Also known as: claims in recoupment · recoupment claim
Written by attorneys · grounded in primary & secondary sources — see below
A defensive claim arising from the transaction that gave rise to an instrument or assigned contract. The claim permits an obligor or account debtor to reduce the amount owed to a holder or assignee but does not support affirmative recovery beyond that reduction.
Clifford Cox purchased custom equipment from Crestview Holdings under a contract calling for payment upon delivery. After receiving nonconforming units that failed to meet specifications, Cox withheld part of the price. Crestview assigned its right to payment to Copperfield Mining, which then demanded the full invoice amount. Cox asserted the quality defects as a claim in recoupment to reduce the sum owed to the assignee.
Cassandra Cooper contracted with Crown Pharmaceuticals for vessel repairs at a fixed price. Cooper notified the repairer of substandard work and resulting downtime losses before any assignment occurred. Crown assigned its payment rights to Cedar Creek Farms, which sent proper notification and demanded the original amount. Cooper used the repair defects to offset the obligation owed to the assignee down to zero.
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A claim in recoupment arises from the transaction that produced the instrument and may be asserted only to reduce the amount owing on the instrument. Ordinary defenses under section 3-305(a)(2) may also be raised but are treated separately from the recoupment category added in the 1990 revisions.
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No. Under UCC section 9-404(b) the claim may be asserted against the assignee only to reduce the amount the account debtor owes. Any excess must be pursued against the assignor rather than the assignee.
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The claim must arise from the transaction that gave rise to the assigned contract under section 9-404(a)(1). Other claims against the assignor may be asserted only if they accrued before the account debtor received notification of the assignment.
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Yes. Section 3-305(b) provides that a holder in due course is not subject to claims in recoupment stated in subsection (a)(3) against a person other than the holder.
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