Officiële Toelichting

Under the Principles, when two parties owe each other an obligation arising from a contract or any cause of action, each party may set off its obligation against the obligation of the other party. By mutual deduction, both obligations are discharged up to the amount of the lesser obligation (see Article 8.5). Set-off avoids the need for each party to perform its obligation separately.

The obligor from whom payment is asked, and who sets off its own obligation, is called ‘the first party’. The obligee who first asks its obligor for payment and against whom the right of set-off is exercised, is called ‘the other party’.

For a party to be allowed to set off its own obligation against the obligation of the other party the conditions laid down in this Article must be satisfied.

A first condition is that each party is the obligor and the obligee of the other (paragraph (1), opening sentence). To be noted is that the parties must be so in the same capacity. Thus, set-off is not possible if the first party has an obligation to the other party in its own name but is the obligee of the other party in another capacity, for example as a trustee or as the absolute owner of a company.

The condition that the obligations must be owed to each other may give rise to a problem where the other party has assigned the obligation owed to it by the first party to a third party. The first party may nonetheless set off its obligation against the other party's obligation if the right of set-off existed against the assignor's obligation before the assignment was notified to the obligor (see Article 9.1.13).

Both obligations must be of the same kind (paragraph (1), opening sentence). In some legal systems obligations have to be ‘fungible’. A monetary obligation may be set off only against a monetary obligation. A delivery of grain may be set off only against a delivery of grain of the same kind.

The concept of ‘obligations of the same kind’ is broader than that of ‘fungible obligations’. Performances of non-monetary obligations may be of the same kind while at the same time not being fungible. Two obligations to deliver wine of the same vineyard but not of the same year may be obligations of the same kind, but would not be fungible. Cash and securities are not performances of the same kind in the sense of this Article. Nevertheless, as is the case with different foreign currencies, set-off may be exercised if the securities are easily convertible and if there is no agreement to the effect that only the payment of specified cash or securities is possible. Whether or not obligations are of the same kind may depend on commercial practices or special trade rules.

A personal obligation cannot be of the same kind as another type of obligation. Set-off is thus not available if one of the obligations is of a personal nature.

The first party must have the right to perform its obligation (paragraph (l)(a)). It cannot impose on the other party a performance which either has not yet been ascertained, or is not yet due.

Set-off may be exercised only when the other party's obligation is ascertained both as to its existence and as to its amount (paragraph (i)(b)).

The existence of an obligation is ascertained when the obligation itself cannot be contested, for example, when it is based on a valid and executed contract or a final judgment or award which is not subject to review.

Conversely, an obligation to pay damages is not ascertained when the obligation may be contested by the other party.

Even if the existence of the other party's obligation is not contested, it is not possible to exercise set-off if the obligation is not ascertained as to its amount. If the existence of the harm is not disputed, but the amount of the compensation has not been fixed, set-off will not be available.

The Principles do not deal with the impact of insolvency proceedings on the right to exercise set-off, which is therefore to be determined by the applicable law. Most domestic laws grant the first party the right to exercise set-off even after the other party has become involved in insolvency proceedings, thereby derogating from the principle of the equality of the creditors in insolvency proceedings.

The other party's obligation must furthermore be due (paragraph (l)(b)). An obligation is due when the obligee has the right to request performance by the obligor, and the obligor has no available defence against that request. A defence will, for example, be available if the time of payment has not yet arrived. As a natural or moral obligation is not enforceable, the first party may not set off its obligations against such an obligation owed by the other party. The enforceability or non-enforceability of an obligation may depend on the otherwise applicable law. Consequently, in some cases the possibility to exercise the right of set-off may depend on the otherwise applicable law.

Since the expiration of the limitation periods prevents the enforcement of the obligation but does not extinguish the right itself, the first party who is not allowed to enforce the time-barred obligation may nonetheless set off that time-barred obligation (see Article 10.10).

Set-off is a convenient means of discharging obligations at once and at the same time. Therefore, if the two obligations arise from the same contract, the conditions of set-off are modified.

If the obligations of the two parties arise from the same contract, the first party is allowed to set off its own obligation against an obligation of the other party even where that other party's obligation is not ascertained as to its existence or to its amount (paragraph (2)). Thus, for instance, an obligation to pay damages may be ascertained as to its existence but not as to its amount. If the minimum amount payable cannot be contested, the first party may set off its own obligation up to that minimum amount, even if the total amount of the other party's obligation is unknown.

Even though one of the obligations is contested, the right to set-off can be exercised because all the relevant obligations capable of being set off arise from the same contract and can therefore be easily identified. This could be useful to parties in a business relationship to facilitate quick settlements of claims. Judicial intervention may however be necessary to determine whether the conditions of set-off are in fact satisfied. In international commerce, the obligations of the two parties may frequently arise from the same contract.

Even if the conditions of this Article are not met, the parties may achieve the effects of set-off by agreement. Likewise, parties may agree that their mutual obligations are set off automatically either at a specific date or periodically. Also, more than two parties may agree that their respective obligations shall be discharged, for example by netting.