Whether set-off against existing debts is permitted under these new laws as a “good faith” reason for withholding payments remains an open question; The relative novelty of the laws means that there is little case law on this issue. Maine, for example, has expressly stated in its bylaws that its law does not prevent withholding payments for “any claim in good faith against an invoice contractor, subcontractor, or material supplier,” and Rhode Island also provides an exception to “set off a payment due to a subcontractor with an amount equal to an outstanding legally enforceable debt.” Connecticut has a separate law that establishes the right to offset debts, but the interaction with its Prompt Pay Act remains to be seen. And Massachusetts simply requires a basis for bona fide objections. The Federal Government makes full use of the common law right of set-off. The rule applies to federal projects, and if payment of an outstanding contract debt is not made to the government within thirty days, the federal government begins withholding payments for other contracts to offset the debt. The federal government`s authority to offset debts owing includes the ability of federal organizations to offset tax overpayments as well. And consistent with the historical roots of the right to set-off in bankruptcy proceedings, the Bankruptcy Act also recognizes (rather than established) a right of set-off in 11 U.S.C. § 553. The government has the same right of self-help in recovery by set-off as any other creditor. See United States v. Munsey Trust Co., 332 U.S. 234, 239 (1947); Hilburn v.
Butz, 463 F.2d 1207 (5th Cir. 1972), cert. denied, 410 U.S. 942 (1973); Burlington Northern Inc. v. United States, 462 F.2d 526 (Ct. Cl. 1972); Aetna Ins. Co. v. United States, 456 F.2d 773 (ct.
cl. 1972); United States v. Cohen, 389 F.2d 689 (5th Cir. 1967). Thus, the United States may assert a right of set-off independently of a statutory power of attorney. See, e.g., United States v. Tafoya, 803 F.2d 140, 141 (5th Cir. 1986). The United States is a party to reciprocity and can trigger claims from various agencies.
See, for example, Cherry Cotton Mills v. United States, 327 U.S. 536 (1946); Bosarge v. U.S. Dept. of Education, 5 F.3d 1414, 1419 (11th Cir. 1993), cert. denied, 114 S.Ct. 2720 (1994). Set off is the general right of one party to collect a claim owed by another party by deducting from the amounts owed by the first party to the second party. Basically, there are two types of compensation: compensation and restitution.
A set-off is a reasonable right of set-off if mutual compensatory debts result from separate transactions. On the other hand, compensation is the right of set-off if the claim and debt arise from the same transaction. In such situations, however, all is not lost, since the defendant may also assert time-barred claims when responding to a claim by arguing in its response to the claim that it is entitled to set-off against any recovery by the claimant. The doctrine of equitable compensation (sometimes referred to as the right to set-off) has been codified in California law as section 431.70 of the Code of Civil Procedure: “If, at any time when no claim was time-barred, there have been reciprocal pecuniary claims between persons and an action is subsequently brought by such a person: The other person may invoke the payment exception in the reply: by indemnifying both claims to the extent that they are treated equally, notwithstanding the fact that an independent action to enforce the person`s claim would be time-barred at the time the reply is filed. Set-off is an equitable right of a creditor to deduct a debt owed to the debtor from a claim it has against the debtor in a separate transaction. The repair differs in that the opposing claims must come from the same transaction. 4 Lawrence P. King, Collier on Bankruptcy ¶ 553.03 (15th edition 1991). Example: X initiates proceedings against Y for payment of £500,000 for the purchase of industrial machinery by Y. However, three months ago Y X supplied 8 boilers and X has not yet paid the agreed price of £16,000. Y may exercise a statutory right of set-off and in fact only owes X £484,000. For example, suppose the plaintiff and defendant have been co-owners of a car dealership for more than twenty years, but the day-to-day operation of the dealership has been left to the plaintiff.
The defendant discovered more than a decade ago that the plaintiff had engaged in personal transactions, such as: “borrowing” money from the business without permission or paying his personal expenses with company funds, which violated the plaintiff`s fiduciary duties to the defendant and reduced the defendant`s profit sharing. The defendant confronted the plaintiff and got him to agree to repay the money he had taken, which the plaintiff never did. Because the dealer was doing well and the business relationship between the parties was otherwise profitable, the defendant never brought a lawsuit against the plaintiff to compensate for the harm it had suffered as a result of the plaintiff`s previous misconduct, and the claims became time-barred by the limitation period. Subsequently, the defendant entered into a plaintiff purchase agreement with the dealer with payments to be made over time. However, the defendant was less efficient in managing the dealership and was unable to generate enough revenue to pay the plaintiff as agreed. The plaintiff sued the defendant for breach of contract and demanded recovery of the amounts owing under the purchase agreement. Although the defendant`s claims of ten years ago were time-barred, the defendant raised a plea of “set-off” in its response to the lawsuit and was successful in reducing the plaintiff`s damages by proving in court the harm the defendant suffered as a result of the plaintiff`s prior misconduct. In particular, in the above scenario, the defendant did not need to have previously determined the exact amount of harm it had suffered as a result of the plaintiff`s past misconduct. The defendant may invoke the defence of set-off even if his claim has not been settled. (See Hauger v. Gates, 42 Cal.2d 752, 755 (1954) (the fact that set-off of a party is “an unliquidated claim for damages for breach of contract.
does not affect their right of set-off” because the law “does not require subsequent claims to be liquidated.”) Even if the harm suffered by the defendant as a result of the plaintiff`s prior misconduct was equal to or greater than what the defendant owed to the plaintiff at the time of his breach of the contract of sale, the defendant could not recover excessive damages, but could completely eliminate the debts he owed to the plaintiff. (1) n. Also known as `set-off`, means the deduction of a debtor from a debt or claim from a debt or obligation. Such set-off shall be based on a counterclaim against the party asserting the original claim. Example: Harry Hardhead files a claim or lawsuit claiming $20,000 from Danny Debtor as final payment for the purchase of a restaurant. As part of its defence, the debtor seeks compensation in the amount of $10,000 for amounts allegedly owed to Hardhead for repairs made by the debtor on Hardhead`s property, reducing Hardhead`s claim to $10,000. (2) v. to incur an alleged debt of a plaintiff in order to reduce his claim. Despite the Supreme Court`s full description of the right of compensation and its adoption by the federal government, several states have rejected the idea, at least in the context of construction. Virginia, the pioneer of set-off, went so far as to “prohibit any contractual or subcontracting provision that allows a contracting party to withhold amounts due under one contract or subcontract for claims or alleged damages due under another contract or subcontract contrary to public policy.” Following a revision of the law passed last year, a general contractor or subcontractor is even offered a civil cause of action to collect compensatory debts. Other states that prohibit set-off include Florida (which allows parties to enter into a setoff contract, but criminalizes setoff if it is made outside of legal exemptions) and California (which nevertheless allows a refund). Many litigators will tell you that the best defense is a good attack.
Therefore, it is always important for the defense attorney to assess whether a counterclaim should be brought when responding to a claim against his client and asserting any counterclaim that the defendant may have against the plaintiff, whether or not it relates to the plaintiff`s claims. When the claimant is pressured with counterclaims, he or she often has to reassess his or her commitment to pursue the case and may facilitate the expeditious resolution of the claim. This may be particularly the case in cases where a plaintiff`s lawyer pays a performance fee (i.e. A percentage of a final claim) because many lawyers do not defend a counterclaim without receiving an hourly fee (which some claimants cannot or will not pay). The lawyer may also be forced to reconsider the “risk/benefit” of the contingency fee agreement they originally agreed to and assess whether the amount of work in the case will be worth the potential payment. A claim or request to the contrary that may void or reduce a particular claim; a counterclaim. A type of accounting entry that counteracts the effect of a previous entry. No. Compensation can only be used defensively to reduce or eliminate a claim. It provides the defendant with protection against a claim and acts as a protective shield.