“Delivery to a different account of the creditor than agreed upon still constitutes due fulfillment, provided the creditor does not object within a reasonable period of time.” This is precisely the conclusion recently drawn by the Supreme Court of the CR in its judicature. In particular, this involved SC CR judgment ref. no. 31 Cdo 3065/2009 of 16.1.2013 (hereinafter the “Judgment”). This judgment breaks with a relatively strict principle of due fulfillment delivered solely to the account agreed upon, assuming that the creditor demonstrably receives the funds in another of its accounts and does not object to such payment within a reasonable period.

1. Factual background

In this particular case there was a dispute between two legal entities, commercial companies. These companies had concluded an agreement on business cooperation which contained an acknowledgement of debt along with the obligation to pay this debt in installments designated with a variable symbol to a specified account of the creditor.

Together with this agreement, the companies concluded a security agreement. Based upon this agreement, the debtor transferred shares to the creditor to secure the fulfillment of the aforementioned obligations from the agreement on business cooperation, and the creditor agreed to transfer the disputed shares back to the debtor if it duly and promptly fulfilled its obligations.

However, the debtor also owed other, older overdue debts to the creditor.

The debtor then remitted payments in installments for the agreed amount, designated with a variable symbol as specified in the agreement on business cooperation, but to a different account than the one specified, although it was also an account of the creditor.

The creditor thus did not consider these installments to be payments from the agreement on business cooperation and offset these payments against older overdue claims. It then refused to transfer the shares back to the debtor, citing its failure to meet the obligations of the agreement on business cooperation.

The debtor insisted that the funds sent to another account of the creditor were to meet the obligations of the agreement on business cooperation and demanded return of the shares provided as security.

2. Supreme Court ruling

The Supreme Court rejected the argument of the creditor, that it was entitled pursuant to Section 330 of the Commercial Code to offset payment against older claims, since, according to the Supreme Court, this approach is only possible when the debtor does not duly indicate which debt it is repaying.
In this matter however, the Supreme Court concluded that the intent embodied in the legal act of indicating which debt is to be repaid is demonstrated clearly and comprehensibly if such interpretation may be understood objectively, i.e. if a typical addressee of such act can aptly perceive the intent without reasonable doubt about its content.

Of the possible indications of the debt to be repaid, there is also no reason to discount demonstration of intent expressed by the fact that debtor remitted payment to the creditor for the amount corresponding precisely to one of the debts (and not others).

Since payment was made in the installments agreed upon in the agreement on business cooperation, which were moreover designated with the specified variable symbol, in the opinion of the Supreme Court the debtor duly indicated repayment of a specific debt, i.e. the debt from the agreement on business cooperation.

The Supreme Court also found no hindrance in the fact that the debtor made payments before maturity, since the payment date was not found to be negotiated to the benefit of the creditor.

With regard to the payment being directed to a different account, the Supreme Court stated that if the debtor makes payment to a different account of the creditor held at a different bank (as was the case here), then this does not constitute due fulfillment at the place agreed upon, but if the creditor does not return these funds to the debtor immediately upon learning that the debtor remitted funds to its other account (different than the one to be used according to the agreement), then the debtor’s payment to the other account is considered duly made, since the creditor has accepted such payment through its inaction.

The Supreme Court thus clearly assessed the payments made to an account other than the one agreed upon as a proposal to change the place of fulfillment, which the creditor may implicitly accept by failing to object. If such acceptance occurs and the creditor does not object to the payment made to a different account, then the debtor has fulfilled its obligation (unless specified otherwise in the particular agreement concluded) on the day the funds are credited to the (other) account of the creditor.

3. Conclusion

It may be concluded that the Supreme Court has inclined towards a certain break with the rigid principle of insisting on the letter of written agreements, giving consideration to actual fulfillment and thus expressing the belief that obligations can be met in other ways (in this case at a different place) than agreed upon, assuming that the creditor agrees to such fulfillment. Relatively surprising is the conclusion of the Supreme Court that such consent may be given implicitly through the inaction of a creditor which does not object to the defective fulfillment. From this we may deduce the practical consequence that as creditor, one must always insist on due fulfillment of obligations and not rely upon written agreements, since the absence of any objection to defective fulfillment may be considered acceptance of a change in the terms of fulfillment.

For more information, please contact our office’s partner, Mgr. Jiří Kučera, e-mail: jkucera@kuceralegal.cz ; tel.: +420604242241.