Concept, Form, and Rights and Obligations of the Parties under the Civil Code of Georgia
Author: Nikoloz Pkhaladze — Attorney at Law, "Pkhaladze & Partners"
Sale is one of the most common contracts in property transactions; however, it does not always imply a lump-sum, full payment of the price. In practice, situations frequently arise where the buyer receives the item immediately, while paying the price in installments at certain time intervals. The legislation refers to this model as a "sale by installment" and regulates it with special protective rules.
Below we discuss the concept of this contract, its mandatory form, the rights and obligations of the parties, and the legal consequences that arise upon violation of statutory requirements.
Concept — What is a Sale by Installment
According to Article 505 of the Civil Code of Georgia, in a sale by installment, the seller is obliged to deliver the item to the buyer before full payment of the price. The price, in turn, is paid by the buyer in parts, at predetermined intervals of time.
The essence of this structure lies in the fact that the actual delivery of the item and the full settlement are separated in time: the buyer uses the item while a portion of the price remains unpaid. It is precisely because of this temporary imbalance that the law grants additional protection to the buyer, especially when the seller is an entrepreneurial entity.
Obligations of the Seller when the Seller is an Entrepreneur
If the seller is an entrepreneur, in a sale by installment they are obliged to comply with the requirements established by Article 625 of the Civil Code — regarding interest rates, commission fees, penalties, and any form of financial sanctions. This provision aims to protect the consumer from a disproportionate financial burden.
Currency Restriction
If, as a result of the sale by installment, the buyer's total obligations toward the same seller do not exceed GEL 200,000, receipt of the price up to GEL 200,000 must not be pegged to or indexed in a foreign currency.
Form of Contract and Mandatory Terms
A contract of sale by installment must be concluded in writing. The written form here is not merely a formality — it serves as an instrument for protecting the parties' interests and preventing future disputes. A properly drafted contract clearly defines financial obligations and reduces the risk of misunderstanding.
Under the law, the contract must mandatorily reflect:
- Amount of the cash (down) payment;
- Amount of the installment payments and the due date for each payment;
- Amount of annual interest rate.
Furthermore, the seller is obliged to hand over a copy of the sale documents to the buyer — this allows the buyer to verify the scope and terms of their obligations at any time.
What Happens If the Formal Requirement is Violated
If the contract is concluded in violation of the requirements of Article 506, the law nevertheless does not leave the buyer unprotected. In such a case, the contract shall be deemed concluded from the moment the item is delivered, and the buyer shall be obligated to pay only the price of the item — without interest.
This rule performs an important protective function: a seller who fails to observe the requirements of form and transparency is deprived of the right to demand interest. As a result, the economic risk of violating the form transfers to the seller.
Mutual Restitution in Case of Breach of Obligation
The parties may agree that the seller is entitled to rescind the contract if the buyer fails to perform their obligations. In such a case, upon rescission of the contract, each party is obliged to return to the other what was received under the contract — i.e., mutual restitution applies.
Important
An agreement contrary to mutual restitution is void. The parties cannot exclude in advance the obligation of mutual return of what was received.
Practical Recommendations
- Always conclude the contract in writing and reflect all financial terms precisely — cash payment, installment schedule, and annual interest rate.
- Verify whether the restriction on foreign currency indexing exceeds the established threshold in your case.
- Keep copies of all sale documents — they serve as conclusive evidence of your obligations.
- Consult a lawyer prior to a dispute arising in order to accurately assess which provision (Article 505, 506, or 625) applies to your specific contract.
Disclaimer
This material is of a general informational nature and does not constitute legal advice. Consult an attorney for the resolution of a specific case.
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