Set-off is a legal doctrine that allows one party to a contract to offset their debts to another party against the other party’s debts to them. In other words, it is a way for a party to cancel out their debts by claiming that the other party owes them money.
Set-off can be used in both civil and commercial law. It is most commonly used in commercial contracts, such as sales contracts and loan agreements.
There are two types of set-off:
- Legal set-off: Legal set-off is a right that exists by law. It does not require any agreement between the parties.
- Conventional set-off: Conventional set-off is a right that is created by agreement between the parties. It is usually found in contracts.
To be able to use set-off, the two debts must be:
- Mutual: The debts must be owed by each party to the other.
- Cross-demands: The debts must be of the same kind, such as money.
- Certain: The debts must be due and payable.
- Liquidated: The amount of the debts must be known.
If the two debts meet these requirements, then the party that owes the smaller debt can set it off against the debt that they are owed. This means that they will only have to pay the difference between the two debts.
MCQs on Set-off
- What is set-off?
- A legal doctrine that allows one party to a contract to offset their debts to another party against the other party’s debts to them.
- A legal doctrine that allows one party to a contract to collect their debts from another party even if the other party does not owe them money.
- A legal doctrine that allows one party to a contract to sue the other party for breach of contract even if the other party has not breached the contract.
- A legal doctrine that allows one party to a contract to keep the property of the other party even if the other party has not paid for it.
The answer is (a). Set-off is a legal doctrine that allows one party to a contract to offset their debts to another party against the other party’s debts to them.
- What are the two types of set-off?
- Legal set-off and conventional set-off.
- Specific set-off and general set-off.
- Absolute set-off and relative set-off.
- All of the above.
The answer is (a). The two types of set-off are legal set-off and conventional set-off.
- What are the requirements for set-off?
- The debts must be mutual.
- The debts must be cross-demands.
- The debts must be certain.
- The debts must be liquidated.
- All of the above.
The answer is (e). The requirements for set-off are that the debts must be mutual, cross-demands, certain, and liquidated.
- What is the difference between legal set-off and conventional set-off?
- Legal set-off is a right that exists by law, while conventional set-off is a right that is created by agreement between the parties.
- Legal set-off can be used in both civil and commercial law, while conventional set-off can only be used in commercial law.
- Legal set-off does not require any agreement between the parties, while conventional set-off does require an agreement between the parties.
- All of the above.
The answer is (a). The difference between legal set-off and conventional set-off is that legal set-off is a right that exists by law, while conventional set-off is a right that is created by agreement between the parties.