Understanding Legal Rules: Custom, Obligations, and Capacity, Lecture notes of Law

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UNIT 1.

LEGAL SYSTEM, BASIC LEGAL TERMS

1. Law as social rule

custom (habit): during a longer period the members of the society solve the same problems (conflicts) on the same way

rule: sample of a behaviour, and in case of breech, it becomes a sanction

legal rule (norm, law, act): a social rule, which can be forced by the state

forcing the legal rule: the application of the sanction is obligatory, and the state has the specific organs to perform it

types of legal rules (normativity):

 obligatory: if somebody does NOT act like the sample in the rule, becomes sanction  forbidden: if somebody acts like the sample in the rule, becomes sanction  permissible: if somebody does NOT act like the sample in the rule, becomes NO sanction validity: the legislation process was perfect efficiency (effectiveness): the rule is applicable (period, territory, person, object)

2. Content and function of law

rationality the law is the product of the society, and its function is to restore the rational relation among the people

moral (ethics) the moral rules, which are generally obligatory for the members of the society, are the minimum of the legal rules

individual freedom the law has to ensure the individual freedom for the people opposit to the state

economic power the law is the will of the economic governing classes

religion lots of secular rules come from the religious rules, which became custom in the recent countries

3. Categories of rules in the legal system

public law (^)  relation between state and citizen

 the state is dominant to citizen  the citizen is NOT able to influence the content of the legal relations  e.g. criminal law, international law, administrative law 

private law (^)  relation between citizens / state and citizen

 state and citizen are equal  the citizen is able to influence the content of the legal relations  e.g. contractual law

4. Sources of law (in the continental legal system)

formal (primary) sources (^)  predicted written law: acts, decrees, orders etc.

 complete, coherent, evident  hierarchy among the types of rules: the rule placed under can not be opposite to the rules placed above  non-formal (secundary) sources

 not (able to be) predicted in writing: equity, rationality, generally contemplated behaviour etc.  help to interpret the written law in case of lack, collision or unintelligible text  applicable only if a court can rely on it passing a judgement/verdict/sentence

5. Legislation (lawmaking), jurisdiction (application of the law)

legislation: decision in specified form of the entitled organs of the state which classify behaviours obligatory, forbidden or permissible, and which are publicated in the given official journal

jurisdiction: (^)  enforcing the legal rules in the society  finding the applicable legal rule (sample of behaviour) for the real situation (actual behaviour)

6. Legal relation

legal relation: legally regulated social relation

relationship between legal and social relations:

 selective: law regulates only the most important elements of the social relation (legal rules come after the social relation);  constitutive: the law (state) creates a new social relation making unprecedented legal rules  elements of legal relations: (^)  subject: person who has capability to own specified rights and obligations in the given legal relation  object: the actual behaviour in the legal relation, and the matter (res) which is involved with the behaviour  content: the aggregate of rights and obligations in the given legal relation of the subject (person)

UNIT 2.

THE PERSON AS SUBJECT AT LAW

1. Legal capacity

1.1. Meaning and content of legal capacity

(1) All persons shall have legal capacity; all persons shall be entitled to have rights and obligations. (2) Unilateral statements limiting legal capacity shall be null and void.

1.2. Commencement (beginning) of legal capacity

natural person: each person, if born alive, shall have legal capacity from the day of conception legal person: entering into the relevant register controlled by the court

1.3. Cessation of legal capacity

natural person: death legal person: erasing from the relevant register controlled by the court

2. Legal competency

2.1. Meaning and content of legal competency

(1) Any person whose competency is not limited or precluded under Civil Code or by a court ruling on guardianship is considered legally competent.

(2) Whosoever is competent is entitled to conclude contracts and make other legal statements.

(3) Unilateral statements limiting legal competency shall be null and void.

2.2. Minority

(1) Persons who have not yet reached the age of eighteen years shall be deemed minors.

(2) Married minors are considered to be of legal age.

2.3. Minors of limited legal capacity

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

(2) The legal statements of a minor with limited capacity shall not be deemed valid without the consent of that minor’s legal representative.

(3) Minors of limited capacity shall, without the involvement of their legal representatives, be entitled: a. to make legal statements of a personal nature for which they are authorized by legislation;

b. to conclude contracts of minor importance aimed at satisfying their everyday needs; c. to dispose of the earnings they acquire by gainful employment and undertake commitments up to the extent of their earnings; d. to conclude contracts that only offer advantages; and e. to give away gifts within reasonable limits.

2.4. Incompetent minors

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

(2) Legal statements made by incompetent minors shall be null and void; their legal representatives shall proceed on their behalf.

3. Conservatorship (partially limited legal competency)

(1) Persons of legal age shall be of partially limited competency if a court has placed them in the custody of a conservator to that effect.

(2) Persons of legal age whose necessary discretionary ability for conducting their affairs is - owing to their mental disorder - permanently or persistently diminished shall be placed by court order under conservatorship which partially limits their competency in respect of certain specific matters, where this is deemed justified due to his individual circumstances and family and social ties.

(3) Legal statements made by persons of partially limited legal competency with respect to certain types of matters specified in the court ruling shall be considered valid upon the conservator’s consent.

4. Guardianship (totally limited legal competency)

(1) Persons of legal age whom the court has placed under guardianship fully limiting their legal competency are deemed legally incompetent.

(2) Legal statements made by incompetent adults shall be null and void; their guardian shall proceed on their behalf.

5. Incompetency

A legal statement made by any person who is not of sound mind and who is therefore unable to make decision for himself or herself at that time shall be considered null and void.

6. Rights relating to personality

6.1. Specific personality rights

The following, in particular, shall be construed as violation of personality rights: a. any violation of life, bodily integrity or health; b. any violation of personal liberty or privacy, including trespassing; c. discrimination; d. any breach of integrity, defamation; e. any violation of the right to protection of privacy and personal data; f. any violation of the right to a name;

g. any breach of the right to facial likeness and recorded voice.

2. Protection of rights relating to personality

(1) Everyone is entitled to freely practice his personality rights within the framework of the law and within the rights of others, and to not be impeded in exercising such right by others.

(2) Human dignity and the related personality rights must be respected by all. Personality rights are protected under law.

(3) Personality rights shall not be considered violated by any conduct if the person affected has given prior consent thereto.

UNIT 3.

RIGHTS IN REM (OWNERSHIP RIGHTS)

I. THE THING

1. The thing and similar legal objects

(1) There may be ownership of all things of a tangible nature which are capable of appropriation. (2) The provisions pertaining to things shall also apply to money and securities, including natural resources that can be utilized as capital goods. (3) The provisions pertaining to things shall apply to animals in accordance with the statutory provisions laying down derogations consistent with their natural characteristics.

2. Components

Ownership extends to everything that is permanently enjoined with a thing in such a way that disjunction would cause the thing or its disjoined part to be destroyed or would significantly reduce its value or usefulness.

3. Accessories

When in doubt, ownership shall also extend to parts that are not components but are usually necessary or beneficial for the proper use or maintenance of a thing.

II. POSSESSION

1. Possessor

Possessor is the person in possession of a thing as his own, or who keeps possession of a thing under temporary right.

2. Acquisition of possession

The person who actually controls a thing is considered to have acquired possession of that thing.

3. Transfer of possession

The transfer of possession shall materialize upon the conveyance of physical control of the thing on the basis of an agreement therefor. Transfers of possession shall be governed by the provisions on contracting and on the validity of contracts.

4. Protection of possession on the basis of actual possessory status

(1) The possessor shall be entitled to file a request within one year with the notary for having the original state of possession reestablished or for the discontinuance of restraint. (2) The notary shall order the reestablishment of the original state of possession and prohibit the trespasser from continuing in this conduct, unless it is evident that the person who has requested protection is not entitled to possession or has been obliged to tolerate such restraint.

5. Loss of possession

(1) The possessor shall lose possession if definitively abandoning physical possession of the thing, or if possession of the thing is acquired by others.

(2) Possession shall not cease if the possessor is unable to maintain physical possession of the thing temporarily.

6. Status of wrongful possessor, obligation to surrender possession

Any person who wrongfully holds a thing in his possession shall be required to surrender the thing to its rightful possessor.

III. OWNERSHIP RIGHTS

1. Ownership

(1) Ownership means the rights of an owner to lawfully exercise the full and exclusive right to control property within the framework of law and without prejudice to the rights of others. (2) The owner shall have the right of/to: a. possession, b. use, c. beneficial enjoyment (collection of proceeds), d. dispose over property.

2. Protection of ownership rights

(1) The owner shall have the right to avert all forms of unlawful intrusions. (2) Ownership claims shall not lapse. (3) The owner may demand the termination of illegal intrusions or influences and to demand from the wrongful possessor to surrender the thing.

3. Acquisition of ownership

3.1. The transfer

(1) Ownership by transfer may be acquired only from the owner of the thing. (2) For the acquisition of ownership of movable property by way of transfer, a contract for transfer or other legal title is required and, in that context, possession of the thing shall be conveyed. (3) For the acquisition of title to real estate property by way of transfer, a contract for transfer or other legal title is required and, in that context, the change of owners shall be registered in the real estate register.

3.2. Acquisition of ownership from a person other than the owner

Where ownership is acquired in good faith, in the course of trade for consideration, the transferee shall acquire ownership by way of transfer even if the transferor was not the owner.

3.3. Acquisition of ownership by means of administrative decision or official auction

Any person who has acquired a thing in good faith by means of official resolution or official auction shall gain ownership irrespective of who the previous owner was.

3.4. Expropriation

Ownership of real estate property may be acquired under exceptional circumstances for public use against immediate, full and unconditional compensation.

4. Joint Ownership

4.1. Definition of joint ownership

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

4.2. Co-owner’s rights of possession and use

Each co-owner has the right to possess and use the thing; however, none of them shall exercise this right if it adversely effects the rights and relevant lawful interests of the others in connection with the thing.

4.3. Termination of co-ownership

(1) Any of the co-owners may demand termination of co-ownership; any waiver of this right shall be null and void. (2) Termination of co-ownership may not be ordered by the court if the termination of co- ownership falls on an inopportune day. (3) Objects of co-ownership shall be divided primarily in kind. The objects of co-ownership, or a part thereof, may be given by court into the ownership of one or several co-owners in return for the payment of an appropriate consideration if it is justified with regard to the circumstances of the co-owners.

5. Condominiums

A condominium is established when in a building at least two independent units for residential or non-residential purposes or at least one independent unit for residential and one for non-residential purposes defined in the bylaws and technically separated pass into the private ownership of condominium owners, whereas the building sections, building equipment, areas and dwelling units, which are not owned individually, shall pass into the joint ownership of condominium owners.

IV. RIGHTS OF USE

1. Land use rights

If the ownership of a building and the land on which it stands belongs to different persons, the owner of the building shall have right of use on the land to the extent required for normal use of the building.

2. Beneficial Interest (right of enjoyment, usufruct)

A person may possess, use, exploit, and collect the proceeds of a property owned by another person by virtue of beneficial ownership.

3. Use Rights

Persons entitled to beneficial use may use a thing and collect its proceeds up to an extent not exceeding his own needs and those of his relatives living in the same household.

UNIT 4.

CONTRACTUAL LAW

I. OBLIGATIONS AND LEGAL STATEMENTS

1. Obligations

1.1. Definition of obligation

An obligation means a commitment to perform a service and an entitlement to demand performance of a service.

1.2. Types of obligations (services)

An obligation may pertain to a. the provision of some thing, b. an activity, c. abstaining from an activity, or d. some other conduct.

1.3. Facts establishing obligations

Obligations may originate from a. contracts, b. torts, c. any infringement of personality rights, d. rights in rem and other rights, e. from unilateral acts, f. securities, g. unjust enrichment, h. negotiorum gestio, i. implicit conduct.

1.4. Termination of obligations

An obligation shall terminate: a. upon performance of the service; b. if the same person becomes the obligor and the obligee, unless this Act provides otherwise; c. upon death or dissolution of the obligor without succession, if it concerns a service that can be performed personally; d. upon death or dissolution of the obligee without succession, if the service is to be performed specifically for the obligee by virtue of its very nature; e. upon the parties’ agreement for the termination of the obligation; f. on other grounds provided for by law, court ruling or administrative decision.

2. Legal statements

2.1. Definition of legal statement

A legal statement is a unilateral act intended to have legal effect.

2.2. Forms of legal statements

A legal statement can be made orally, in writing or by implicit conduct.

2.3. Interpretation of legal statements

In the event of a dispute, the parties shall, in light of the presumed intent of the person issuing the legal statement and the circumstances of the case, construe statements in accordance with the generally accepted meaning of the words.

4. Representation

Unless otherwise provided for in law, a legal statement can be made through another person as well. A legal statement made by a representative shall entitle and bind the person represented.

5. Performance of service

A service shall be performed according to the contents of the obligation.

II. CONTRACTS

1. Definition of contract

A contract is concluded upon the mutual and congruent expression of the parties’ agreement intended to give rise to obligations to perform services and to entitlements to demand services.

2. Freedom of contract

(1) The parties are free to conclude a contract and to choose the other party. (2) The parties are free to determine the contents of the contract. The parties may depart from the provisions relating to their rights and obligations with mutual consent, unless prohibited by law.

3. Presumption of reciprocity

Unless the contract or the applicable circumstances expressly indicate otherwise, a consideration is due for services set forth in the contract.

4. Conclusion and contents of contracts

Contracts are concluded upon the mutual and congruent expression of the parties’ intent.

5. Process of making contracts

5.1. Binding period of an offer

(1) Any person who makes a legal statement clearly indicating his intention to enter into a contract, showing also the relevant issues, shall be bound by his statement. The offeror may specify the period for his offer to remain binding. (2) The binding period shall commence when the offer takes effect.

5.2. Acceptance of an offer

Any form of statement by the offeree is an acceptance if it indicates assent to the offer.

6. Preliminary contract

If the parties agree to enter into a contract at a later date, and they define the material terms of that contract, the court shall have powers to establish the contract under such terms and conditions at the request of either party.

7. Standard contract terms

Standard contract terms means contract terms which have been unilaterally drafted in advance by one of the parties for several transactions involving different parties, and which have not been individually negotiated by the parties.

8. Invalidity

8.1. Nullity (errors in contract statements)

(1) Annulled contracts shall be considered null and void as from their conclusion. No special procedure is required for the establishment of invalidity; the court observes the nullity of the contract of its own motion. (2) Causes of nullity: a. Sham contracts b. Illegal contracts c. Immoral contracts d. Usurious contracts e. Impossible performance.

8.2. Avoidance (defects in consent)

(1) A contract which may be avoided shall, in consequence of being avoided, become invalid as of the date on which it was concluded. (2) The aggrieved party and persons with a lawful interest in the avoidance of a contract shall be entitled to do so. (3) Avoidance may be effected by notice to the other party, or by legal action brought in court. (4) Causes of avoidance: a. Mistake b. Misrepresentation c. Threat d. Gross disparity in value

8.3. Applying the legal consequences of invalidity

No right may be established and performance may not be demanded on the basis of an invalid contract. Other legal effects of invalidity shall be invoked by the court at the party’s request to that effect, within the framework of prescription and adverse possession.

9. Non-performance

9.1. Definition of non-performance

Non-performance of an obligation is any failure to perform that obligation.

9.2. Right of requiring performance

In the event of non-performance, the aggrieved party shall be entitled to require performance of the obligation.

9.3. Obligor’s delay

(1) An obligor shall be in delay if he does not perform his obligation when due. (2) In the event of the obligor’s delay, the obligee shall be entitled to require performance or, if performance no longer serves his interest, he shall be entitled to withdraw from the contract.

9.4. Warranty rights

(1) On the basis of a contract in which the parties owe mutual services to one another, the obligor shall be liable to provide warranty for lack of conformity. (2) On the basis of warranty rights, the obligee shall have the option: a. to choose either repair or replacement; or b. to ask for a commensurate reduction in the consideration, repair the defect himself or have it repaired at the obligor’s expense, or to withdraw from the contract

10. Confirmation of Contract

10.1. Earnest money

(1) A sum of cash deposited with the other party shall be construed as earnest money if provided to evidence commitment and if this intention is expressly indicated in the contract. (2) The person responsible for the failure of performance shall forfeit the earnest money that he has given, or he shall refund twice the amount of the earnest money he has received.

10.2. Contractual penalty

(1) The obligor may pledge to pay a certain sum of money in case he fails to perform the contract for reasons attributable to him. (2) The obligor shall be relieved from the obligation of payment of contractual penalty, if his non- performance is excused.

10.3. Forfeiture clause

Parties shall be entitled to agree in writing that the party responsible for any non-performance shall forfeit a right to which he would be entitled on the basis of the contract.

10.4. Contracts of suretyship

Under a contract of suretyship the surety undertakes the obligation of performance to the creditor in the event of nonperformance by the principal debtor.

10.5. Guarantee contracts

The guarantee contract, and the statement of guarantee means a guarantor’s commitment under which payment is to be made to the creditor subject to the conditions laid down in the statement.

10.6. Lien (mortgage, pledge)

Upon the failure of the obligor of the secured claim (hereinafter referred to as „designated lienor”) to perform, a lien holder shall be entitled to seek satisfaction prior to other claims against the property pledged as security for his claim (hereinafter referred to as „pledged property”).

11. Modification of subject in a contract

11.1. Assignment (1) The obligee shall be allowed to transfer his claim from the obligor to a third party. (2) For the acquisition of a claim by way of assignment a contract for transfer or other legal title is required and, in that context, the claim shall be assigned. Assignment is an agreement between the assignor and the assignee, upon which the assignee takes the place of the assignor.

11.2. Assumption of debt If the obligor and the obligee reach an agreement with a third party („transferee”) to assume the obligor’s debt owed to the obligee, the obligee shall be able to demand satisfaction from the transferee only.

12. Termination of a contract

12.1. Termination of a contract by agreement of the parties

(1) The parties may terminate a contract by mutual consent for future purposes, or may cancel the contract with retroactive effect to the date when it was concluded. (2) In the case of termination of a contract, the parties shall not owe further services and they shall settle accounts with respect to services performed before the time of termination. (3) In the case of cancellation of a contract, the services already performed shall be returned. If no restitution in kind is possible, the contract may not be cancelled.

12.2. Termination of a contract by unilateral act

Any person who has the right of withdrawal or avoidance on the strength of law or on the basis of a contract may terminate the contract by making a statement to the other party. If the contract is cancelled the provisions relating to termination, whereas in the case of avoidance the provisions relating to dissolution shall apply, with the exception that the party may avoid the contract if he offers to return the services received.

13. Express contracts (types of contracts)

13.1. Title-transfer contracts

a. Sales contracts: means any contract under which the seller undertakes to transfer the ownership of a thing to the buyer, and the buyer undertakes to pay the price thereof, and to take possession of the thing. b. Exchange contracts: if the contracting parties undertake reciprocal transfer of the ownership of things, other rights and receivables, the provisions pertaining to sales shall be duly applied. In such cases each party shall be deemed as the seller in respect of his own service and the buyer in respect of the other party’s service. c. Contracts of gift: means any contract under which the donor undertakes to transfer the ownership of a thing without any consideration, and the donee undertakes to take possession of the thing.

13.2. Contracts for professional services (work contracts)

a. Works contracts: the contractor undertakes to perform activities to achieve the result agreed upon (hereinafter referred to as „works”) and the customer undertakes to accept delivery of and pay the contracted fees for such works. Special work contracts:  Design contract  Construction contracts  Research contract  Contract for travel services  Agricultural services contract b. Contracts of carriage: the carrier undertakes to transport the consignment to its destination and deliver it to the consignee, and the consignor undertakes to pay the fee agreed upon.

13.3. Personal Service Contracts

a. Mandation contracts: the agent undertakes to carry out the assignment the principal has entrusted to him, and the principal undertakes to pay the remuneration contracted. b. Consignment contracts the consignment agent undertakes to conclude a sales contract for a movable property in his own name, on the principal’s behalf, and the principal undertakes to pay the commission agreed upon. c. Agency contracts: the agent undertakes to provide services with a view to facilitating the conclusion of a contract between his principal and a third party, and the principal undertakes to pay the fee agreed upon. d. Shipping contracts: the forwarding agent undertakes to conclude contracts and to make legal statements relating to shipments in his own name and on the principal’s behalf, and the principal undertakes to pay the fee agreed upon.

13.4. Licensing contracts

Lease agreements: the lessor undertakes to convey temporary use of a thing, and the lessee undertakes to accept the thing and pay the lease charge.

Leasehold contracts: the lessee shall be entitled to use temporarily an economically viable thing or to exercise an economically viable right, and to collect the proceeds thereof, and he shall be obliged to pay appropriate rent therefor.

Lending arrangements: the lender undertakes to make available for use, for a limited period of time and not for direct or indirect economic or commercial advantage, a specific thing, and the borrower shall accept the thing.

13.5. Deposit contracts

Under a deposit contract the depositary undertakes to safeguard the movable property to which the contract pertains, and to return it when the contract is terminated, and the depositor undertakes to pay the fee agreed upon.

13.6. Distribution contract

Under a distribution contract the supplier undertakes to sell specific movable property (hereinafter referred to as „product”) to the distributor, and the distributor undertakes to purchase the product from the supplier and to sell it in his own name and on his own behalf.

13.7. License (franchise) agreements

Under a license agreement the franchisor undertakes to grant rights of use, utilization and exploitation rights relating to assets protected by copyright or industrial property rights, including know-how, and the franchisee undertakes to produce and supply goods and/or services through the use, utilization or exploitation of such assets protected by copyright or industrial property rights, including know-how, and to pay the fee agreed upon.

13.8. Credit and account agreements

a. Credit agreements: the creditor undertakes to ensure the availability of a specific credit limit, and to conclude a loan agreement, contract of suretyship, guarantee contract or conduct other loan operations up to the said credit limit, and the debtor undertakes to pay the fee agreed upon. b. Loan agreements: the creditor undertakes to make available a specific sum of money, and the debtor undertakes to repay that sum to the creditor at a later date with interest. c. Deposit account contracts: the deposit holder is entitled to deposit a specific amount of money to the bank, and the bank undertakes to accept the sum of money offered by the deposit holder and to repay the same amount at a later date with interest. d. Current account contracts: the parties shall assume an obligation to record and settle their enforceable monetary claims arising from a specific relationship in a consolidated account. e. Payment account contracts: the account keeper undertakes to open a current account for the account holder for handling his financial transactions („payment account”), and the account holder undertakes to pay the fee agreed upon. f. Factoring contracts: the factor undertakes to pay a certain amount of money, and the debtor undertakes to assign his claim from a third party to the factor; if the obligor fails to satisfy the assigned claim at the time when due, the debtor shall be liable to repay the funds received with interest, and the factor shall be liable to re-assign the claim.

g. Financial leasing agreements: the lessor undertakes to make available for use, for a limited period of time a thing or a right he owns (hereinafter referred to as „leased asset”), and the lessee undertakes to accept the leased asset and to make lease payments if the lessee is given the right under the agreement to use the leased asset up to or surpassing its economic lifetime, or - if use is stipulated for a shorter period - to acquire the leased asset at the end of the term of the contract without any consideration or at a price considerably lower than the market value prevailing at the time of conclusion of the contract, or the total sum of lease payments reaches or exceeds the leased asset’s market value prevailing at the time of conclusion of the contract.

13.9. Guarantee agreements

a. Contracts of suretyship: the surety undertakes the obligation of performance to the creditor in the event of nonperformance by the principal debtor. b. Guarantee contracts: the guarantee contract, and the statement of guarantee means a guarantor’s commitment under which payment is to be made to the creditor subject to the conditions laid down in the statement.

13.10. Insurance contracts

a. Insurance contract: the insurer undertakes to provide coverage for the risk specified in the contract, and to provide settlement or benefits for loss arising upon the occurrence of a specific future event after the starting date of risk coverage, and the insured person undertakes to pay an insurance premium agreed upon. b. Special insurance contracts:  Indemnity Insurance  Liability insurance  Life insurance  Accident insurance  Health Insurance

13.11. Maintenance and life-annuity contracts

a. Maintenance agreement: the person owing maintenance undertakes to provide care to the person to whom maintenance is owed and to ensure his sufficient living conditions, and the maintenance creditor undertakes to provide compensation. b. Life-annuity contracts: the annuity provider undertakes to provide a specific sum of money or other fungible property to the annuitant periodically, and the annuitant undertakes to provide compensation.

III. NON-CONTRACTUAL LIABILITY FOR DAMAGES

1. General prohibition of torts

All torts are prohibited by law.

2. General provisions on liability

(1) Any person who causes damage to another person wrongfully shall be liable for such damage. (2) The tortfeasor shall be relieved of liability if able to prove that his conduct was not actionable.

3. Liability for Highly Dangerous Activities (Hazardous Operations)

(1) A person who pursues an activity that is considered highly dangerous shall be liable for any damage caused thereby. (2) Where such person is able to prove that the damage occurred due to an unavoidable cause that falls beyond the realm of highly dangerous activities, he shall be relieved from liability.

4. Specific cases of liability

4.1. Liability for the Acts of Another Person

a. Liability for the acts of employees and members of legal persons: If an employee causes damage to a third party in connection with his employment, liability in relation to the injured person lies with the employer. b. Liability for the actions of executive officers: If an executive officer of a legal person causes damage to a third party in connection with his office, liability in relation to the injured person lies with the executive officer and the legal person jointly and severally. c. Liability for the actions of nonpunishable persons: Any person whose discretionary ability is limited to an extent whereby such person is unable to comprehend the consequences of his actions leading to the damage shall not be held liable for the damage he has caused.

4.2. Liability for damage caused by defective products

Liability for damage caused by defective products lies with the manufacturer of such products.

4.3. Liability for the actions of administrative authorities

Liability for damages caused within the scope of administrative jurisdiction shall be established only if the damage results from actions or omissions in the exercise of public authority, and if the damage cannot be abated by common remedies or in proceedings for the judicial review of an administrative decision.

4.4. Building owner’s liability

The owner of a building shall be liable for damage caused to other persons by parts of the building that have fallen off or by any other deficiency in the building, unless the owner is able to prove that the regulations pertaining to construction and maintenance have not been violated and that he has not acted wrongfully in the course of construction and maintenance with regard to the prevention of damage.

4.5. Liability for Damage Caused by Animals

(1) Any person who keeps animals shall be liable for damages caused by the animals to other persons, unless he is able to prove that he has not acted wrongfully in the keeping of animals. (2) The keeper of a dangerous animal shall be held liable in accordance with the provisions on liability for hazardous operations.

UNIT 5.

COMPANY LAW

I. COMMON RULES

1. Instrument of constitution (company contract, deed of incorporation)

The instrument of constitution of a legal person shall expressly indicate the founders’ intent to set up the legal person and shall contain: a. the legal person’s name; b. the legal person’s registered office (seat); c. the legal person’s purpose or main activity; d. the names of the founders of the legal person, including their home address or registered office; e. the capital contributions prescribed, the value of such contributions, as well as how and when such assets are to be made available; and f. the legal person’s chief executive officer.

2. Registration of companies

(1) All entries made to the register of rights, facts or data must be evidenced by a document, court or administrative decision specified by law.

(2) The register shall be construed as an official public register; the rights, facts and data (hereinafter referred to as „data of record”) it contains shall be presumed to exist and to be authentic. Under no circumstances shall the lack of knowledge of any data of record constitute an excuse. In respect of parties acting in good faith, a company may not be excused on the grounds that certain data it has reported, and thus registered, was untrue. Unless proven to the contrary, it shall be presumed that a party acquiring certain rights for consideration relying upon the register was acting in good faith.

(3) The general public shall have unlimited access to the register, and notes may be made and certified true copies or extracts may be requested thereof.

3. Organization of companies (bodies)

3.1. Supreme body (decision-making body, general meeting, founders’ meeting, shareholders’ meeting)

(1) The supreme body functions as the decision-making organ of the members of the business association.

(2) The principal duty of the supreme body of a business association is to adopt decisions on fundamental business and personnel issues. The responsibilities of the supreme body shall include the approval of the annual account (hereinafter referred to as „financial report”), and decisions on the distribution of profits.

(3) In single-member companies the founder or the sole member shall function as the supreme body.

(4) All members of the company shall have the right to partake in the activities of the supreme body in person or by way of a representative. The voting right of a member in the supreme body of the company is consistent with the members’ capital contribution.

(5) In the meeting of the decision-making body a quorum shall exist when more than one half of the members with voting right are present. Quorum shall be considered for each decision.

(6) At the meetings of decision-making bodies the members or founders shall decide the matters at issue by voting.

(7) Members or founders shall adopt resolutions by a majority of the votes considered for the purposes of quorum.

3.2. Executive officer(s)

(1) Decisions that are related to the governance of a legal person, and are beyond the competence of the members or founders, shall be adopted by one or more executive officers or by a body consisting of executive officers.

(2) Executive officers shall perform their management functions representing the legal person’s interests. The executive officer may not be instructed by the members of the company and his competence may not be negated by the supreme body.

(3) The executive officer shall be held liable for damages caused to the legal person resulting from his management activities in accordance with the provisions on liability for damages for loss caused by non-performance of an obligation.

3.3. Manager(s)

(1) The company’s supreme body may decide to appoint one or more managers to assist the executive officers in their work.

(2) Managers shall carry out their functions under contract of employment. Managers are employees who direct the continuous operation of the company on the basis of the executive officer’s instructions.

3.4. Supervisory board

(1) Members or founders may provide in the instrument of constitution for the establishment of a supervisory board comprised of three persons, tasked to supervise management in order to protect the interests of the legal person.

(2) If the supervisory board wishes to engage the services of experts in the course of its supervisory activities, management shall fulfill the supervisory board’s such request.

(3) If, in the judgment of the supervisory board, the activity of the management is contrary to the law, to the instrument of constitution or to the resolutions of the company’s supreme body, or otherwise infringes upon the interests of the company, the supervisory board shall have the right to convene the meeting of the company’s supreme body to discuss that issue and to take the necessary decisions.

3.5. Statutory auditor

(1) The statutory auditor appointed by the supreme body shall be responsible for carrying out the audits of accounting documents according to the relevant regulations, and to provide an independent audit report to determine as to whether the annual account of the business association is in conformity with legal requirements, and whether it provides a true and fair view of the company’s assets and liabilities, financial position and profit or loss.

(2) The statutory auditor may be an individual auditor or an audit firm shown in the register of auditors. Where auditing services are provided by an audit firm, this audit firm shall be required to designate the person who will be personally responsible for carrying out the audits.

(3) If the company enlists the services of a statutory auditor to audit the company’s books, the statutory auditor a. shall have access to the documents, accounting records and books of the company, and b. shall be entitled to request information from executive officers, from the members of the supervisory board and from the company’s employees, and c. to inspect the company’s payment account, cash accounts, securities portfolio, inventories and contracts.

4. Legal representation of companies

(1) Companies are represented by their executive officers and other duly authorized employees in writing.

(2) The executive officer shall exercise his power of representation independently.

5. Judicial oversight of legal persons

(1) Judicial oversight of legal persons shall in general be carried out by the competent court of registry. Judicial oversight shall not apply to cases that are normally subject to other court or administrative proceedings.

(2) The scope of judicial oversight shall not cover the business decisions of legal persons in terms of economic feasibility and efficiency.

(2) If the measures taken to restore the legality of operations prove ineffective, the competent court of registry shall declare the legal person terminated.

6. Termination (dissolution)

6.1. Termination with universal succession

(1) Transformation: in the case of transformation of a company to another type of company, the company undergoing transformation will be dissolved, and its rights and responsibilities shall be transferred to the company established by way of the transformation, as the general legal successor.

(2) Merger: A company may combine with other companies as one legal entity by way of merger or acquisition. In the case of merger , the merging companies are terminated and a new company is established by way of universal succession. In the case of merger by acquisition , the acquired

company is terminated and all its assets and liabilities are transferred to the acquiring company by way of universal succession.

(3) Demerger: Demerger means when a company is split into two or more companies by way of division or separation. Division means the operation whereby, after being terminated, a company transfers all its assets to more than one companies. In the case of separation the company shall continue to operate in its previous form and part of its assets are transferred to the successor company established by the separation.

6.2. Termination of legal persons without succession

A company shall terminate without succession if: a. it was established for a fixed duration, and such period of time expires; b. it was subject to termination upon a certain condition, when this condition is met; c. declared terminated by its members or founders; or d. terminated by a body so authorized; provided in all cases that the company is cancelled from the registry following completion of the appropriate procedure for the settlement of the company’s financial affairs.

II. SOLE COMPANY TYPES

1. Companies (capital collecting companies)

1.1. Basic rules of companies

The companies are legal persons, obliged to enter into the firm registry, their legal personality starts with registration, and its memorandum of association (deed of incorporation, company contract etc.) has to contain obligatory elements.

1.2. Basic types of companies

(1) Company limited by shares: business associations founded with a share capital consisting of shares of a pre-determined number and nominal value, where the obligation of shareholders to the limited company extends to the provision of funds covering the nominal value or the accounting par value of shares. Unless otherwise provided for in Act, shareholders shall not be held liable for the limited company’s obligations.

(2) Company limited by guarantee: in case of termiation without succession of the company the members/directors are held liable for the debts and other obligations left behind.

(3) Company limited by guarantee with share capital: mixture of the company limited bay shares and guarantee, where in case of termiation without succession of the company the members/directors are held liable for the debts and other obligations left behind, and the initial capital of the company is divided into shares.

1.5. Forms of operation of companies

(1) Public limited company (PLC): can be company limited by shares or guarantee, and is entitled to issue shares and/or bonds.

(2) Private limited company, Ltd.: can be any form of companies, but is not entitled to issue shares and/or bonds.

1.4. Unlimited company

If the founders/members of the company undertake unlimited liability for debts and losses of the company, the company is obliged to use the unlimited company in its name.

2. Partnerships

2.1. Basic rules of partnerships

Partnerships has no legal personality, based on partnership contract as a certain obligation, no obligation to enter into the firm registry, but has the right to be subject to ownerhip, judicial or other official procedures, and are taxpayers.

2.2. Basic types of partnerships

(1) General partnership: the members of the partnership agree to make available to the partnership the capital contribution necessary for its activities, and to undertake joint and several liability for the partnership’s obligations not covered by the assets of the partnership.

(2) Limited partnership: the members of the partnership agree to make available to the partnership the capital contribution necessary for its activities, and at least one of the partners („general partner”) undertake joint and several liability together with the other general partners for the partnership’s obligations not covered by the assets of the partnership, while at least one other partner („limited partner”) is not liable for the obligations of the partnership, unless Act provides otherwise.