2020 Georgia Code
Title 13 - Contracts
Chapter 7 - Setoff and Recoupment
§ 13-7-7. Allowance of Setoff Against Original Payee in Action by Holder or Transferee of Negotiable Instrument Received Under Dishonor
When suit is brought by a holder or transferee on a negotiable instrument received under dishonor, no setoff shall be allowed against the original payee except such as is in some way connected with the debt sued on or the transaction from which it sprang.
(Orig. Code 1863, § 2845; Code 1868, § 2853; Code 1873, § 2904; Code 1882, § 2904; Civil Code 1895, § 3750; Civil Code 1910, § 4344; Code 1933, § 20-1305.)
Cross references.- Liability of parties to negotiable instruments generally, § 11-3-401 et seq.
JUDICIAL DECISIONSANALYSIS
- General Consideration
- Application
Former Civil Code 1895, § 3750 (see O.C.G.A. § 13-7-7) was an exception to former Civil Code 1895, §§ 3635 and 3636 (see O.C.G.A. § 13-1-5). Nix v. Ellis, 118 Ga. 345, 45 S.E. 404 (1903).
Any sum due from payee to maker, connected with note sued on may be set off. Butler v. Mitchell, 128 Ga. 431, 57 S.E. 764 (1907).
Equities arising between maker and payee, after transfer to third person, will not affect holder's rights, though transfer be made after note becomes due. Central Trust Co. v. Fargason, 21 Ga. App. 696, 94 S.E. 902 (1918); Georgia State Bank v. Harden, 32 Ga. App. 300, 124 S.E. 68 (1924).
Damages for fraud in collateral transaction cannot be set off. Ingram v. Jordan, 55 Ga. 356 (1876).
Essential allegations of a plea of setoff are that note was received by plaintiff under dishonor and that setoff grew out of, or was in some way connected with contract sued on. Kinard v. Sanford, 64 Ga. 630 (1880).
Cited in Ellis v. Dudley, 19 Ga. App. 566, 91 S.E. 904 (1917); Southeastern Rubber Works Co. v. National Disct. Co., 27 Ga. App. 244, 107 S.E. 598 (1921); Cole v. Bank of Bowersville, 31 Ga. App. 435, 120 S.E. 790 (1923); Fulton Nat'l Bank v. Redmond, 161 Ga. 204, 130 S.E. 568 (1925); Pullen v. Powell, 35 Ga. App. 333, 132 S.E. 922 (1926); Stanfield v. Kennedy, 43 Ga. App. 738, 159 S.E. 880 (1931); National Sur. Corp. v. Algernon Blair, Inc., 114 Ga. App. 30, 150 S.E.2d 256 (1966).
Application
Two notes executed under same contract are considered parts of same transaction. Rountree v. Culpepper, 40 Ga. App. 629, 150 S.E. 859 (1929).
Statute applies as to one not a holder in due course.
- Statute is construed to mean that, even as to one not a holder in due course, setoff is a defense only as to those equities existing between original parties which grew out of same transaction. Martin Mgt. Corp. v. Farner, 124 Ga. App. 552, 184 S.E.2d 597 (1971) (see O.C.G.A. § 13-7-7).
Debt must be connected with note.
- When note payable to one corporation has, after maturity, been transferred to another corporation, the maker cannot set off against transferee a debt due the maker by the other corporation which was not connected with debt evidenced by note sued on, or transaction out of which debt sued on originated. Porter v. Wootten, 51 Ga. App. 834, 181 S.E. 866 (1935).
Procedural benefit afforded by former Code 1933, § 20-1305 (see O.C.G.A. § 13-7-7) was not available to original payee of negotiable paper; this was so even though original payee may qualify as a holder under former Code 1933, § 109A-1-201 (see O.C.G.A. § 11-1-201(20)). Jones v. FDIC, 151 Ga. App. 619, 260 S.E.2d 751 (1979).
Setoff against one note of second note for subsequent indebtedness disallowed.
- When two notes were executed at different dates, the second note could not be setoff to first note, if it covered indebtedness arising after execution of note sued on, although consideration of both notes was used to construct an ice house. Polk v. Stewart, 144 Ga. 335, 87 S.E. 21 (1915).
RESEARCH REFERENCES
Am. Jur. 2d.
- 11 Am. Jur. 2d, Bills and Notes, § 1027. 20 Am. Jur. 2d, Counterclaim, Recoupment, and Setoff, § 31.
C.J.S.- 70 C.J.S., Set-Off and Counterclaim, §§ 40 et seq., 49 et seq.
ALR.
- Setoff or counterclaim between prior parties to a negotiable instrument as available against one not a holder in due course, 70 A.L.R. 245.
What amounts to waiver, estoppel, or loss of bank's right to set off depositor's indebtedness against deposit or to apply deposit upon indebtedness, 143 A.L.R. 453.
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.
