obligee is a legal entity, at its location, on the date of performance of the monetary obligation or its relevant part. Where the debt is collected through court, the court may satisfy the obligee's claim based on the banking interest rate as of the date a suit is filed or as of the date a decision is made. Such rules shall apply, unless other interest amount is established by law or by contract.

2. If losses caused to the obligee through illegal use of his money exceed the amount of interest due to him on the basis of point 1 of this Article, he shall have the right to demand from the obligor compensation for losses in the part exceeding such amount.

3. In the event of illegal use of other person's money under a monetary obligation related to the business activity, a fine above the amounts specified in points 1 and 2 of this Article shall be collected in the amount of five per cent annual rate upon an overdue amount, unless a contract establishes a higher amount of fine.

4. Unless the law or contract establishes a shorter period for charging interest, interest for the use of other person's money shall be collected up to the day of payment of such money to the obligee.

Article 361. Liability and Performance of Obligation in Kind

1. Payment of penalty and compensation for losses in case of improper performance of an obligation shall not excuse the obligor from the performance of the obligation, unless otherwise provided by law or by contract.

2. Compensation for losses in case of the failure to perform an obligation, and payment of penalty for non-performance of the same, shall excuse the obligor from performance of the obligation in kind, unless otherwise provided by law or contract.

3. A refusal of the obligee to accept performance which has lost its value due to delay, in combination with payment of penalty established as compensation for release from obligation, shall excuse the obligor from performance of the obligation in kind.

Article 362. Performance of Obligation at the Expense of Obligor

In the event the obligor fails to perform an obligation to produce and transfer a thing to ownership, economic or operative management, or to transfer a thing to the obligee's use, or to perform a certain work for the same or render services, the obligee shall have the right to entrust a third party to perform the obligation for a reasonable price within a reasonable time period, or to perform the obligation himself, unless otherwise provided by legislation, contract or the essence of the obligation, and to demand compensation from the obligor for out-of-pocket expenses suffered and for other losses.

Article 363. Consequences for Failure to Perform Obligation on Delivering Individually Identified Thing

In the event of failure to perform an obligation to transfer an individually identified thing to the ownership, economic or operative management or gratuitous use of the obligee, the obligee shall have the right to demand seizure of such thing from the obligor and transfer of the same to the obligee under the conditions provided by the obligation. This right shall be invalid, if the thing has already been transferred to a third party having the right of ownership, economic or operative management. If the thing has not been transferred yet, the priority shall be with the obligee to whose benefit the obligation has arisen first, and if that is impossible to establish, the one who was the first to file a claim.

Instead of a claim to receive transfer of the thing which is the subject-matter of an obligation, the obligee shall have the right to demand compensation for losses.

Article 364. Secondary Liability

1. Prior to filing a claim against a person who, in accordance with the legislation or conditions of the obligation, is liable in addition to the person who is the principal obligor (secondary liability), the obligee must file the claim against the principal obligor.

If the principal obligor refuses to satisfy or evades the satisfaction of the obligee's claim, the claim may be brought against a person who bears the secondary liability.

2. The obligee has no right to demand the satisfaction of his claim filed against the principal obligor from a person who bears secondary liability, if such claim may be satisfied by setting off the counter-claim against the principal obligor, or by the clear withdrawal of funds from the principal obligor's account.

3. A person who bears secondary liability shall have the right of claimover against the principal obligor, unless otherwise established by law or by contract.

4. The person who bears secondary liability must notify the principal obligor before satisfying the obligee's claim, and if the suit is brought against the same, he must involve the principal obligor in the case.

Otherwise, the principal obligor shall have the right to raise the same objections against a claimover of the person bearing secondary liability, as he may have had against the obligee.

Article 365. Limitation of Liability on Obligation

1. The law may restrict the right to full compensation for losses (limited liability) on certain types of obligations and on obligations related to certain types of activity.

2. An agreement concerning restriction of the obligor's liability under a contract of accession or any other contract to which the obligee is a citizen in the capacity of a consumer, shall be void, in the event the amount of liability for such type of an obligation or for such violation is established by law, or if such agreement has been entered into prior to circumstances leading to liability for failure to perform or for improper performance of an obligation.

Article 366. Obligor's Liability for His Employees

Actions of the obligor's employees undertaken for the performance of his obligations shall be recognized as actions of the obligor. The obligor shall be held liable for those actions, if they result in the failure to perform or improper performance of an obligation.

Article 367. Obligor's Liability for Actions of Third Parties

The obligor shall be held liable for the failure to perform or improper performance of an obligation by third parties, which are entrusted with performance, unless the law envisages liability of a third party who is the actual performer.

Article 368. Obligor's Delay

1. The obligor who delayed performance, shall be liable to the obligee for losses caused by the delay as well as for the incidental impossibility of performance occurred during the delay.

2. If the performance has lost its value to the obligee due to the obligor's delay, the obligee may refuse to accept performance and demand compensation for losses.

3. The obligor shall not be deemed as having delayed his obligation during the time that the obligation may not be performed owing to the obligee's delay.

Article 369. Obligee's Delay

1. The obligee shall be deemed as having delayed, if he refuses to accept the proper performance offered by the obligor or if he fails to perform actions provided by law or contract, or arising from business customs or from the essence of the obligation prior to which performance the obligor could not perform his obligation.

The obligee shall also be deemed as having delayed, in cases set forth in point 2, Article 371 of this Code.

2. The delay of the obligee shall give the obligor the right to seek compensation for losses caused by delay, unless the obligee proves that the delay occurred under circumstances for which neither the obligee himself nor the persons who were to accept the performance by virtue of the law or by the commission of the obligee are responsible.

3. Under the monetary obligation, the obligor shall not pay interest for the period of the obligee's delay.

CHAPTER 21
TERMINATION OF OBLIGATIONS

Article 370. Grounds for Termination of Obligations

1. An obligation shall terminate fully or in part on grounds provided by this Code, by other legislation or by contract.

2. Termination of an obligation upon the demand of any party shall be allowed only in cases provided by legislation or by contract.

Article 371. Termination of Obligation by Performance

1. An obligation shall be terminated by proper performance.

2. The obligee accepting the performance shall issue at the obligor's request an acknowledgment that he has received performance in full or in part.

If the obligor issues a debt document certifying an obligation to the obligee, the obligee accepting the performance must return such document, or refer to it in his acknowledgment, in the event it is impossible to return the debt document. The acknowledgment may be substituted for by a notation on the debt document which is being returned. The possession of such document by the obligor shall certify termination of an obligation, unless proved otherwise.

If the obligee refuses to issue an acknowledgment, to return the debt document, or to make a notation in the acknowledgment concerning impossibility to return the debt document, the obligor shall have the right to delay the performance. In such cases the obligee shall be recognized as having delayed.

Article 372. Compensation for Release from Obligation

Upon the agreement of the parties an obligation may be terminated by an offer of compensation in exchange for performance (payment of money, transfer of property, etc.). The amount, time period and procedure for offering compensation for the release from an obligation shall be established by the parties.

Article 373. Termination of Obligation by Set-Off

An obligation shall be terminated completely or in part by set-off of a similar counter-claim which becomes due, or which duration is not specified, or is established by the time of demand. An application of any party shall be sufficient for the set-off.

A set-off of claims shall not be allowed in the following cases:

1) if upon the application of the other party, the statute of limitations is applicable on the claim, and such statute of limitation has expired;

2) if the claim pertains to compensation for damages caused to life and health;

3) if the claim pertains to recovery of alimony;

4) if the claim pertains to life maintenance;

5) and in other cases provided by law or by contract.

In the event of assignment of the claim (Article 316), the obligor shall have the right to set off his counter claim to the original obligee against the claim of a new obligee.

A set-off shall be carried out, if the claim arose on grounds existing at the time the obligor received notice about the assignment of the claim, and the time period of the claim commenced prior to such notice, or such time period was not specified or was not established by the time of demand.

Article 374. Termination of Obligation by Coincidence of the Obligor and Obligee in One Person

An obligation shall terminate by coincidence of the obligor and the obligee in one person.

Article 375. Termination of Obligation by Novation

1. An obligation shall terminate upon the agreement of the parties to replace the original obligation between them by another obligation between the same persons, envisaging a different subject-matter or a different way of performance (novation).

2. Novation shall not be allowed concerning obligations on compensation for damages caused to life and health, or for alimony obligations.

3. A novation shall terminate additional obligations related to the original obligation, unless otherwise provided by an agreement between the parties.

Article 376. Forgiveness of Debt

An obligation shall be terminated by the release of the obligor by the obligee from his obligations, unless such release violates the rights of other persons having interests in the obligee's property.

Article 377. Termination of Obligation by Impossibility of Performance

1. An obligation shall terminate in the event of an impossibility to perform, if such impossibility is caused by a circumstance for which none of the parties is responsible.

2. In the event it is impossible for the obligor to perform an obligation, due to a circumstance for which none of the parties is responsibility (point 1 of this Article), the obligee has no right to demand the performance of the obligation from the obligor. The party that has performed the obligation shall have the right to demand the return of the performed.

3. In the event it is impossible for the obligor to perform an obligation as a result of faulty actions of the obligee, the latter shall have no right to demand the return of what he has performed on the obligation.

Article 378. Termination of Obligation Based on Act of Government Agency

1. If performance becomes impossible completely or partially as a result of issuance of an act by a government agency or an agency of local self-government (public act) , the obligation shall terminate completely or partially in relevant part. The party which suffers losses as a result of termination of the obligation, shall have the right to demand compensation in cases and in the procedure established by this Code.

2. In case a public act which caused termination of the obligation is found invalid according to the established procedure, the obligation shall be renewed, unless otherwise provided by the agreement between the parties, or unless otherwise arising from the essence of the obligation, provided that the obligee is still interested in the performance.

Article 379. Termination of Obligation Due to Citizen's Death

1. An obligation shall terminate due to the obligor's death, unless the performance can be carried out without the obligor's personal participation, or if the obligation is in any other way connected with the obligor's personality.

2. An obligation shall terminate due to the obligee's death, if the performance is intended for the obligee personally, or if the obligation is in any other way inseparable from the obligee's personality.

Article 380. Termination of Obligation by Liquidation of Legal Entity

An obligation shall terminate upon the liquidation of a legal entity (the obligor or the obligee), except in cases where performance of the obligation of the liquidated legal entity is transferred by legislation to another legal entity (according to the obligations resulting from damages caused to life, health, etc.).

CHAPTER 22
GENERAL PROVISIONS ABOUT CONTRACT

Article 381. Concept of Contract

1. A contract shall be an agreement between two persons or more concerning the establishment, alteration, or termination of civil rights and responsibilities.

2. General provisions on obligations shall apply to obligations arising from a contract, unless otherwise provided by the rules of this Chapter and the rules concerning certain types of contracts set forth in this Code.

3. General provisions on the contract shall apply to contracts entered into by more than two parties (multilateral contracts), unless this contradicts the multilateral nature of such contracts.

Article 382. Freedom of Contract

1. Citizens and legal entities are free to enter into a contract.

Compulsion to enter into a contract shall be prohibited, except in cases where the obligation to enter into a contract is provided by this Code, by other law or by a voluntary obligation.

2. Parties may enter into a contract both provided and not provided by legislation.

3. Parties may enter into a contract which includes elements of different contracts provided by legislation (a mixed contact). Legislation on contacts which elements are contained in a mixed contract shall apply to relationships between parties to a mixed contract in its relevant part, unless otherwise provided by the agreement between the parties, or unless otherwise arising from the essence of the mixed contract.

4. Conditions of a contract shall be established at the discretion of the parties, except in cases when the content of a corresponding condition is prescribed by legislation (Article 383).

In cases when a condition in a contract is provided by a norm, which, according to the legislation has force, unless otherwise provided by the agreement between the parties, (dispositive norm), the parties may by their agreement exclude it from application or establish a condition different from the one provided by it. In the absence of such an agreement, the condition of a contract shall be determined by a dispositive norm.

5. If a condition in a contract is not established by the parties or by a dispositive norm, the corresponding condition shall be determined by business customs applicable to the relationship between the parties.

Article 383. Contract and Law

1. A contract must comply with rules obligatory for the parties and established by legislation (imperative norms) existing at the time the contract was entered into.

2. Relations between the parties to a contract, entered into before effectuation of the law, shall be regulated in accordance with Article 3 of this Code.

Article 384. Compensable and Gratuitous Contracts

1. A contract according to which one party must receive payment or any other compensation for performance of its obligations is a compensable contract.

2. A gratuitous contract is a contract according to which one party undertakes to present something to another party without receiving payment or any other compensation.

3. A contract shall be assumed a compensable contract, unless otherwise arising from the legislation, from the content or the essence of the contract.

Article 385. Effective Period of Contract

1. A contract shall become effective and become binding for the parties from the time it is entered into (Article 394).

2. The parties shall have the right to establish that the conditions of the contract which they have entered into shall apply to the relationship between them which have arisen prior to the time the contract was entered into.

3. If the duration of the contract is set forth by law or by contract, termination of this period shall result in termination of the contracting parties' obligations.

A contract which does not specify its effective period, shall be deemed in effect until the time of completion of performance of parties' obligations specified therein.

4. Expiration of the effective period of the contract shall not excuse the parties from any liability for its violation which has occurred prior to expiration of this period.

Article 386. Public Contract

1. A public contract is a contract entered into by a commercial organization, and indicating the obligations of such commercial organization concerning the sale of goods, or the performance of work or rendering services, which such organization must carry out by the nature of its activity to anyone who responds ( retail sale, transportation by public vehicles, communication services, supply of energy, medical, hotel, banking services, etc.).

A commercial organization shall have no right to prefer one person to others with respect to entering into a public contract, except as provided by legislation.

2. The price of goods, works and services as well as other terms of a public contract shall be established as equal for all customers except in cases, where legislation permits incentives for certain categories of consumers.

3. The refusal of a commercial organization to enter into a public contract, where the corresponding goods (works, services) are available to the customer, shall be prohibited.

Where the commercial organization unjustly evades entering into a public contract, the provisions set forth in point 4 of Article 406 of this Code, shall apply.

4. In cases provided by law, the Government of the Kyrgyz Republic may issue rules binding upon the parties, when entering into and performing public contracts (model contracts, regulations, etc.).

5. Conditions of a public contract, which do not meet the requirements set forth in points 2 and 4 of this Article shall be void.

Article 387. Contract of Joinder

1. A contract of joinder shall be a contract, which conditions are specifies by one of the parties in models or other standard forms, and which may be accepted by another party by agreeing to the proposed contract on the whole.

2. The party which agreed to the contract shall have the right to demand rescission or alteration of the contract, if the contract of joinder, though consistent with the legislation, deprives the party of rights usually provided by such type of contract, excludes or restricts liability of the proposing party for breach of obligations, or contains other conditions clearly burdensome for the joining party, which such party would not have reasonably accepted had it had the opportunity of participating in drafting the conditions of the contract.

3. Under the circumstances provided in point 2 of this Article, a claim on rescission of the contract filed by the party, which has joined the contract in connection with its business activity, shall not be satisfied, if the joining party knew or should have known on what conditions the contract is entered into.

Article 388. Preliminary Contract

1. Under a preliminary contract, the parties undertake to enter into a contract in the future with respect to the transfer of property, performance of work or rendering services (principal contract) based on the conditions set forth in a preliminary contract.

2. A preliminary contract shall be entered into in the form of a principal contract established by legislation, or in the written form, if the form of the principal contract is not established. Failure to comply with the rules about the form of a preliminary contract shall result in the voidness of the same.

3. A preliminary contract must contain conditions which establish the subject matter and other essential conditions of a principal contract.

4. A preliminary contract must specify the time period during which the parties undertake to enter into a principal contract.

If such time period is not specified in the preliminary contract, the contract, which is provided therein shall be entered into within a year from the date the preliminary contract is entered into.

5. In the event the party, which has entered into a preliminary contract evades entering into the principal contract, provisions set forth in point 4 of Article 406 of this Code shall apply.

6. Obligations set forth in the preliminary contract shall terminate, if a principal contract is not entered into before the expiration of the time period established for the parties to enter into the same, or if neither of the parties sends a proposal to the other party concerning entering into this contract.

7. An agreement of intentions (statement of intentions etc.), which fails to express a direct will of the parties to provide it with the force of a preliminary contract, shall not produce any legal-civil consequences.

Article 389. Third Party Beneficiary Contract

1. A contract for the benefit of a third party shall be a contract according to which the parties agree that the obligor will perform to the benefit of a third party rather than to the benefit of the obligee; such third party may or not be specified in the contract, and such third party shall have the right to demand from the obligor the performance of obligations for its benefit.

2. Unless otherwise provided by legislation or by contract, the parties may not rescind or change the contract without the consent of the third party from the time the third party expressed to the obligor its intention to use its right on the contract.

3. The obligor in a third party beneficiary contract shall have the right to assert objections to the claim of the third party, which he could have asserted against the obligee.

4. In the event the third party waives its rights granted to the same in the contract, the obligee may use these rights, unless it contradicts the legislation or the contract.

Article 390. Price

1. Settlements between parties in performance of the contract shall be carried out at the price established by the agreement of the parties.

In cases provided by law, prices (tariffs, valuations, rates) established or regulated by the authorized government agencies, shall apply.

2. Alteration of a price after the contract has been entered into shall be allowed in cases and under the conditions provided by the contract, by law or according to the procedure established by law.

3. In the event the price is not specified in a compensable contract and may not be determined on the basis of the contract conditions, settlements between the parties shall be carried out according to the price usually charged under comparable conditions for similar goods, works and services.

Article 391. Model Conditions of Contract

1. A contract may envisage that its individual conditions are determined by model conditions developed for corresponding types of contracts and published in the press.

2. In the event the contract fails to refer to model conditions, such model conditions shall apply to the relationship between the parties as business customs, if they comply with the requirements established by Article 4, and point 5 of Article 382 of this Code.

3. Model conditions may be written in the form of a model contract or other document containing those conditions.

Article 392. Interpretation of Contract

On interpreting the conditions of a contract, the court shall take into account the literal meaning of words and phrases contained in the contract. The literal meaning of a contractual condition, when unclear, shall be established by comparing the same with other conditions, and by the meaning of the contact on the whole.

If the rules contained in point 1 of this Article do not allow to determine the content of the contract, the common will of the parties with the account of the purposes of the contract must be identified. In this case all accompanying circumstances must be taken into account, including negotiations and correspondence prior to the contract, practice developed during the relationships between the parties, business customs, and subsequent conduct of the parties.

Article 393. Basic Provisions Concerning Entering Into Contract

1. A contract shall be considered entered into, if the parties agree to all significant conditions of the contract in the form required in specific cases.

Significant conditions of the contract shall include conditions about the subject matter of the contract, conditions which are established as significant by legislation or conditions necessary for such type of contracts, and all conditions on which an agreement must be reached as declared by one of the parties.

2. A contract shall be entered into, when an offer (a proposal to enter into a contract) is sent by one of the parties, and is accepted (acceptance of a proposal) by the other party.

Article 394. Moment of Entering Into Contract

1. A contract shall be deemed entered into at the time the person sending an offer receives an acceptance.

2. If, in accordance with the law, the transfer of property is also required in order to enter into a contract, the contract shall be deemed entered into at the time of transfer of the corresponding property (Article 256).

3. A contract, which is subject to notarization, or to government registration, shall be deemed entered into at the time of notarization or registration, and, when both notarization and registration are required, at the time of registration of the contract.

Article 395. Form of Contract

1. A contract may be entered into in any form provided for making transactions, unless the law establishes a specific form for such type of a contract.

If the parties agree to enter into a contract in a certain form, it shall be deemed as entered into from the time it was structured in such form, even though such form is not required by law for such type of a contract.

2. A contract in a written form may be entered into by drawing a single document signed by the parties, and by exchanging letters, telegrams, teletypes, telephoned telegrams, through fax or electronic or other communication or by other means which allow to establish authentically that the document derives from the contracting parties.

3. A written form of a contract shall be deemed observed, if a written proposal to enter into a contract was accepted in the procedure set forth in Article 402 of this Code.

Article 396. Offer

1. An offer shall be a proposal addressed to one specific person or more which is sufficiently definite and expresses the intention of the offeror to be deemed a person who would enter into a contract with the offeree.

An offer shall contain essential conditions of a contract.

2. An offer shall bind the offeror from the time the offer is received by the addressee.

If a notice about the revocation of the offer is received prior to, or at the same time as the offer itself, the offer shall be deemed as not having been received.

Article 397. Irrevocability of Offer

An offer received by the addressee may not be retracted within the period established for its acceptance, unless otherwise provided in the offer itself, or unless otherwise arising from the essence of the offer or the circumstances under which it is made

Article 398. Invitation to Make Offer. Public Offer

1. Unless otherwise directly provided in the proposal, advertisements and other proposals addressed to an indefinite group of persons shall be considered as proposals to make offers.

2. A proposal which includes all significant terms of a contract, and which outlines the will of the offeror to enter into a contract with anyone who responds on conditions set forth in the proposal shall be recognized as an offer (a public offer).

Article 399. Acceptance

1. Acceptance shall be an affirmative response received from a person to whom an offer is addressed.

Acceptance must be complete and unconditional.

2. Unless otherwise provided by law, or arising from business customs, or from previous business relationships between the parties, silence shall not be an acceptance.

3. Unless otherwise provided by legislation, or specified in the offer, actions committed by the offeree during the period set forth for acceptance of the offer, with the view of performing the indicated conditions of a contract (shipment of goods, rendering services, performance of works, payment of a corresponding sum of money, etc.) shall be deemed an acceptance.

Article 400. Revocation of Acceptance

If a notice about the revocation of the acceptance is received by the offeror prior to, or at the same time as the acceptance itself, the acceptance shall be deemed as not having been received.

Article 401. Entering into Contract Based on Offer With Tim e Period Specified for Acceptance

When an offer contains a time period for an acceptance, the contract shall be deemed entered into when the acceptance is received by the offeror within the specified time period.

Article 402. Entering into Contract Based on Offer Without Tim e Period Specified for Acceptance

1. When a written offer does not contain a time period for its acceptance, a contract shall be deemed entered into, if the acceptance is received by the offeror before the expiration of the time period established by legislation, and if such time period is not established within a normal course of necessary time.

2. When an offer is made orally without the time period specified for its acceptance, the contract shall be deemed entered into, if another party immediately declares the acceptance of the offer.

Article 403. Acceptance Received with Delay

1. In cases when an acceptance notice sent in due course is received with delay, acceptance shall not be deemed delayed, unless the offeror immediately informs the other party about receipt of the acceptance with delay.

2. If the offeror immediately informs the offeree that it is honoring the offeree's delayed acceptance, a contract shall be deemed entered into.

Article 404. Acceptance on Other Conditions

A response expressing agreement to enter into a contract on terms other than those proposed in the offer shall not be deemed an acceptance.

Such response shall be recognized as a denial of the original offer and at the same time as a new offer.

Article 405. Venue for Entering into a Contract

If the contract does not specify a venue for entering into the same, the contract shall be deemed entered into at the place of residence of the citizen, or location of the legal entity, who has sent the offer.

Article 406. Entering into an Obligatory Contract

1. In the event when, in accordance with this Code or any other laws, it is obligatory for one of the parties to enter into a contract, the party must send a notice of acceptance or of the acceptance withdrawal, or of acceptance of the offer (draft of the contract) on other terms (the protocol of disagreement about the contract draft) to the other party within thirty days of receipt of the offer, unless other period is specified by the legislation or agreed upon by the parties.

2. The offeror that received the notice of acceptance of the offer on other terms (the protocol of disagreement about the contract draft) from the party obligated to enter into a contract, shall have the right to bring the matter of disagreement into court within thirty days after such a notice is received or after expiration of the period for acceptance, unless other period is established by the legislation for specific types of contracts.

3. If the party obligated to enter into a contract sends a draft of the contract to the other party and within thirty days receives a protocol of disagreement about the contract draft, such party shall notify the other party about its acceptance of the contract so edited or about its refusal of the protocol of disagreement.

If the protocol of disagreement was declined or a party has not received any notice concerning its protocol within the required period of time, such party has the right to bring the matter of disagreement into court, provided that there is no other statutory requirement for such special kind of contract.

4. If the party obligated to enter into a contract in accordance with this Code or any other statutes attempts to avoid its obligation, the other party may appeal to court with a demand to compel that party to enter into the contract.

A party that has no grounds to refuse to enter a contract shall compensate for damages caused by withdrawal of acceptance.

Article 407. Pre-contract Disputes

In cases set forth in points 2 and 3 of Article 406 of this Code, and in the event the disagreement, which has arisen while entering into the contract, was brought into court by the agreement of the parties, the conditions of the contract, which caused disagreement of the parties shall be determined in accordance with the court decision.

Article 408. Entering into Contract at Sales (Torgi)

1. A contract may be entered into by conducting sales, unless otherwise arising from its essence. The contract shall be entered into with the winner of the sales.

2. Either a specialized entity or the owner of a thing, or the holder of the property right may be an organizer of the sales. A specialized entity shall act based on the contract entered into with the owner of a thing or the holder of the property right, and shall act on their behalf or on its own behalf.

3. As provided in this Code or any other law, contracts on the sale of a thing or a property right may be entered into only by conducting sales.

4. Sales may take the form of an auction or of a competition.

The winner of the sales by auction shall be deemed a person who proposes the highest price, and the winner by competition shall be a person who proposes the best conditions as decided by the Competition Committee established by the organizer.

The form of sales shall be determined by the owner of a thing being sold or the holder of the property right being sold, unless otherwise established by the law.

5. An auction or a competition attended by one bidder only shall be deemed invalid.

6. The rules set forth in Articles 408-410 of this Code shall apply to public sales conducted in the procedure of enforcement of the court decisions, unless otherwise provided in the civil procedural legislation.

7. Peculiarities of contracting, arrangement and conduct of sales carried on in the process of bankruptcy shall be established by bankruptcy legislation.

Article 409. Organization and Procedure for Conducting Sales

1. Auctions and competitions may be both closed and open.

Any person may participate in an open auction or an open competition. Only specially invited persons may participate in a closed auction or a closed competition.

2. Unless otherwise provided by law, the organizer shall give a thirty-day notice on conducting the sales. The notice must contain, at a minimum, the information about the time, place and the form of sales, their subject matter and the procedure for conducting the same, including information about registration for the sales, identification of the winner, and the information about the starting price.

In the event the right to enter into a contract is the subject matter of the sales, the notice on the forthcoming sales must indicate the time period established for that purpose.

3. Unless otherwise provided by law or by the notice on the sales, the organizer of the open sales who has already given the notice on the sales, shall have the right to cancel the auction at any time, but not later than three days before the date of conducting the auction, and to cancel a competition not later than thirty days before the date of conducting the competition.

In the event the organizer cancels the open sales in violation of the said time periods, he shall compensate the participants for real damages.

The organizer of a closed competition or a closed auction shall compensate the invited participants for the real damages no matter when after the delivery of the notice he has canceled the sales.

4. The participants in sales shall make a deposit in the amount, within the time period and in the procedure indicated in the notice on the sales. If the sales fail to take place, the deposit shall be returned. The deposit shall also be returned to the persons who took part in the sales but failed to win.

When entering into a contract with the winner of the sales, the amount of his deposit shall be credited against the performance of the obligations under the entered contract.

5. The winner of the sales and the organizer of the same (point 2 of Article 334) shall sign on the say of the auction or the competition a protocol of the results of the sales, which has the force of a contract. If the winner evades entering into the contract, he shall lose his deposit. If the organizer of the sales evades singing the protocol, he shall return double the amount of the deposit, and also compensate the winner for losses, caused by taking part in the sales, in the event this amount exceeds the deposit.

If the sales concern only the right to enter into a contract, such a contract must be signed by the parties after the sales are finished, and the protocol is formalized, but not later than twenty days or within some other time period indicated in the notice. In the event any party evades entering into a contract, the other party shall have the right to appeal to court with a demand to compel that party to enter into the contract, and compensate for caused damages.

Article 410. Consequences for Violation of Rules on Conducting Sales

1. Sales conducted in violation of the rules established by the legislation may be invalidated by court based on the claim filed by the interested person.

2. Invalidation of the sales shall result in invalidity of the contract entered into with the winner of the sales.

Article 411. Grounds for Amendment or Annulment of Contract

1. A contract may be amended and annulled by the agreement of the parties, unless otherwise provided by this Code, by other laws or by the contract.

2. The court may amend or annul the contract at the demand of any party only:

1) in the event of material violation of the contract by the other party;

2) in other cases provided by this Code, by other legislation or by the contract.

A violation shall be deemed material, when the breach of the contract by any party results in such damages for the other party, that it considerably loses what it anticipated to get when entering into the contract.

3. In the event of a unilateral refusal to honor the contract completely or partially, when such refusal is allowed by the legislation or by the agreement of the parties, the contract shall accordingly be deemed annulled or amended.

Article 412. Amendment and Annulment of Contract in Connection with Material Change in Circumstances

1. Material change in circumstances, upon which the parties relied in entering a contract, shall be the grounds for amendment or annulment of the contract, unless otherwise provided by the contract or arising from the essence of the same.

Change in circumstances shall be deemed material, where the circumstances change so greatly that the parties would not have entered into the contract, or have entered into the same on considerably different conditions, had they reasonably foreseen such circumstances.

2. If the parties fail to reach an agreement to make the contract consistent with the materially changed circumstances or to annul the same, the contract may be annulled, and on the grounds provided in point 4 of this Article it may be amended at the demand of the interested party where all of the following conditions are present:

1) change in circumstances resulted from reasons which the interested party could not overcome with the good faith and prudence required by the nature of the contract and the conditions of activity;

2) performance of the contract, without amending its conditions, would violate the existing balance of property interests of the parties and would result in such damages for the interested party, that it would considerably lose what it anticipated to get when entering into the contract;

3) business customs or the essence of the contract does not indicate that the interested party shall bear the risk of the change in circumstances.

3. When a contract is annulled as a result of materially changed circumstances, at the request of any party the court shall define the consequences of annulling the contract, with consideration given to the necessity of fair allocation of expenses between the parties, which expenses were suffered in connection with performance of the contract.

4. Amendment of a contract in connection with materially changed circumstances shall be allowed by court decision in exceptional cases when annulment of a contract contradicts public interests, or would cause damages to the parties which greatly exceed the expenses necessary to perform the contract under the conditions amended by court.

Article 413. Procedure for Amendment and Annulment of Contract

1. An agreement regarding amendment or annulment of the contract shall be made in the same form as the contract itself, unless otherwise provided by legislation, by contract or by business customs.

2. A party may file a claim to court concerning amendment or annulment of a contract only after the other party has rejected the proposal on amendment or annulment of the contract, or has failed to respond within the period indicated in the proposal or established by law or by the contract, and where there is no contract - within thirty-day period.

Article 414. Consequences of Amendments and Annulment of Contract

1. When annulment of a contract occurs, the obligations of the parties shall terminate.

2. When a contract is amended, the obligations of the parties shall remain effective in the amended form.

3. In the event of amendment or annulment of a contract, the obligations shall be deemed annulled or amended from the time the parties reach an agreement on amendment or annulment, unless otherwise arising from the agreement of the parties or from the nature of amendment of the contract, and if the contract is amended or annulled by a court decision, - from the time the court decision on annulment or amendment of the contract becomes effective.

4. The parties shall have no right to demand the return of what they have performed under the obligation prior to amendment or annulment of the contract, unless otherwise provided by law or by agreement of the parties.

5. If the reason for annulment or amendment of a contract is breach of the contract by any party, the other party shall have the right to demand compensation for damages caused by the annulment or amendment of the contract.

President of the Kyrgyz Republic A.Akaev
Bishkek May 29, 1999 N 39

The University of Montana School of Law-Central Asia Law Initiative