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When a debtor credits the wrong account

When a debtor credits the wrong account

30.7.2013 11:24
Autor: Milan Šperl, KSB

Under current civil and commercial law, debts must be repaid duly and on time. A prerequisite for due repayment is, inter alia, the debt being repaid at the determined place. Debtors typically repay debts through banks. This – as a dispute that was resolved recently by the Supreme Court reveals – may result in certain unexpected problems.

The claimant (A) was seeking the entry by the defendant (B) into a share transfer agreement under which B would hand over certain documentary bearer shares to A. A justified the action as follows. A certain agreement had been concluded between B another company, C, pursuant to which C undertook to pay B a certain amount in monthly instalments. A and B had entered into a separate agreement under which A transferred certain shares to B by way of security. B undertook to A that if C paid its liabilities to B duly and on time, B would transfer the relevant shares back to A. Since C fulfilled its obligation, A expected to receive the shares.

Due payment?

But there was a catch. The defendant (B) objected that C did not duly fulfil its obligations because it made the payments to the wrong account, i.e. not to the account stated in the relevant agreement. Therefore its obligations were not fulfilled at the determined place. B stated that, under the agreement, incoming payments could not be considered performance pursuant to the repayment schedule and therefore it had to offset them against other receivables that were due earlier. Thus, according to B, it had no reason to transfer the disputable shares back to A.

In the end, the case was taken up by the Supreme Court. According to the court, when parties agree that a debtor shall make payments to a creditor’s account as designated in the relevant agreement, such agreement determines the place of performance. If the debtor then transfers the money to another account held by the creditor with another bank, the debtor thus did not render the performance at the place agreed. Nevertheless, if the creditor does not return the money to the debtor without undue delay after it discovers such fact, it can as a rule be concluded that the creditor accepted the debtor’s performance. In such an event, the debtor’s obligation ceased to exist on the date on which the transferred amount was credited to the creditor’s account.

The main reason for the court’s decision was that since the payments were transferred in the exact amounts of the agreed instalments and the agreed identification code (variable symbol) was used, the company (C) clearly demonstrated its intention to fulfil its payment obligations. The Supreme Court thus confirmed the decision of the appellate court. It also did not agree with the defendant’s argument that it could offset the incoming payments as unidentifiable against another of C’s debts (due earlier). As such, C duly fulfilled its obligations under the agreement and A was entitled to seek performance under the security agreement.

For the sake of completeness, it should be mentioned that with regard to the place of performance the new Civil Code follows the current provisions contained in the Civil and Commercial Codes. The above-mentioned decision of the Supreme Court will probably be applicable after 1 January 2014, when the new Civil Code is due to take effect.

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