a) Hungary / b) Constitutional Court / c) / d) 24-10-1995 / e) 66/1995 / f) / g) Magyar Közlöny (Official Gazette), 101/1995 / h) .
Keywords of the Systematic Thesaurus:
General Principles - Prohibition of arbitrariness.
Institutions - Public finances - Budget.
Fundamental Rights - Economic, social and cultural rights - Freedom of contract.
Keywords of the alphabetical index:
Contract / Rebus sic stantibus.
Contractual freedom is not a basic right. Its restriction is unconstitutional only when it is arbitrary. Contractual freedom can be restricted only when the conditions of the rebus sic stantibus clause (fundamental change in circumstances) prevail. The State can intervene by legislative means into the contractual terms only when essential changes in the conditions occur, and where these lead to the violation of lawful interests. Otherwise the legislative amendments of contracts are arbitrary and unconstitutional.
The government in the previous decades supported home-building financially by granting a special long-term loan (in fact a kind of mortgage). The legislature by amending the 1995 Budget increased the interest rate to 25 percent per year. It justified the increase by the high inflation rate.
The Constitutional Court quoted its previous decision on this problem in 1991 when it upheld a law increasing the interest rate to 15 percent. The Court pointed out that in 1991 one could refer to a fundamental change of conditions (an increase of general interest rates from 5 to 28-32 percent) which, given the existence of approximately 2 million contracts, put an unbearable burden on the budget, and that the proportion of expenditures for housing had become the highest in the world.
But in 1995 the rate of inflation and the interest rates were more or less the same as in 1991, and the number of the specially low rate contracts dropped to two hundred thousand. Thus the legislative amendment of contractual terms could not be justified by the rebus sic stantibus clause.