Set-off (law)

Set-off, in law, is a defense or right asserted by a defendant against a plaintiff's claim, allowing the defendant to reduce the amount owed to the plaintiff by a corresponding amount the plaintiff owes the defendant. It's essentially a counterclaim, but differs in that it doesn't seek affirmative recovery beyond reducing the plaintiff's claim. Instead, it operates as a defense to extinguish or reduce the plaintiff's claim in whole or in part.

Nature of Set-off

Set-off requires a reciprocal debt between the parties. Both debts must be mutually due and owing, meaning they are presently payable and legally enforceable. The debts do not necessarily need to be of the same nature; a monetary debt can be set off against a debt for goods or services. However, there are exceptions and specific rules that vary by jurisdiction.

Requirements for a Valid Set-off

Several requirements typically need to be met for a successful set-off:

Mutuality of Obligation: Both debts must be owed between the same parties, in the same capacities. A debt owed by a corporation cannot be set off against a debt owed by its shareholder.
Maturity of Debts: Both debts must be due and payable. A future obligation generally cannot be set off against a present debt.
Legal Enforceability: Both debts must be legally valid and enforceable. An unenforceable or void debt cannot be the basis for a set-off.
Liquidated Debts: In some jurisdictions, the debts must be liquidated, meaning the amount due is certain and ascertainable. Disputed or unliquidated claims may not be eligible for set-off.
Same Capacity: The parties must be acting in the same capacity in both the claim and counterclaim.

Distinctions from other legal concepts

Set-off differs from other legal concepts such as counterclaim, recoupment, and payment. While it shares similarities, the distinctions lie in the purpose and scope. A counterclaim seeks affirmative recovery, whereas set-off only reduces the plaintiff's claim. Recoupment is typically limited to claims arising from the same transaction, whereas set-off can involve unrelated debts. Payment involves a direct discharge of the debt.

Variation by Jurisdiction

The specific rules governing set-off vary considerably depending on the jurisdiction. Statutes and case law in each jurisdiction determine the eligibility, requirements, and limitations of set-off. It's crucial to consult the relevant local laws.

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