What If Assets in Notarial Escrow Are Not the Depositor’s?

Notarial escrow has long been a standard and trusted element of transactional practice in the Czech Republic. In real estate transactions, share deals and complex asset transfers, it is widely perceived as the safest way to safeguard purchase prices and other assets pending completion.

A recent decision of the Czech Supreme Court has brought renewed attention to notarial escrow, not by questioning its reliability, but by highlighting an issue that lies outside escrow itself: the quality of the underlying transaction.

Properly read, the decision does not weaken notarial escrow as a transactional tool. On the contrary, it confirms that escrow works exactly as intended - provided it rests on a sound legal and factual basis. 

Case Background: Escrow and a Defective Legal Title

The Supreme Court had to deal with a situation where an asset was deposited by a person who wasn’t the owner. The true owner of the asset subsequently filed a claim for its return at a time when the asset was factually held by the notary acting as the escrow holder.

The dispute did not concern the interpretation of the escrow agreement itself, nor any misconduct by the notary. Instead, it stemmed from a defective underlying situation: the person who placed the asset into escrow lacked ownership or another valid legal title allowing such disposition. The true owner therefore pursued a classical property-law claim for the return of the asset. 

The Supreme Court’s Key Clarification

In its reasoning, the Supreme Court focused on general principles of property law and procedural standing. It confirmed that the mere fact that an asset is held in notarial escrow does not shield it from a revendicatory claim by the true owner. Where property has been placed into escrow by someone without disposal authority, the owner must seek its return directly, even if the asset is currently held by a notary as a neutral escrow holder.

At the same time, the Court did not criticise notarial escrow as such, nor did it suggest that escrow arrangements are inherently risky. The decision does not impose new obligations on notaries beyond their existing role as professional escrow holders. The problem addressed by the Court arose before the escrow was established.

What This Means for Transactions

The practical takeaway is straightforward and reassuring. Notarial escrow remains a highly secure and reliable escrow mechanism under Czech law and continues to be the first-choice solution in most transactions.

The decision simply reiterates a fundamental rule of transactional practice: escrow can secure the proper execution of a transaction, but it cannot cure a lack of legal title or entitlement that already exists. If an asset or purchase price originates from a party without proper title, no escrow mechanism - whether notarial, banking, or otherwise - can eliminate that risk.

From this perspective, the ruling reinforces the importance of careful transaction preparation. In standard transactions, legal due diligence, verification of ownership and disposal authority, and appropriate AML and source-of-funds checks are already well-established steps. The Supreme Court’s decision confirms their relevance, particularly in more complex structures involving groups, third-party funding or cross-border elements.

By Mgr. Ing. Jan Durica

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