It is not uncommon for the same parties to have mutual claims against one another for performance of the same kind. When a debtor performs an obligation, they may specify which debt they are discharging. But what does the law regard as a sufficiently certain designation of that debt? Which obligation is extinguished if the debtor fails to specify which debt they are discharging? And how should this situation be resolved where the debt is extinguished by unilateral set-off rather than by performance?
These questions were addressed by the Grand Chamber of the Civil and Commercial Division of the Supreme Court of the Czech Republic in its judgment dated 13 May 2026, File No. 31 Cdo 213/2026 (hereinafter the “Judgment”), in which it departed from its previous case law.[1] Under that case law, where there were multiple claims on the passive side, set-off without further specification of the passive claim against which it was to be made constituted a non-existent legal act within the meaning of Section 553(1) of Act No. 89/2012 Coll., the Civil Code, as amended (hereinafter the “CC”), to be disregarded pursuant to Section 554 of the CC.
Factual and procedural circumstances of the case
The claimant was employed by the defendant, most recently as its financial director. Before his employment ended, he acknowledged a debt to the defendant arising from intentionally caused damage and undertook to pay it. The defendant also recorded a further claim for damages against the claimant, which was not covered by the acknowledgement of debt. Subsequently, by agreement with the defendant, the claimant waived his entitlement to exceptional severance pay on the condition that his debt to the defendant would be reduced by the corresponding amount.
The claimant’s wages for the final month of his employment were not paid. Several weeks after they were due, the claimant sent an email to the defendant’s representative, in which he stated the amount of net wages for the final month, which he had calculated himself, and informed the recipient that on the same day he had transferred an amount to the defendant’s account such that the sum of these amounts totalled CZK 400,000. The email did not contain the word “set-off” or any term of similar meaning. The claimant subsequently sought payment of the wages calculated in this way in the court proceedings.
The court of first instance partially upheld the claim. It concluded that the email did not identify the claim to be set off or its legal basis, nor the claim against which set-off was directed. It therefore held that the email constituted a non-existent legal act due to uncertainty and was to be disregarded. The appellate court upheld the judgment to that extent. It reasoned that the email did not contain an expression of intent to effect set-off and added that, even if it did, it would not meet the requirement of certainty: at the relevant time, the employer had two claims for damages, and the expression of intent would not make clear which of them was to be extinguished and to what extent.
The employer lodged an appeal on a point of law against the appellate court’s judgment. It argued that the courts had entirely failed to interpret the expression of intent to set off by reference to the statutory rules of interpretation. It also argued that they had incorrectly assessed the statutory requirements for determining which of several passive claims, i.e. claims against which set-off is asserted, was to be extinguished by set-off. In assessing the second issue, the three-member panel reached a legal view that differed from the previous case law and referred the matter to the Grand Chamber of the Civil and Commercial Division for a decision. The Supreme Court quashed the appellate court’s judgment in respect of this claim and remitted the matter to it for further proceedings.
Designation of the debt upon performance
If a debtor owes the same creditor several debts involving performance of the same kind, the debtor has the choice as to which of the debts to settle. The law does not prescribe any form or specific requirements for this determination; an expression of intent addressed to the creditor and made at the time of performance is sufficient. This will typically take the form of a note attached to the payment, a detail in the payment order, or a statement in the correspondence between the parties accompanying the performance. Case law also recognises implied designation, for example where the amount transferred corresponds exactly to the amount of one of several debts and not to the others.[2]
If the debtor does not specify which debt they are discharging at the time of performance, the legal act consisting of that performance does not remain without effect or become uncertain. Under Section 1933(1) of the CC, performance is first applied to the obligation in respect of which the creditor has already demanded performance from the debtor; otherwise, it is applied to the least secured obligation and, where several obligations are equally secured, to the one that falls due first. Failure to identify the debt being discharged does not, therefore, automatically make the content of the legal act uncertain or unintelligible within the meaning of Section 553 of the CC. The debtor thereby voluntarily forgoes the opportunity to choose which debt to discharge, but the legal consequences of their act arise nonetheless, as the relevant debt is determined by law.
Set-off and reference to the rules on performance
Where the parties owe each other performance of the same kind, either party may declare to the other that it is setting off its claim against the other party’s claim, as soon as it acquires the right to demand satisfaction of its own claim and to perform its own obligation. No specific form is prescribed for a declaration of set-off; it may therefore be made in writing, orally or by conduct, provided there is no doubt as to what the party intended to express. The party effecting set-off, i.e. the person making the declaration of set-off, is thus simultaneously the creditor of the active claim (the one used for set-off) and the debtor of the passive claim (the one against which the set-off is made).
Under Section 1982(2) of the CC, set-off extinguishes both claims to the extent that they cover one another; if they do not cover one another in full, the claim is applied in the same way as in the case of performance. The previous legislation did not contain a similar rule: Section 580 of Act No. 40/1964 Coll., the Civil Code, in the version effective until 31 December 2013, provided only for the extinction of claims to the extent that they covered one another. The reference in the current legislation to the analogous application of the rules on performance points to Section 1933(1) of the CC, namely the same rule that applies where the debtor has not specified which debt they are discharging.
Previous case law
Case law established whilst the previous Civil Code was in force was based on the principle that, when setting off multiple mutual claims, the party performing the act of set-off must specify which claims are to be extinguished by the set-off, and that the expression of intent must be sufficiently certain to allow for the unambiguous determination of which claims are to be extinguished and to what extent. Otherwise, the act was deemed invalid on the grounds of uncertainty.
The Supreme Court also endorsed these conclusions under the current Civil Code, with the difference that uncertainty in the expression of intent to set off results in the non-existence of the legal act rather than its invalidity. That case law made no distinction between cases where the total amount of the active claims exceeds the passive claim[3] and cases where the opposite is true.[4]
This led to a situation in which the same failure to specify the debt being discharged had different consequences for performance and set-off. In the case of performance, if the debtor did not specify which debt they were discharging, the order set out in Section 1933 of the CC applied and the relevant debt was extinguished. In the case of set-off, however, the case law treated the declaration of set-off in the same circumstances as a non-existent legal act, to be disregarded pursuant to Section 554 of the CC. This difference persisted even though Section 1982(2) of the CC, unlike the previous legislation, expressly provides that, if the mutual claims do not cover one another in full, the claim is applied in the same way as in the case of performance.
Conclusions of the Supreme Court
In view of these differences, the Supreme Court concluded that the previous case law could no longer stand. It is not possible to maintain an interpretation under which the same failure to specify the debt is resolved by the statutory order in the case of performance but renders the legal act non-existent in the case of set-off, even though Section 1982(2), read together with Section 1933 of the CC, expressly regulates this situation.
The Supreme Court first criticised the appellate court for failing, when assessing the email, to ascertain the actual intention of the party acting, in accordance with Sections 555 and 556 of the CC. The fundamental criterion for interpretation is the intention of the party acting, provided that this was known to the addressee or that the addressee must have been aware of it; only where such intention cannot be ascertained is the expression of intent attributed the meaning that a person in the addressee’s position would normally ascribe to it. In addition to the intention of the party acting, account is also taken of the established practice between the parties in their legal dealings, of the circumstances preceding the expression of intent, and of how the parties subsequently made clear what content and meaning they attributed to the expression of intent. The actual intention is assessed at the time the expression of intent was made, and its interpretation must not lead to conclusions that are manifestly absurd, as it is based on the assumption that the parties did not act illogically.
In the present case, this meant taking into account the acknowledgement of debt made by the claimant prior to the termination of the employment relationship, the email correspondence between the claimant and the employer’s representative regarding the claim for damages, the agreement whereby the claimant waived his claim for exceptional severance pay on the condition that his debt to the employer would be reduced by the corresponding amount, as well as the fact that the claimant added a payment to the net wage he had calculated so that the resulting sum was a round figure, and that he informed the employer in an email of further payments he intended to make. According to the Supreme Court, the timing of when the claimant began to seek payment of his wages is also significant, as these were due as early as mid-January 2021, whereas he did not file his claim until the end of September of the same year. For several months, therefore, he behaved in a manner suggesting that he regarded his claim for wages as having been extinguished by set-off.
The Supreme Court further concluded that, if a declaration of set-off does not clearly and intelligibly specify the claims against which the active claim is asserted, Section 1933(1) of the CC determines which passive claims are extinguished by set-off and to what extent. Accordingly, a unilateral legal act consisting of set-off is not uncertain merely because, where the total amount of multiple passive claims exceeds a single active claim, the party declaring set-off does not specify which claims are extinguished and in what amounts.
The application of Section 1933(1) of the CC to determine the order of claims extinguished upon set-off under Section 1982 of the CC is also recognised in legal commentary.[5] The Constitutional Court had reached the same conclusion even before the Judgment was issued; according to the Court, the current Civil Code, unlike the previous legislation, now contains a rule that can prevent uncertainty in set-off, as the order of the claims being set off is determined by the law as a fallback rather than by the party effecting the set-off. The Constitutional Court characterised the mechanical adoption of the conclusions of case law relating to the earlier legislation, without the court taking any account of the changes in the new legislation, as a violation of the right to judicial protection in conjunction with the principle that judges are bound by the law. It therefore concluded that there are sufficiently compelling reasons why the application of Section 1933 of the CC should at least be considered when assessing the certainty of set-off, although it left the interpretation of the relevant provisions to the Supreme Court.[6]
Conclusion
The Judgment applies only to cases where the total amount of the passive claims exceeds a single active claim. It cannot therefore be applied automatically to cases involving multiple active claims.
Where there are multiple active claims and the party effecting set-off does not specify which claim it is asserting against the counterparty’s claims, the legal commentary regards precise identification of the active claim as an absolute requirement if the legal act is not to be treated as non-existent. By contrast, in the case of a passive claim, the rules on the order of performance under Section 1933 of the CC may be applied as a fallback in cases of doubt.[7]
From a practical point of view, it will therefore continue to be advisable to specify in the set-off notice not only the claim being set off, but also the claims against which the set-off is directed, including the extent to which they are to be extinguished. Equally important is the communication between the parties preceding the set-off, as the court may also infer the actual intention of the party acting from this communication pursuant to Section 556(2) of the CC.
If you have any questions regarding set-off, the extinction of obligations or other areas of the law of obligations, we are at your disposal. Please do not hesitate to contact us.
[1] Judgment of the Supreme Court of the Czech Republic dated 17 August 2020, File No. 32 Cdo 565/2019, and judgment of the Supreme Court of the Czech Republic dated 26 April 2021, File No. 23 Cdo 3407/2020.
[2] Judgment of the Supreme Court of the Czech Republic dated 27 April 2011, File No. 23 Cdo 1212/2010.
[3] Judgment of the Supreme Court of the Czech Republic dated 30 November 2022, File No. 23 Cdo 2901/2021, and judgment of the Supreme Court of the Czech Republic dated 17 August 2020, File No. 32 Cdo 565/2019.
[4] Judgment of the Supreme Court of the Czech Republic dated 18 February 2009, File No. 23 Odo 932/2006.
[5] ŠILHÁN, Josef. Section 1982 [Conditions and effects of set-off]. In: HULMÁK, Milan et al. Civil Code, Vol. V: Law of Obligations. General Part (Sections 1721–2054). 1st edition. Prague: C. H. Beck, 2014, p. 1123, marginal No. 51.
[6] Judgment of the Constitutional Court of the Czech Republic dated 12 February 2026, File No. III. ÚS 78/25.
[7] ŠILHÁN, Josef. Section 1982 [Conditions and effects of set-off]. In: HULMÁK, Milan et al. Civil Code, Vol. V: Law of Obligations. General Part (Sections 1721–2054). 1st edition. Prague: C. H. Beck, 2014, p. 1123, marginal No. 51.
Mgr. Nikola Tomíčková, attorney – tomickova@plegal.cz
Mgr. Filip Šuba, junior lawyer – suba@plegal.cz
17. 9. 2026