Duhaime's Law Dictionary


Recoupment Definition:

A rebate of a debt or claim because of a right of the debtor arising out of the same transaction.

Related Terms: Set-Off

In Goldwell, Justice Hayden wrote:

"The doctrines of setoff and recoupment are analytically similar, and often confused.

"Setoff is a counterclaim arising from an independent claim that a party has against its adversary.

"Recoupment is the right of a party to have the adversary's monetary claim reduced due to a claim the party has against the adversary that arises out of the very contract underlying the party's claim.

"[W]hen the amounts owing by each party are determined at trial, the doctrine of recoupment should be permitted to balance the amounts before payment is required."

In Re Slater, Justice Lynch contrasted recoupment against set-off as follows:

"A setoff is C's deduction from C's debt to B of an amount based on B's unrelated debt to C.

"A recoupment is C's deduction from C's debt to B based on B's debt to C arising out of the same transaction."

To which, in Container Recycling, Justice O'Toole reiterated these words:

"The law dictionary defines a setoff as a counter-claim demand which defendant holds against plaintiff, arising out of a transaction extrinsic to plaintiffs cause of action.

"Recoupment, on the other hand, is a reduction or rebate by the defendant of part of the plaintiff's claim because of a right in the defendant arising out of the same transaction.

"This distinction, although somewhat technical, is well established in the law. This technical legal terminology does not necessarily reflect ordinary usage. Lawyers, too, might fall into this manner of speaking, for often the technical legal distinction does not matter. In a few specialized circumstances, however, the difference takes on more significance.

"One such circumstance is bankruptcy.

"Recoupment, (unlike setoff), is not a mechanism which reduces mutual debts for the sake of convenience, but rather is in the nature of a defense and is intended to permit judgment to be rendered that does justice in view of the one transaction as a whole.

"As such, when a debtor in bankruptcy seeks to recover from a creditor whose claim against the debtor arises out of the same transaction, allowing the creditor to recoup damages simply allows the debtor precisely what it is due when viewing the transaction as a whole."

REFERENCES:

  • Container Recycling Alliance v. Lassman, 359 BR 358 (Massachusetts District Court, 2007)
  • Goldwell of New Jersey Inc. v. KPSS Inc., 622 F. Supp. 2d 168 (U.S. District Court, New Jersey, 2009)
  • In re Slater Health Center, Inc., 398 F. 3d 98 (United States Court of Appeals, 2005)

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