Defalcation; a demand which a defendant makes against the plaintiff in the suit for the purpose of liquidating the whole or a part of his claim.
A set-off was unknown to the common law, according to which mutual debts were distinct and inextinguishable except by actual payment or release.
The statute 2 Geo. II., which has been generally adopted in the United States with some modifications however, allowed, in cases of mutual debts, the defendant to set his debt against the other, either by pleading it in bar, or giving it in evidence, when proper notice had been given of such intention, under the general issue. The statute being made for the benefit of the defendant, is not compulsory the defendant may Waive his right, and bring a cross action against the plaintiff.
It seems, however, that in some cases of intestate estates, and of insolvent estates, perhaps owing to the peculiar wording of the law, the statute has been held to operate on the rights of the parties before action brought, or an act done by either of them.
Set-off takes place only in actions on contracts for the payment of money, as assumpsit, debt and covenant. A set-off is not allowed in actions arising ex delicto, as, upon the case, trespass, replevin or detinue.
The matters which may be set off, may be mutual liquidated debts or damages, but unliquidated damages cannot be set off. The statutes refer only to mutual unconnected debts; for at common law, when the nature of the employment, transaction or dealings necessarily constitute an account consisting of receipts and payments, debts and credits, the balance only is considered to be the debt, and therefore in an action, it is not necessary in such cases either to plead or give notice of set-off.
In general, when the government is plaintiff, no set-off will be allowed. But when an act of congress authorizes such set-off, it may be made.
Judgments in the same rights may be set off against each other at the discretion of the court.