set-off

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Set-Off

A demand made by the defendant against the plaintiff that is based on some transaction or occurrence other than the one that gave the plaintiff grounds to sue.

The set-off is available to defendants in civil lawsuits. Generally, civil actions are brought by plaintiffs seeking an award of damages for injuries caused by the defendant. In customary practice the plaintiff files the suit and the defendant answers it. The defendant may assert a counterclaim against the plaintiff based on an event or transaction other than the event or transaction that forms the basis of the plaintiff's suit. A set-off is a counterclaim with the particular goal of defeating or diminishing the amount the defendant will have to pay if the plaintiff's suit succeeds.

The set-off has two distinctive features. It must be based on an entirely different claim from that of the plaintiff, and it must be a valid legal claim that the defendant could bring as a separate suit. For example, a stereo store sues a customer for $700 due in outstanding payments on a CD player. However, the customer's car was damaged in the store's parking lot when the store's delivery van backed into it, and the repairs cost $500. As the defendant, the customer has the right to assert a counterclaim for damages to the car; if the customer is successful, the set-off reduces the amount owed to the plaintiff store so that the defendant owes the plaintiff only $200.

The remedy of recoupment is similar in effect to a set-off but differs from it in several respects. Whereas a set-off is based on a different claim, recoupment is a common-law remedy based specifically on the contract between the plaintiff and defendant that gave rise to the suit. It allows defendants to claim damages against the plaintiff under two conditions: where the plaintiff has not complied with some contractual obligation or where the plaintiff has violated some duty that the law imposed in the making or performance of the contract. Recoupment usually occurs in cases where the plaintiff has performed only a portion of the contract and sues for compensation for the partial performance. For example, the defendant in the stereo store's action might demand recoupment for the store's failure to service the stereo under its Warranty.

Like all counterclaims, set-off and recoupment seek to achieve justice by Balancing the plaintiff's and the defendant's rights. They are designed to prevent a plaintiff from recovering complete damages from a defendant who has suffered injury or damages caused by the plaintiff. They can also save time and money. By combining the entire controversy within one action, recoupment and set-off prevent the courts from being inundated with multiple lawsuits.

set-off

the plea that there exists a debt owed to the debtor by the creditor so that the creditor's claim against the debtor should be extinguished or reduced to the extent of that debt. Set-off is limited to money claims and is a ground of defence rather than a substantive claim.

SET-OFF, contracts, practice. Defalcation; (q.v.) a demand which a defendant makes against the plaintiff in the suit for the purpose of liquidating the whole or a part of his claim.
     2. A set-off was unknown to the common law, according to which mutual debts were distinct and inextinguishable except by actual payment or release. 1 Rawle's R. 293; Babb. on Set-off, 1.
     3. The statute 2 Geo. II., c. 22, which has been generally adopted in the United States with some modifications however, allowed, in cases of mutual debts, the defendant to set his debt against the other, either by pleading it in bar, or giving it in evidence, when proper notice had been given of such intention, under the general issue. The statute being made for the benefit of the defendant, is not compulsory; 8 Watts, R. 39; the defendant may Waive his right, and bring a cross action against the plaintiff. 2 Campb. 594; 5 Taunt. 148; 9 Watts, R. 179
     4. It seems, however, that in some cases of intestate estates, and of insolvent estates, perhaps owing to the peculiar wording of the law, the statute has been held to operate on the rights of the parties before action brought, or an act done by either of them. 2 Rawle's R. 293; 3 Binn. Rep. 135; Bac. Ab. Bankrupt K.
     5. Set-off takes place only in actions on contracts for the payment of money, as assumpsit, debt and covenant. A set-off is not allowed in actions arising ex delicto, as, upon the case, trespass, replevin or detinue. Bull. N. P. 181.
     6. The matters which may be set off, may be mutual liquidated debts or damages, but unliquidated damages cannot be set off. 1 Black. R. 394; 2 John. 150; 8 Conn. 325; 1 McCord, 7; 3 Wend. 400; 1 Stew. & Port. 19; 2 Yeates, 208; 1 Sumn. 471; 2 Blackf. 31; 1 A. K. Marsh. 41; 6 Halst. 397; 5 Wash. C. C. 232 3 Bibb, 49; 2 Caines, 33. The statutes refer only to mutual unconnected debts; for at common law, when the nature of the employment, transaction or dealings necessarily constitute an account consisting of receipts and payments, debts and credits, the balance only is considered to be the debt, and therefore in an action, it is not necessary in such cases either to plead or give notice of set-off. 4 Burr. 2221.
     7. In general, when the government is plaintiff, no set-off will be allowed. 9 Pet. 319; 4 Dall. 303. See 9 Cranch, 313; Paine, 156. But when an act of congress authorizes such set-off, it may be made. 9 Cranch, 213.
     8. Judgments in the same rights may be set off against each other at the discretion of the court. 3 Bibb 233; 3 Watts 78; 3 Halst. 172; 4 Hamm. 90; 1 Stew. & Port. 24; 7 Mass. 140, 144; 8 Cowen 126. Vide Compensation; also Montagu on Set-off; Babington on Set-off; 3 Stark. Ev. h.t.; Amer. Dig. h.t.; Whart. Dig. h.t.; 3 Chit. Bl. Com. 304, n.; 1 Chit. Pl. Index, h.t.; 8 Vin. Ab. 556; Bac. Ab. h.t. 1 Sell. Pr. 321; 5 Com. Dig. 595; 6 Id. 335; 7 Id. 336; 8 Id. 927; Chit. Pr. Index, h.t.; Bouv. Inst. Index, h.t. Vide Factor.

References in periodicals archive ?
On the basis of lack of registration, or later registration, should you be deprived of your right of set-off against Cy's claim?
The subject matter of this piece is important for depository institutions, like banks and credit unions, that regularly use set-off as part of their lending and realization strategies.
Some will be troubled by my conclusion that a flawed asset arrangement (however framed or structured) creates a PPSA security interest, and disturbed by my suggestion that bare contractual set-off does the same.
Transactions incorporating or featuring the right of set-off do not lie on a neat linear continuum, but rather contain unique provisions and exhibit distinctive features and characteristics.
7) Because over-the-counter derivatives transactions prominently feature set-off rights, the derivatives industry is also specially affected.
9) Philip R Wood, English and International Set-Off (London: Sweet & Maxwell, 1989) at para 1-91 [P Wood, International Set-Off].
15) See P Wood, International Set-Off, supra note 9 (where the author describes the proper conceptualization of set-off: "Note that the debtor uses his asset to pay his liability.
18) See Philip R Wood, Set-Off and Netting, Derivatives, Clearing Systems, 2nd ed (London: Sweet & Maxwell, 2007) at para 1-022 [P Wood, Set-Off & Netting]:
Set-off uses the loan to knock out the deposit, like skittles.
For a detailed account of the strictures of equitable set-off, see Clayton Bangsund & Jasmine Lothian, "Inequity in Equitable Set-Off: Telford v Holt Revisited", online: (2016) 94:1 Can Bar Rev 149 <www.
See also Cam-Net Communications v Vancouver Telephone Co, 1999 BCCA 751, 182 DLR (4th) 436 ("[t]he interrelatedness of the obligations giving rise to the two claims may give rise to the possibility of unfairness to the appellant if set-off is not allowed" at para 30).
25) MH Ogilvie, Bank and Customer Law in Canada (Toronto: Irwin Law, 2007) ("[f]inally, there can be no exercise of the right of set-off where it has been expressly excluded by agreement or by a course of dealings between the bank and the customer" at 249); National Westminster Bank Ltd v Halesowen Presswork and Assemblies Ltd, [1972] AC 785, [1975] 2 WLR 455 [Westminster Bank v Halesowen]; New Brunswick (Minister of Commerce & Development) v Bank of NS (1988), 95 NBR (2d) 330, [1989] CLD 364 (QB).