Opinion ID: 2546296
Heading Depth: 1
Heading Rank: 5

Heading: The defense of setoff

Text: In its answer, Vision asserted the defense of setoff, arguing that it was entitled to such relief due to the parties' mutual indebtedness. Vision opposed LVTB's motion for summary judgment, arguing that genuine issues of material fact exist as to Vision's affirmative defense of setoff. We agree. Setoff is an equitable remedy that should be granted when justice so requires to prevent inequity. [10] Setoff is a form of counterclaim which a defendant may urge by way of defense or to obtain a judgment for whatever balance is due. [11] Setoff is a doctrine used to extinguish the mutual indebtedness of parties who each owe a debt to one another. [12] In fact, the claims that give rise to a setoff need not arise out of the same transaction; they may be entirely unrelated. [13] At least one court has allowed a defendant to assert the defense of setoff in an action between original parties to a note. [14] In Campbell, this court set forth two requirements that must be met under Nevada law to successfully assert the defense of setoff: (1) each party must have a valid and enforceable debt against the other party, and (2) one of the parties must be insolvent. [15] This court concluded that a setoff was improper because the parties were not mutually indebted to one another. [16] The Campbell case therefore did not discuss the insolvency requirement. In Campbell, [17] and the subsequent Nevada cases addressing the issue of setoff, the insolvency requirement was based on the reasoning of an Oregon case, Korlann v. E-Z Pay Plan, Inc., [18] which dealt with the issue in the context of a debtor-creditor relationship. In that case, the Oregon Supreme Court stated: Setoff is usually allowed where, through a course of separate transactions, two parties become indebted to each other. If one of the parties becomes insolvent, the other, instead of paying his debt in full and receiving a dividend on what is owed him, is held only for the difference, if any, between his debt and the insolvent's. The reason for such a rule is said to lie in the injustice of a contrary rule. [19] From this language, we imported the requirement of insolvency. However, the Oregon Supreme Court stated further that [b]etween solvent merchants, setoffs are a matter of routine bookkeeping. [20] In Paul B. Emerick Co. v. Wm. Bohnenkamp & Associates, Inc., the Oregon Supreme Court noted that: Williston says that Where both parties to a controversy are solvent, the right of set-off has merely procedural importance.... But if one of them is insolvent, it is a substantial disadvantage to the solvent party if he is compelled to discharge in full the debt which he owes and recover only a fraction of the debt which is owing to him. [21] Therefore, setoff should be allowed in cases where both parties are solvent, but is especially necessary in cases where one party is insolvent to protect the interests of the solvent party. We now conclude that insolvency is not necessary to obtain a setoff between two mutually indebted parties. This conclusion coheres with the purpose behind the doctrine of setoff, which allows mutually indebted parties to apply the debts of the other so that by mutual reduction everything but the difference is extinguished. [22] It also serves the interests of efficiency by allowing two parties with mutual claims of indebtedness to extinguish their debts against one another in a single proceeding. Therefore, we overrule that portion of Campbell that requires insolvency for the claim to apply. As a result, Vision is entitled to assert setoff as a defense in the instant case. We also conclude that it is unclear whether genuine issues of material fact exist regarding the issue of the amount of Vision's indebtedness. Further discovery will clarify whether summary judgment is appropriate in this case. Therefore, we reverse the district court's order granting summary judgment and remand for further proceedings consistent with this opinion.