Setting a property’s purchase price off against a claim by a buyer does not automatically make a transaction void, and not all deals will be invalid because of the mere presence of a forfeited claim.

In a ruling on July 25, 2017 (File No. I. ÚS 34/17), the Constitutional Court held that when assessing these transactions, courts should not be satisfied with the strictly formalistic view that the real reason for these contracts is the forfeiting of collateral. Instead, court should explore economic causes and the business goal being pursued by the parties through their individual legal steps. Once this economic approach is taken (and if the findings are clear), courts should turn to the parties’ legal acts and assess their compliance with legislation and moral standards.

The Constitutional Court stressed that the invalidity of a legal act should be the last rather than the first conclusion reached by judges.

The Court had previously maintained that binding legal relationships must be based on respect for the autonomous wills of the contracting parties since this was the basic prerequisite for the operation of the rule of law.  

The purpose of the statutory ban on forfeited collateral is to protect debtors from their own unpremeditated actions when obtaining a loan or credit, a situation that may lead to the unexpected and undesirable relinquishing of ownership rights.

The Court concluded that not all transactions where a property’s purchase price is set off against a buyer’s claim are invalid merely because of the existence of forfeited collateral. When determining invalidity, it is always vital to address the purpose of the legal act concerned.

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