2020 Georgia Code
Title 13 - Contracts
Chapter 7 - Setoff and Recoupment
§ 13-7-5. Setoff of Demands Between Parties to Suits

Between the parties themselves, any mutual demands existing at the time of the commencement of the suit may be set off.

(Orig. Code 1863, §§ 2841, 3394; Code 1868, §§ 2849, 3413; Code 1873, §§ 2900, 3465; Code 1882, §§ 2900, 3465; Civil Code 1895, §§ 3746, 5084; Civil Code 1910, §§ 4340, 5668; Code 1933, § 20-1302.)

- Counterclaim and cross-claim, § 9-11-13.

Joinder of claims and remedies under Civil Practice Act, § 9-11-18.

- For article comparing sections of the Georgia Civil Practice Act with preexisting provisions of the Georgia Code, see 3 Ga. St. B.J. 295 (1967).

ANALYSIS

• General Consideration
• Application

General Consideration

Setoff as not defeating plaintiff's claim, regardless of legal or equitable nature of setoff.

- Existence of valid right of setoff does not operate to defeat plaintiff's claim, although it might preclude plaintiff's recovery of any actual damages; and this is true regardless of the assertion of the setoff as a legal right or an equitable right. National City Bank v. Busbin, 175 Ga. App. 103, 332 S.E.2d 678 (1985).

Setoff must be between same parties and in their own legal or equitable right. Shingler v. Furst, 176 Ga. 497, 168 S.E. 557 (1933).

Mutuality of obligation is required for a valid setoff. Brunson v. Bridges, 130 Ga. App. 102, 202 S.E.2d 553 (1973).

- Right of setoff, under former Code 1933, §§ 20-1301, 20-1302, and 20-1303 (see O.C.G.A. §§ 13-7-1,13-7-4, and13-7-5), if demands were mutual and of the same nature, was not limited to mutual dealings, and need not arise between same parties. Thus, a transferred chose in action, which can be sued on in name of assignee, may be used as a setoff. Wood v. Keysville Lumber Co., 49 Ga. App. 799, 175 S.E. 923 (1934).

- When defendant asserts a setoff of mutual demands existing at the time of commencement of the action, the setoff must be asserted as a counterclaim rather than a defense. National City Bank v. Busbin, 175 Ga. App. 103, 332 S.E.2d 678 (1985).

In general, parties to a suit are entitled to set off mutual demands existing at the time of the commencement of the suit, but such a setoff must be asserted as a counterclaim rather than a defense, since it does not operate as a denial of the plaintiff's claim, but merely allows the defendant to set off a debt owed the defendant by the plaintiff against that claim. Stewart v. Stewart, 236 Ga. App. 348, 511 S.E.2d 919 (1999).

When defendant's claim for monies due on a promissory note ceased to be a counterclaim when it was severed and transferred to another court for adjudication as an original action, the defendant could not assert defendant's claim as a set off defense in the now separate suit on the promissory note. Stewart v. Stewart, 236 Ga. App. 348, 511 S.E.2d 919 (1999).

Former Civil Code 1895, § 3750 (see O.C.G.A. § 13-7-7) was an exception to former Civil Code 1895, §§ 3746 and 5084 (see O.C.G.A. § 13-7-5). Nix v. Ellis, 118 Ga. 345, 45 S.E. 404 (1903).

Parties may, by agreement, make any debt a set off; if agreement is for a consideration, it is binding on same terms as any other agreement, and if it is executed, it needs no consideration. Long v. Cash, 54 Ga. App. 764, 189 S.E. 73 (1936).

Sales are not the subject matter of setoff. State v. Southwestern R.R., 70 Ga. 11 (1883).

- Claim of assignee of a judgment is subject to such equities and defenses as may have existed in favor of judgment debtor against judgment creditor at time of assignment, but is not subject to rights which did not then exist in favor of such judgment debtor and of which judgment debtor did not become possessed until some time later as by subsequent purchase of judgments against the judgment creditor. Sheffield v. Preacher, 175 Ga. 719, 165 S.E. 742 (1932).

§ 20-1301 et seq. (see O.C.G.A. Ch. 7, T. 13) is an equitable right. - Right to set off one legal demand against another, other than in cases covered by former Code 1933, § 20-1301 et seq. (see O.C.G.A. Ch. 7, T. 13), is an equitable right, which is not and has never been recognized by a court of law in this state, except in obedience to a statute, and therefore it can be asserted only in a court having jurisdiction in equity matters. Gormley ex rel. Citizens Bank v. Chance, 55 Ga. App. 838, 191 S.E. 701 (1937).

City court has no jurisdiction to entertain plea setting up equitable setoff, or equitable right of setoff, for simple reason that to entertain such a plea it is necessary for court, not only to recognize an equitable right, but to give affirmative relief as a result of such recognition. Gormley ex rel. Citizens Bank v. Chance, 55 Ga. App. 838, 191 S.E. 701 (1937).

- A plea of setoff is not good unless the plea alleges facts showing that demand against plaintiff, which defendant therein seeks to set up, was in existence, and due to latter by former, at time plaintiff's action was begun. Nixon v. Nixon, 194 Ga. 301, 21 S.E.2d 702 (1942).

- When a note and a deed to secure debt is owed by the mortgagor to the mortgagees, who are tenants in common (i.e., a husband "and/or" his wife), while a subsequent judgment arising out of an action on the building contract is owed by one of the mortgagees to the mortgagor, these debts can be said to be "mutual" and can be set off against each other in a bankruptcy proceeding by the judgment debtor-mortgagee. Straughair v. Palmieri, 31 Bankr. 111 (Bankr. N.D. Ga. 1983).

- Although the court found that the debtor owed a specific amount to the creditor at the time the bankruptcy case was filed and as scheduled, affirmative defenses of recoupment and setoff were preserved, and the party objecting to the creditor's claim could assert those defenses to reduce the creditor's claims if the defenses were permitted under state law (here, Georgia). Whether called setoff or recoupment, it was undisputed that the debtor paid an amount to the bank to satisfy the creditor's primary obligation to that bank, and it was also undisputed that the obligation of the debtor to the creditor arose when the debtor borrowed money that originated from the bank; thus, under any theory the debtor would get the benefit of the amount the debtor paid on the bank's debt, reducing the creditor's claim accordingly. In re Bay Circle Props., LLC, Bankr. (Bankr. N.D. Ga. Apr. 3, 2020).

Cited in Fahn v. Bleckley, 55 Ga. 81 (1875); McKleroy v. Sewell, 73 Ga. 657 (1884); Davis v. Hadden, 115 Ga. 466, 41 S.E. 608 (1902); Kahrs v. Kahrs, 115 Ga. 288, 41 S.E. 649 (1902); Butler v. Holmes, 128 Ga. 333, 57 S.E. 715 (1907); Wood & Bro. v. Jones & Son, 10 Ga. App. 735, 73 S.E. 1099 (1912); Ellis v. Dudley, 19 Ga. App. 566, 91 S.E. 904 (1917); Fuller v. Coker, 24 Ga. App. 418, 101 S.E. 1 (1919); Stephens v. Blackwell, 24 Ga. App. 798, 102 S.E. 452 (1920); Jefferson Std. Life Ins. Co. v. Rankin, 39 Ga. App. 373, 147 S.E. 157 (1929); Reed v. Mobley, 172 Ga. 116, 157 S.E. 321 (1931); Commercial Credit Co. v. Anthony, 48 Ga. App. 725, 173 S.E. 204 (1934); Roberts v. First Nat'l Bank, 61 Ga. App. 284, 6 S.E.2d 88 (1939); Attaway v. Attaway, 193 Ga. 51, 17 S.E.2d 72 (1941); Pittsburgh Plate Glass Co. v. Moulder, 82 Ga. App. 148, 60 S.E.2d 647 (1950); Powell v. Barker, 96 Ga. App. 592, 101 S.E.2d 113 (1957); General Acceptance Corp. v. Nix Ford, Inc., 107 Ga. App. 32, 129 S.E.2d 202 (1962); Martin Mgt. Corp. v. Farner, 124 Ga. App. 552, 184 S.E.2d 597 (1971); Pickett v. Chamblee Constr. Co., 124 Ga. App. 769, 186 S.E.2d 123 (1971); Marler v. Rockmart Bank, 146 Ga. App. 548, 246 S.E.2d 731 (1978); Jones v. FDIC, 151 Ga. App. 619, 260 S.E.2d 751 (1979); Scarboro v. Ralston Purina Co., 160 Ga. App. 576, 287 S.E.2d 623 (1981); Atlanta Window Co. v. Haskell Assocs., 162 Ga. App. 789, 293 S.E.2d 51 (1982); David J. Joseph Co. v. S & M Scrap Metal Co., 163 Ga. App. 685, 295 S.E.2d 860 (1982); Thompson v. Crouch Contracting Co., 164 Ga. App. 532, 297 S.E.2d 524 (1982); Sterling Nat'l Bank & Trust Co. v. Southwire Co., 713 F.2d 684 (11th Cir. 1983); J.R. Mabbett & Son v. Ripley, 185 Ga. App. 601, 365 S.E.2d 155 (1988).

Damages for breach of contract arise ex contractu and may be set off in suit on contract. Pickett v. Andrews, 135 Ga. 299, 69 S.E. 478 (1910); Stephens v. Blackwell, 24 Ga. App. 798, 102 S.E. 452 (1920).

Damages arising from violation of terms of a lease may be set off against rent. Johnston v. Patterson, 91 Ga. 531, 18 S.E. 350 (1893).

Money procured by fraud may be set off against suit on non-negotiable instrument for money loaned. Hamilton v. Grangers' Life & Health Ins. Co., 65 Ga. 750 (1880).

- Usury paid on former contract may be pleaded as a setoff to existing debt, provided it is not barred by statute of limitations, and provided further that former contract, on which usury was paid, was between same parties as those to existing debt. Wolfe v. Citizens' Bank, 26 Ga. App. 510, 106 S.E. 605, cert. denied, 26 Ga. App. 801 (1921).

Running payments and over-payments on account, may be setoff against plaintiff's account sued on, when plea admits latter to a certain amount, but disputes balance; and if plea be sustained by evidence, the defendant may have judgment for any excess which defendant ought to recover. Petit v. Teal, 57 Ga. 145 (1876).

- Defendant may setoff any enhancement in market value of owner's land resulting from change in grade of street, when sued by plaintiff for damage to plaintiff's property. Wolff v. Georgia S. & F.R.R., 94 Ga. 555, 20 S.E. 484 (1894).

- Unliquidated damages arising from breach of contract may be set off in action ex contractu, but answer must allege a contract between defendant and plaintiff, and aver such breach of contract by plaintiff as would justify recovery of damages against it. Janes v. City of Cedartown, 14 Ga. App. 72, 80 S.E. 339 (1913).

Word's "mutual demands," as applied to debts, imports that there must be reciprocal obligations between the parties. Thus, a defendant cannot ordinarily set off an indebtedness held against plaintiff and another, since it is not a mutual demand. Wolfe v. Citizens' Bank, 26 Ga. App. 510, 106 S.E. 605 (1921).

- Where two or more defendants are joined in action to which the defendants are severally liable, and in which a separate judgment may be taken against each defendant, a cross-demand in favor of any one defendant against plaintiff may be setoff. Wilson v. Exchange Bank, 122 Ga. 495, 50 S.E. 357, 69 L.R.A. 97, 2 Ann. Cas. 597 (1905).

Endorsers sued jointly can set off account due firm in which endorsers are sole members. Oliver v. Godley, 38 Ga. App. 66, 142 S.E. 566 (1928).

- See Browning v. Rewis, 156 Ga. App. 178, 274 S.E.2d 157 (1980).

Transferred chose in action, actionable in name of assignee, may be used as a setoff. Nix v. Ellis, 118 Ga. 345, 45 S.E. 404 (1903); Cox v. Stowers, 204 Ga. 595, 50 S.E.2d 339 (1948).

- One indebted to a bank may purchase a claim due by the bank, and use the claim as setoff, when subsequently sued on debt due by the purchaser. Nix v. Ellis, 118 Ga. 345, 45 S.E. 404 (1903).

- In proceeding by judgment debtor to set off a judgment assigned to the debtor against a judgment rendered against the debtor, word "suit", if it has any application, refers to judgment debtor's proceeding to set off, rather than to suit resulting in judgment against the debtor. Piedmont Sav. Co. v. Davis, 55 Ga. App. 386, 190 S.E. 386 (1937).

- In suit by individual upon open account, debtor cannot set off a claim due by corporation or partnership of which plaintiff is a member. Metcalf v. People's Grocery Co., 24 Ga. App. 663, 101 S.E. 768 (1920).

- Debts due widow by estate of her deceased husband are not based on a course of dealing with an heir, or heirs of his estate, and cannot form basis of action by widow against other heir, or heirs, without making legal representative of estate of deceased a party thereto; since items relied upon by defendant to support her contention that her answer contains proper matters for setoff are not such demands as could have been maintained by defendant in direct proceeding against plaintiff, equity will not sanction a proceeding to accomplish indirectly that which the law prohibits. Cox v. Stowers, 204 Ga. 595, 50 S.E.2d 339 (1948).

RESEARCH REFERENCES

Am. Jur. 2d.

- 20 Am. Jur. 2d, Counterclaim, Recoupment, and Setoff, §§ 142, 143, 148.

- 80 C.J.S., Set-off and Counterclaim, § 1 et seq.

- Right to setoff deposit in insolvent bank against indebtedness to bank, 25 A.L.R. 938; 82 A.L.R. 665; 97 A.L.R. 588.

Character of claims available by way of setoff, counterclaim, or recoupment in action on construction contract, 46 A.L.R. 393.

Right to setoff, as against claim for rent accruing subsequent to assignment by lessor or sublessor, claim existing against assignor at time of assignment, 78 A.L.R. 824.

Availability as setoff or counterclaim of claim in favor of one alone of several defendants, 81 A.L.R. 781.

Right of setoff by or against bank or trust company as affected by division of its business into departments, 81 A.L.R. 1508.

Set-off as between dividends from assets of insolvent bank or other corporation and liability of creditors as stockholders, 91 A.L.R. 326.

Counterclaim or setoff as defense to proceeding to revive judgment, 131 A.L.R. 802.

Right of setoff as between debt represented by instrument held in pledge to secure debt of owner (third person) and debt of pledgee to obligor of such instrument, 145 A.L.R. 1006.

Right of attorney to set off claim for unrelated services against client's claim for money collected, 173 A.L.R. 429.

Waiver or estoppel with respect to debtor's assertion, as setoff or counterclaim against assignee, of claim valid as against assignor, 51 A.L.R.2d 886.