Set-Off

Is a remedy which consists in merging two independent demands held by two persons, each against tinguish, as far as amounts permit, a demand held by B against A. And a set-off is a demand of such nature that it may be used thus to extinguish, wholly or in part, the principal demand in an action. Set-off differs from recoupment in that it is more properly applicable to demands independent in their nature and origin; while recoupment (q. v.) implies a cutting down of a demand by deductions arising out of the same transaction. It also differs from counter-claim, which means the mode in which, under the codes of reformed procedure, either a claim in set-off or in recoupment may be interposed in answer to plaintiff's action. In other words, set-off is, as very well defined by Jacob, a mode of defence whereby the defendant acknowledges the justice of the plaintiff's demand, on the one hand, but, on the other, sets up a demand of his own to counterbalance it, either in the whole or in part. This remedy is said to have been unknown to the common law. Under that system, if the plaintiff was as much, or even more, indebted to the defendant than the defendant was to him, yet he had no method of striking a balance, unless the demands were connected. Equity would, however, for many years past, compel defendant, in a proper case, to submit to a set-off; but, to obtain this relief, where one was sued at law yet held a cross-demand against plaintiff, he must file a separate bill in equity. To remedy this inconvenience, it was enacted by Stat. 2 Geo. II. ch. 22, § 13, that, where there are mutual debts between the plaintiff and defendant, or if either party sue or be sued as executor or administrator, where there are mutual debts between the testator or intestate and either party, one debt may be set against the other; and such matter may be given in evidence upon the general issue, or pleaded in bar, as the nature of the case shall require; so as, at the time of his pleading the general issue, where any such debt of the plaintiff, his testator or intestate, is intended to be insisted on in evidence, notice shaU be ■what account it became due, or otherwise such matter shall not be allowed in evidence upon the general issue. This clause was made perpetual by Stat. 8 Geo. II. ch. 24, § 4; and, it having been doubted whether mutual debts of a different nature could be set against each other, it was, by the last-mentioned statute, further enacted and declared that, by virtue of the said clause, mutual debts may be set against each other, either by being pleaded in bar or given in evidence on the general issue, in the manner therein mentioned, notwithstanding that such debts are deemed in law to be of a different nature, unless in cases where either of the said debts shall accrue by reason of a penalty contained in any bond or specialty; and, in all cases where either the debt for which the action hath been or shall be brought, or the debt intended to be set against the same hath accrued, or shall accrue, by reason of any such penalty, the debt intended to be set off shall be pleaded in bar; in which plea shall be shown how much is truly and justly due on either side; and, in case the plaintiff shall recover any such action or suit, judgment shall be entered for no more than shall appear to be truly and justly due to the plaintiff, after one debt being set against the other as aforesaid. These enactments are the origin of the general doctrine of set-off, as applied or invoked by plea or answer in actions of legal cognizance; the principal of them having been adopted by statutes in the various states of the Union, and, indeed, in most of them, extended and reinforced. The jurisdiction of equity to decree and enforce a set-off also continues where equity jurisprudence is distinctly administered; and there is also a useful branch of the remedy consisting in set-off on motion, which is applicable where the two demands are in judgment, so that there is no opportunity to plead one against the other. The privilege, liberally granted in many states, of pleading a counterclaim, is in the nature of a further extension of this remedy. Set-off is a demand which the defendant plaintiff, either altogether or in part. Thus, if the plaintiff sues for ten pounds, due on a note of hand, the defendant may set off nine pounds due to himself from the plaintiff, for merchandise sold to the plaintiff; and, if he pleads such set-off in reduction of the plaintiff's claim, such plea is termed a plea of set-off. A set-off may, therefore, be defined to be a claim which a defendant has upon a plaintiff, and which he sets up or places against the plaintiff's demand. The leading principles of set-off are the following: At law, there was no set-off in case of mutual, unconnected debts until the statutes of set-off (2 Geo. II. ch. 22, and 8 Geo. II. ch. 24) permitted it, in the case of the bankruptcy of either debtor; but, as to connected accounts, the balance was, in the general case, recoverable at law. In equity, set-off has been allowed in the following cases, additional to those at law: In case of mutual Independent debts, contracted upon the faith of a mutual credit (Lanesborough V. Jones, 1 P. Wms. 326); in the case of cross-demands admitting a set-off at law, but of which the one or both are of an equitable nature; in the case of cross-demands arising in different rights, but under particular circumstances, e.g. of fraud {Exp. Stephens, 11 Ves. 24). Brown. Set-off differs from a lien, inasmuch as the former belongs exclusively to the remedy, and is merely a right to insist, ff the party think proper to do so, when sued by his creditor on a counter-demand, which can only be enforced through the medium of judicial proceedings; whilst the latter is,' in effect, a substitute for a suit.

2 Op. Att.- Gen. 677.

The term " set-off " is applicable only where the claim set off grows out of a transaction independent of the contract sued on.

Avery v. Brown,.31 Cmn. 398.