Set-off is the termination of claims between parties who are simultaneously creditors and debtors to each other. The condition for set-off is that the claims must be of the same kind, due, and reciprocal. When a party submits a statement of set-off, the set-off takes effect from the moment the conditions for it are met.189 Set-off is a legal mechanism through which claims between parties who are both creditors and debtors to each other are extinguished. The debtor may set off their claim against the creditor’s claim under the condition that certain requirements are met:
The claims must be of the same kind, meaning they involve the same type of obligation.
The obligations must be due, meaning the deadline for fulfilment has already passed.
The entitled party must submit a statement of set-off. Once this statement is made, the set-off applies retroactively from the moment the conditions for set-off were met. It is also important that the claim is not time-barred when the counterclaim arises. If the conditions for set-off are met after one of the claims has expired due to the statute of limitations, set-off is not possible unless the debtor invokes the statute of limitations. Thus, set-off may also occur despite an expired claim if the debtor does not raise the issue of expiration.190
Exercise:
A has an overdue, unpaid claim against B in the amount of €500. B also has a claim against A in the same amount, but it has not yet matured. B believes that his obligation to pay A has ceased due to set-off. He therefore submits a set-off declaration to A.
- Has B’s claim ceased due to set-off?
- What conditions must be met for the claims to be set off?
- What are the consequences of set-off?
