Constitutional Court: old conclusions on set-off no longer automatically apply after the new Civil Code

The crux of the dispute: two claims, one set-off and the question of certainty

The complainant was the subject of an enforcement proceeding for the recovery of a claim in excess of CZK 5.1 million, including the relevant accessories. The complainant defended the application for stay of execution on the ground that the claim had already been extinguished by unilateral set-off. Before the enforcement proceedings were initiated, the complainant had informed the creditor in writing that he had two claims against him – one in the amount of CZK 6 378 447,15 and the other in the amount of CZK 245 732,09 – and that he was offsetting them against his claim. The problem was that he did not explicitly state which of the two claims he was offsetting.

The district court dismissed the application for a stay of execution because it had doubts about the existence of the complainant’s claim in the amount claimed. However, the Municipal Court in Prague and subsequently the Supreme Court took the matter further: in their view, the set-off was indeterminate and therefore could not be taken into account. In doing so, they relied on earlier case law of the Supreme Court, which was established when Act No 40/1964 Coll., the Civil Code, was still in force. According to that line of case-law, a person who sets off several claims against each other must specify which specific claims are to be extinguished by the set-off; otherwise, the legal act is indeterminate.

Constitutional Court: courts cannot stick to the old conclusions regardless of the new law

The Constitutional Court did not say that the requirement of certainty of the legal act has lost its meaning. Its criticism was directed elsewhere: in its view, the general courts had mechanically applied the conclusions of earlier case-law without taking sufficient account of the change in the law. In doing so, they infringed the applicant’s right to judicial protection, in conjunction with the principle that the judge must be bound by the law. In other words, a judge is bound not only by case-law but, above all, by the law as it currently stands. If the law has changed in the meantime in a way which may have a fundamental impact on interpretation, the same decision cannot be taken by reference to previous case-law.

The Constitutional Court has expressly recalled that, at the constitutional level, it intervenes in the interpretation of sub-constitutional law with restraint. Nevertheless, it considered it necessary to do so in the present case because the courts had, in its view, disregarded the relevant provisions of the current Civil Code (CCC), namely section 1982(2) CCC and section 1933 CCC. It is precisely those provisions which, in a situation of multiple claims, can offer a supporting rule for determining the order in which the set-off is to be assessed. If the law contains such a rule, it cannot be automatically assumed that the failure to designate a specific claim always leads to indeterminacy of the set-off.

The thrust of the judgment is thus not to ‘relax’ the rules on set-off at all costs, but to require that judicial interpretation respect the new statutory scheme and its systematic nature. This is more significant in terms of legal methodology than it may seem at first sight.

The new Civil Code offers a solution that the old case law missed

According to the Constitutional Court, it is essential that the current Civil Code already contains a mechanism that can prevent indeterminacy, unlike the old one. Both the press release and the ruling explicitly refer to Section 1933 of the Civil Code in conjunction with Section 1982(2), i.e. to rules which, in the alternative, determine the order of set-off claims instead of the set-off person himself. According to the Constitutional Court, it is precisely this new system that was overlooked by the City Court and the Supreme Court.

The practical significance is obvious. The previous approach based on older case law led to a rather harsh conclusion in similar cases: if the offsetting party did not specify exactly which claim it was offsetting, the legal act was considered indeterminate and disregarded. However, the new legislation may lead to a more subtle result. The point is not that the wording of a set-off can be arbitrarily lax; the point is that where the law itself offers a supporting rule of interpretation, the court should not unnecessarily reach for the harshest inference of indeterminacy.

Moreover, the Constitutional Court stated that this interpretation is also supported by the literature and foreign legislation. It thus indicated that this was not an isolated or purely formalistic argument, but a broader systematic problem of private law interpretation after recodification. Indeed, recodification sometimes actually changes the answer to the question of what is still an indeterminate legal act and what can already be interpreted by means of statutory rules.

Why the crackdown was mainly aimed at the Supreme Court

From a procedural point of view, it is interesting that the Constitutional Court overturned only the decision of the Supreme Court, although it also found the decision of the Municipal Court unconstitutional. The reason for this is quite clear: the substance of the case concerns the case law of the Supreme Court and the interpretation of the Civil Code, so in its view it is appropriate that the Supreme Court should first reopen the issue in question. The Supreme Court is supposed to have the last word in terms of constitutional law and to ensure uniformity of decision-making in civil matters.

This is an important institutional point. The Constitutional Court has not assumed the role of the highest civil court. On the contrary, it has left room for the Supreme Court to reconsider or at least reinterpret its existing case law in the light of the current Civil Code. The case therefore returns to the Supreme Court, which will have to rule again on the appeal and will have to consider whether it was indeed appropriate in the present case to conclude that the set-off was indefinite.

This is perhaps even more significant for practice than the verdict itself. If the Supreme Court follows up on the ruling by changing or clarifying its decisional practice, this may affect not only future set-off disputes but also older cases in which the indefiniteness of set-off was assessed too formalistically. In fact, the Constitutional Court expressly stated in its ruling that its conclusions may have a positive impact not only on the certainty of future declarations of set-off, but also on the legal position of the complainant himself.

What this means in practice for creditors, debtors and lawyers

For legal practice, the ruling has several levels. Firstly, it confirms that when considering set-offs, it is no longer possible to mindlessly quote older case law without also taking into account the text and system of the 2012 Civil Code. Secondly, it points out that formalism on the question of the certainty of a legal act has its limits – especially where the law itself offers a supporting rule to remove uncertainty. And third, it reminds that the recodification of private law was not merely cosmetic; judicial practice must continuously verify whether earlier conclusions have indeed survived the change in the law.

At the same time, however, the finding is not an invitation to carelessly formulate unilateral credits. Caution is still in order. Those who prepare a set-off should still identify as precisely as possible their claim and the counterparty’s claim, the legal basis, the amount and the time at which the extinction is to occur to the extent of the coverage. The dispute in this case is not whether precision is unnecessary, but whether the absence of one specification should automatically lead to the conclusion that the set-off does not legally exist. The Constitutional Court answered this question in a reserved but clear manner: under the new legislation, such automatism no longer holds.

Summary

The ruling in Case No. III ÚS 78/25 is important primarily in terms of methodology. In it, the Constitutional Court recalled that judicial interpretation must be based on the actual law, not just on automatically adopted conclusions of older case law. In the area of set-off, this means that in the case of multiple counterclaims, it can no longer be argued without further ado that the failure to identify the specific claim being set-off always renders the legal transaction indeterminate. Indeed, the current Civil Code contains rules that can bridge such vagueness. The Constitutional Court therefore annulled the decision of the Supreme Court and referred the case back to it for a new examination. This is a clear signal to legal practice that, after recodification, civil law cannot be interpreted “the old-fashioned way”.