Also known as: recoupment · claim in recoupment · recoupment defense
Written by attorneys · grounded in primary & secondary sources — see below
A right available to an account debtor or obligor to reduce or avoid payment obligations by asserting against an assignee or holder any defense or claim that arises directly from the transaction giving rise to the assigned contract or instrument.
Duffy Construction contracted with Duarte Shipping to supply custom panels for a warehouse project. Duarte assigned its right to payment to Diamond Manufacturing. When the panels arrived with structural flaws that required costly repairs, Duffy withheld the balance due. Diamond sued for the full amount. Duffy asserted its repair costs as a claim in recoupment arising from the original supply transaction, reducing the sum owed to Diamond.
Demetrius Douglas leased an apartment from Devon Drake under a written lease later assigned to Dorothy Daniels. The unit suffered persistent leaks and heating failures that violated the implied warranty of habitability. When Daniels demanded full rent, Douglas withheld payments equal to the cost of repairs he had made. The court permitted the withholding as a defense arising from the lease transaction itself.
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A claim in recoupment may be asserted only to reduce the amount the account debtor owes the assignee. It does not permit an affirmative recovery exceeding the debt.
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Yes. The assignee steps into the shoes of the assignor and takes the assigned right subject to any defense or claim in recoupment arising from the transaction that gave rise to the contract.
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Transaction-based claims in recoupment under UCC § 9-404(a)(1) may be asserted regardless of when they accrue. Other defenses or claims against the assignor are cut off only after the account debtor receives proper signed notification of the assignment.
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…entire balance due under the contract, $5,197.50, invoking paragraph (g) of the agreement. Defendants filed answer and claim of recoupment, asserting that plaintiff's failure to perform certain maintenance services constituted a prior material breach of the agreement, thus justifying their repudiation of the contract and…