GA Code § 13-7-1 (2021)
2021 Georgia Code|Title 13 - Contracts|Chapter 7 - Setoff and Recoupment|§ 13-7-1. Nature of Setoff Generally

 Setoff does not operate as a denial of the plaintiff's claim; rather it allows the defendant to set off a debt owed him by the plaintiff against the claim of the plaintiff.   (Orig. Code 1863, § 2840; Code 1868, § 2848; Code 1873, § 2899; Code 1882, § 2899; Civil Code 1895, § 3745; Civil Code 1910, § 4339; Code 1933, § 20-1301.)   Cross references.   - Applicability of statute of limitation to setoff, § 9-3-6.    Counterclaim and cross-claim, § 9-11-13.    Effect of counterclaim exceeding opposing claim under Civil Practice Act, § 9-11-13.    Joinder of claims and remedies under Civil Practice Act, § 9-11-18.    Setoff of judgment, § 9-13-75.    Equitable setoff, § 23-2-76.   Law reviews.   - For article, "Appeals, Interlocutory and Discretionary Applications, and Post-Judgment Motions in the Georgia Courts: The Current Practice and the Need for Reform Legislation," see 44 Mercer L. Rev. 17 (1992).   JUDICIAL DECISIONS   Relationship to bankruptcy law.   - 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).   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 as counterclaims, not defense.    - 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 set off 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).   Right of setoff in cases other than those covered by 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), was an equitable right, which was not and had 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 a plea setting up an 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).   If demands are mutual and of same nature, setoff need not arise between same parties.    - 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).   Right to setoff may be waived.    - See Solid Waste Mgmt. Auth. v. Transwaste Servs., 247 Ga. App. 29, 543 S.E.2d 98 (2000).    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), any mutual demand between parties existing at commencement of suit may be set off, and except as provided in former Code 1933, § 20-1305 (see O.C.G.A. § 13-7-7), the debts may be separated and distinct and need not have arisen in mutual dealings. Reynolds v. Speer, 38 Ga. App. 570, 144 S.E. 358 (1928).    Transferred chose in action, actionable in name of assignee, may be used as a setoff. Cox v. Stowers, 204 Ga. 595, 50 S.E.2d 339 (1948).    Setoff is not available as a defense by affidavit of illegality to foreclosure of chattel mortgage. Arnold v. Carter, 125 Ga. 319, 54 S.E. 177 (1906).    In proceeding to foreclose bill of sale retaining title to secure debt, the debtor may, by affidavit of illegality, avail oneself of any defense which the debtor might set up in an ordinary suit upon demand secured by a mortgage, and which goes to show that amount claimed is not due and owing; and, while the debtor is thus permitted to avail oneself of a valid defense by way of recoupment, one is not entitled to plead defense of setoff in such a summary proceeding, since the latter defense is not one which goes to justice of plaintiff's demand. Atlas Auto Fin. Co. v. Atkins, 79 Ga. App. 91, 53 S.E.2d 171 (1949).   Mortgagor-mortgagee obligations.   - 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).   No recoupment by tenant.    - In an action seeking a writ of possession for a mobile home, because the mobile home's tenants expressly waived any recourse against their bankrupt lender arising from a prior judgment, based on a voluntary settlement with the bankrupt lender accepting a general unsecured claim, the tenants could not later assert any right of recoupment; as a result, the trial court did not err in granting summary judgment as to said claim against the tenants and in favor of a successor lender. Hill v. Green Tree Servicing, LLC, 280 Ga. App. 151, 633 S.E.2d 451 (2006).    Setoff is a form of action subject to statute of limitations. Lowe v. Rawson, 43 Ga. 374 (1871).   Evidence necessary to establish claim of setoff.    - To establish a claim of setoff, the law requires the same evidence as if defendant had originally sued plaintiffs on the claim. B.J. Wilson & Co. v. Walker, 46 Ga. 319 (1872).   Setoff available to extent of wrongfully discharged employee's mitigation of employee's losses.    - Discharged servant is bound to use due diligence to prevent servant's loss from being more than necessary, and to that end must seek employment in similar business and derive such income from it as the servant reasonably can, which is to be deducted in fixing damage to be recovered; the burden, however, of showing that the servant did obtain employment, or could have obtained employment by due diligence, is on the other party. Russell v. Hughes, 244 Ga. 634, 261 S.E.2d 584 (1979).   Setoff arising from installation contract permitted in action on related sales contract.    - When plaintiff agreed to sell and also to install a lighting plant, setoff for improper installation will be allowed whether contract to install was part of contract of sale or was a separate contract. Colt Co. v. Hiland, 35 Ga. App. 550, 134 S.E. 142 (1926).    Provisions are adhered to by allowing setoff of payments made after alimony decree and judgment, but law cannot apply as to payments made on oral contract before alimony judgment and not set up in pleadings at time of alimony trial. Payments made before alimony judgment are res judicata so far as record of proceeding to recover past due payments on alimony judgment. Meza v. Van Deventer, 97 Ga. App. 738, 104 S.E.2d 478 (1958).   Debts due widow by estate cannot be set off against heirs unless estate's representative is a party.    - 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).   Setoff inapplicable when no claim that plaintiff owed defendants.    - It was error to exclude certain evidence as to damages on the ground that defendants had not asserted a setoff or recoupment counterclaim. The case did not involve setoff or recoupment under O.C.G.A. §§ 13-7-1 and13-7-2, as there was no claim that plaintiff owed any debt to defendants or breached a cross-obligation or independent covenant. Automated Print, Inc. v. Edgar, 288 Ga. App. 326, 654 S.E.2d 413 (2007).   Setoff improper.    - Trial court erred in ruling for a development company in the company's declaratory judgment action seeking to have the company's debt to a bank set off against the company's loan to a holding company because the bank and the holding company were separate entities; the development company knew the risks involved when the company made the holding company loan, and the bank could not obtain relief unavailable to any other entities who lent money to the holding company simply because the company borrowed money from the bank years ago. Bank of the Ozarks v. DKK Dev. Co., 315 Ga. App. 539, 726 S.E.2d 608 (2012).    Evidence showed that the $123,119.51 awarded by the trial court was not a set-off of a debt owed to the defendants by the plaintiffs; thus, to the extent the trial court awarded a legal set-off from the final judgment under O.C.G.A. § 13-7-1, such ruling would be error. Lewis v. McNeely, 336 Ga. App. 696, 783 S.E.2d 172 (2016).    Cited in Mordecai v. Stewart, 37 Ga. 364 (1867); Horton v. Pintchunck, 110 Ga. 355, 35 S.E. 663 (1900); Hecht v. Snook & Austin Furn. Co., 114 Ga. 921, 41 S.E. 74 (1902); Ellis v. Dudley, 19 Ga. App. 566, 91 S.E. 904 (1917); Mashburn Drug Co. v. Valdosta Drug Co., 53 Ga. App. 88, 184 S.E. 903 (1936); National Sur. Corp. v. Algernon Blair, Inc., 114 Ga. App. 30, 150 S.E.2d 256 (1966); Pickett v. Chamblee Constr. Co., 124 Ga. App. 769, 186 S.E.2d 123 (1971); Chapman v. Aetna Fin. Co., 615 F.2d 361 (5th Cir. 1980); Horne v. Drachman, 247 Ga. 802, 280 S.E.2d 338 (1981); J.R. Mabbett & Son v. Ripley, 185 Ga. App. 601, 365 S.E.2d 155 (1988); Imex Int'l v. Wires Eng'g, 261 Ga. App. 329, 583 S.E.2d 117 (2003).   RESEARCH REFERENCES   Am. Jur. 2d.   - 20 Am. Jur. 2d, Counterclaim, Recoupment, and Setoff, §§ 1 et seq., 17, 131, 149. 59 Am. Jur. 2d, Parties, §§ 3, 4, 281 et seq., 285, 286, 289, 290, 292.   C.J.S.   - 80 C.J.S., Set-Off and Counterclaim, § 1 et seq.   ALR.    - Right of set-off as between proceeds of life insurance and indebtedness of insured to insurer, 101 A.L.R. 1517.    Fractional interest in debt as subject of setoff, 139 A.L.R. 1328.   Spouse's right to set off debt owed by other spouse against accrued spousal or child support payments, 11 A.L.R.5th 259.