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Monday, Aug 15th 2022

The ACP Legal Association

  • OHADAC and ACP Legal

    The partisans of this project, called OHADAC (Organisation for the Harmonisation of Business Law in the Caribbean), decided to meet within the framework of the association ACP Legal, to help interested Caribbean States to implement the project.

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  • OHADAC in brief

    This brochure has been published by the ACP Legal Association.

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OHADAC PRINCIPLES ON INTERNATIONAL COMMERCIAL CONTRACTS

Article 6.2.1

Conditions and effects of set-off

1. Where two persons owe each other reciprocally and are each other's main obligor and obligee, either party may set off its obligations against the obligation of the other. Both parties must have authority to decide on the set-off.

2. Set-off extinguishes both obligations as from the date it is notified.

3. If the obligations are for different amounts, the set-off extinguishes them up to the amount of the lesser obligation.

1. Comparison of set-off systems

In accordance with the nature of the choices made OHADAC Principles, the second section of this chapter introduces a conventional rule for set-off. Although it is not as exhaustive as a legal set-off regime, like the ones on which the other international texts are based, the rules included in this section are the result of a comparative approach to the legal regulation of set-off presents in the Caribbean law systems and they aim to ensure transparency and agility in legal transactions.

In countries that follow the civil law model, set-off has a substantive nature, whereas in common law systems set-off was originally conceived as a strictly procedural device (independent set-off). In this last case, simultaneous extinction of the claims of the subjects involved takes effect only after judicial procedure. Until then, all the legal and contractual means required to perform the contract should be used, without the obligor being able to invoke or declare set-off.

However, the difference between the two legal families is not as considerable as it may seem. On one hand, common law systems have “transactional set-off”, whose substantive nature has been confirmed by authors and case law [Hanak v Green [1958], 2 QB 9, 29; BICC plc v Burndy Corp [1985], RPC 273, 315; Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) (1978), 1 QB 927, 981F; Aectra Refining and Manufacturing Inc v Exmar NV (1994), 1 WLR 1634, 1649; Eller v Grovecrest Investments Ltd (1995) 1 QB 272; Modern Engineering (Bristol) Ltd v Gilbert-Ash Northern Ltd (1974), AC 689, 717; transaction set-off is considered a means of payment in Burton v Mellham (2006), UKHL 6, 23)]. On the other hand, in civil law systems, it is possible that the judge declares set-off even if not all the requirements established in the respective legal system for legal set-off are met and in the absence of a contractual set-off agreement.

2. The requirement of reciprocity in the OHADAC legal systems

The reciprocity of claims is an essential requirement for legal set-off, such that the other requirements serve only to enable automatic set-off. The aim behind this requirement is to avoid the claim of one person being used without his or her consent to satisfy the obligation of another person. Accordingly, in principle, an obligation cannot be set off with a claim external to the obligation or an obligation external to the claim.

Legal provisions of many legal systems include reciprocity as a requirement for set-off. Article 1.289 of the French and Dominican Civil Code simply requires that two persons be obliged to each other. A similar statement can be found in Article 1.714 Colombian Civil Code; Article 1.073 of the Haitian Civil Code; Article 2.141 of the Nicaraguan Civil Code; Article 13:101 PECL; Article III-6:102 DCFR and Article 8.1 UP. However, Article 218 of the Proposals for the Reform of French Law on obligations of 2013 no longer refers to obligations but to “reciprocal obligations”. Other civil codes (Article 806 of the Costa Rican Civil Code; Article 1.469 of the Guatemalan Civil Code; Article 1.473 of the Honduran Civil Code; Article 2.185 of the Mexican Civil Code; Article 1.081 of the Panamanian Civil Code; Article 1.149 Porto Rican Civil Code) reproduce the more concrete wording of Article 1.195 of the Spanish Civil Code, which specifies that both people must be by their own right each other's obligee and obligor. It follows that people with a special connection with someone else's estate (representatives, agents, heirs, partners, etc.) cannot set off their obligations with a claim of this estate because they would not be offsetting on their own right. According to this, paragraph 3 of Article 6:127 of the Dutch and Suriname Civil Code establishes that the right to set off does not exist when the claim or the counterclaim of the obligor or the other party belong to separate properties. Furthermore, Article 1.474 of the Honduran Civil Code, Article 1.082-1 of the Panamanian Civil Code and Article 1.150-1 Porto Rican Civil Code follow Article 1.196 Spanish Civil Code and add that every obligor must be each other's main obligee and obligor. According to this rule the obligor cannot set off with a claim that is owned by an accessory obligor (like the bail) or to set off while he is still an accessory obligor.

Reciprocity is also considered an essential requirement under common law systems (mutuality). Independent set-off is not allowed when the trustee wants to set off an obligation of the beneficiary with a claim of his own in order to follow the interests of the beneficiary. However, the consideration of the owner of the claim (see through) is possible in equity [Bankes v Jarvis (1903) 1 KB 549, 552). It is also possible that the beneficiary sets off with a claim that the trustee is holding in its name [Cochrane v Green (1860) 9 LB (n.s.) 448, 464, doubting this Middleton v Pollock, ex parte Nugee (1875), LR 20 Eq 29]. In the field of transactional set-off there is controversial case law according to which a tenant can set-off with a counterclaim that it has with his former landlord [Smith v Muscat (2003), EWCA Civ. 962]. A winding down of the reciprocity requirement also has been considered necessary when, for example, a third person sells goods to the trustee in a transaction authorised by the trust and the trustee pays the price with his own money. In this case, it is held that it should be able to offset damage caused by the defective goods with the price paid for them.

Departing from the general rule, some civil codes from the OHADAC area have regulated some specific examples of lack of reciprocity. Articles 1.716 Colombian Civil Code and 2.141 of the Nicaraguan Civil Code state that the main obligor cannot set off against the obligee what the obligee owes to the bail and that if the obligor of a ward is required to pay, it cannot set off with what the custodian owes to it. These rules are followed in both civil codes with a rule on set-off in case of joint obligors. In accordance with Article 1.716 Colombian Civil Code, set-off is not possible except if the owner of the counterclaim allows for it. In accordance with Article 2.142 of the Nicaraguan Civil Code in this case set-off is possible without need for any intervention of the joint obligor which owns the counterclaim. Another particular case is dealt specifically in Article 1.474 of the Guatemalan Civil Code, according to which a broker or another intermediary cannot set off the sums that he receives to buy specific goods nor the price received for the goods sold with the sums de principal owes to it. Finally, in accordance with Article 2.143 of the Nicaraguan Civil Code, in case of securities payable on demand the obligor cannot set off with the endorsee what was owed to it by the former endorsers.

Apart from these special rules, proper exceptions to the general rule can also be found in legal systems within the OHADAC area. The most relevant ones are the possibility of set-off after assignment of the principal claim, the possibility of setting off with a counterclaim that is owned by another of the joint obligors and the possibility that the bail pleads set-off with regards to what the obligee owes to its principal obligor. The first two exceptions are dealt with in Section 1 of Chapter 8 and in Section 4 of Chapter 4 of these Principles.

The third exception concerning the bail has been expressly regulated in Article 1.294 of the French and Dominican Civil Code (maintained in Article 225 Proposals for the Reform of French Law on obligations of 2013), 1.475 of the Guatemalan Civil Code, 1.078 of the Haitian Civil Code, 2.145 of the Nicaraguan Civil Code, 1.083 of the Panamanian Civil Code, 1.151 Porto Rican Civil Code, 1.121 St. Lucian Civil Code and 1.336 of the Venezuelan Civil Code. This rule would have its counterpart in a rule stating that the obligor cannot set off with a claim of the bail. Article 2.198 of the Mexican Civil Code allows the bail that has been sued by the obligee to plead set-off with an own claim against the obligee for the benefit of the obligor. Article 6:139 of the Dutch and Suriname Civil Code also deal with the surety and in general with the person whose goods serve as a security for someone else's obligation, but they do not refer to the possibility that the bail offsets with a claim of the obligor. In accordance with Dutch and Suriname Law, it is only possible to invoke the suspension of the liability as far as the obligee is entitled to set-off his secured claim against a due and demandable obligation indebted to him by the obligor. This is a dilatory defence as known from German and Swiss law (§ 770 German Civil Code, Article 121 Swiss Civil Code). In these legal systems set-off also requires a declaration. The guarantor and the person whose goods serve as a security for someone else's obligation may furthermore invoke that they are released from their liability as far as the obligee has lost its right of set-off unless the obligee had reasonable grounds to waive this right or he is not to blame for the loss.

Finally, Article 1.717 Colombian Civil Code introduces a particular exception: the agent may set off with an own claim the claim of a third party against the principal if it provides a security stating that the principal will confirm the set-off. But it may not set off a claim that a third party has against him with a claim owned by its principal unless the principal itself agrees.

In common law reference must be made to the interveners. Interveners are specific subjects (assignees, owners of a floating charge, obligees with a Mareva injunction, a principal if its agent had concluded a contract without specifying that it was acting on behalf of its principal, etc.) whose intervention puts an end to reciprocity. It must be assessed in every particular case if priority must be given to the guarantee function of set-off or to the interest of the intervener. The type of set-off must also be taken into consideration. The general rule in these cases is that the obligor may set off against the intervener in the same manner as if he were the obligee if claim and counterclaim had been created or had resulted of a transaction entered before the time in which the obligor knew about the intervention. Additional requirements apply in the context of an independent set-off.

The set-off of an own obligation with someone else's claim or of someone else's obligation with an own claim is also not possible according to the OHADAC Principles. On the one side, the common understanding of the reciprocity requirement allows a regulation in accordance with all the legal traditions of the geographical area. On the other side, if we consider that the obligations imposed by these Principles are not of legal nature but the result of an agreement of the parties a restriction to its effects to the sphere of the contractual parties seems most advisable.

The wording of Article III-6:102 (c) DCFR has also been adopted. It seems very appropriate because it does not only prevents agents, trustees, etc. from offsetting an own obligation with a claim of the principal, beneficiary etc., but it also contains the prohibition to set off with a seized claim.

The traditional exception to the reciprocity requirement in favour of the bail has not been included. As it has been seen, this exception has only sense when set-off operated automatically and is not included in the legal systems that require a declaration of set-off.

3. Effects of set-off

The substantive or procedural characterisation of set-off may affect greatly the regulation of it effect. In those OHADAC legal systems which follow the French and Spanish traditions it is considered that set-off takes effect automatically, even when the parties ignore the meeting of the legal requirements (Article 1.715 Colombian Civil Code; Article 809 of the Costa Rican Civil Code; Article 1.290 Dominican an French Civil Code, maintained in Article 223 of the Proposals for the Reform of French Law on obligations of 2013; Article 1.074 of the Haitian Civil Code; Article 1.480 of the Honduran Civil Code; Article 2.186 of the Mexican Civil Code; Article 2.140 of the Nicaraguan Civil Code; Article 1.088 of the Panamanian Civil Code; Article 1.156 of the Puerto Rican Civil Code; Article 1.118 of the St. Lucian Civil Code; Article 1.332 of the Venezuelan Civil Code). The automatic effect of set-off is not satisfactory in terms of legal certainty, as the existence or non-existence of the claim in the assets of de obligee will depend exclusively on the existence of legal requirements, which may sometimes be difficult to assess. Nevertheless, the consequences of the automatic effect of legal set-off in these legal systems are influenced in particular by the fact that the judge cannot declare set-off ex officio, but the set-off must be declared by one of the parties in the proceedings. Due to this rectification at the procedural level, the French-Spanish solution comes closer to the solution maintained in the civil legal systems of Germanic influence, according to which set-off can only take place after a declaration. Consequently, it has retroactive effect as from the time when the legal requirements are met. This is also solution adopted in Articles 6:127 and 6:129 of the Dutch and Suriname Civil Code, Article 302 of the Cuban Civil Code and Article 1.471 of the Guatemalan Civil Code.

However, the option for one solution or the other will have significant consequences. First, in the legal systems where set-off occurs automatically, a payment made when the requirements for set-off are met is considered a waiver of set-off (e.g. Article 1.299 of the French and Dominican Civil Code; Article 1.084 of the Haitian Civil Code). The voluntary waiver to extinguish the personal claim means that third parties should not be negatively affected by this decision, unless the obligee was not aware of its right to set-off. This could lead to a condictio indebiti. In legal systems that require a declaration, if there is no declaration, there is no set-off to be waived and the obligee cannot use a condictio indebiti to recover the money it has paid. However, in both cases, interest for late payment and penalties will no longer apply. The party declaring set-off will be entitled to recover default interest or sums paid in this respect as from the time when set-off occurred or the time when the requirements for set-off were met.

Secondly, in legal systems where set-off occurs automatically, joint obligors that do not own the counterclaim could in principle plead the set-off that has already taken place if the obligee requires payment from any one of them. In the legal systems in which set-off requires a declaration of the owner of the counterclaim, the other solidary obligors cannot, in principle, replace the owner of the counterclaim and declare set-off. In this case, the set-off would be a personal exception.

Thirdly, if set-off occurs automatically, once the legal requirements are met, the assignment of either claim or counterclaim after fulfilment of form set-off would be in fact the assignment of any one of the obligations concerned by the set-off, will actually affect the claim that has already been extinguished. That is why, in legal systems that include this rule, the assignee, in principle, can only enforce its own claim when there has been a waiver of set-off by the obligor, which is implicitly declared with the assignment. In legal systems where set-off requires a declaration, the end of reciprocity in the positions of obligor and obligee due to an assignment of the claim means that set-off cannot be declared after the date of the assignment. However, in these legal systems it is exceptionally allowed to declare set-off under specific conditions that aim to protect the assignee.

Lastly, if mutual claims are extinguished automatically when the requirements for set-off are met, the later limitation of one of the claims is irrelevant. Although the situation that entitles the party to set-off is necessary at the time of the declaration, in principle set-off is not necessary if said situation has already occurred, for example because one of the claims is time-barred. Consequently, in legal systems in which set-off has retroactive effect after its declaration, the possibility of declaring set-off with a time-barred claim must be explicitly allowed (e.g. Article 6:131 of the Dutch and Suriname Civil Code; Article 1.472 of the Guatemalan Civil Code]. This possibility is relevant with respect to counterclaims. If the principal claim is time barred, the obligor can plead its limitation to avoid set-off.

In the common law legal systems, set-off generally has an ex nunc effect. This is clear in the case of the independent set-off, which does not require that the claim and counterclaim arise from the same legal relationship or from closely connected legal relationships. Contractual set-off also does not have a retroactive effect, even if the fact it has been agreed in a contract to consider the possibility of a set-off still remains despite the assignment of the main obligation, for as long as the obligor has not been informed. However, there is no absolute certainty about the effects of the transactional set-off, which is possible because of the close connection between the claim and the counterclaim. It has been suggested that the transactional set-off should have retroactive effects as payment in arrears at the time the counterclaim is due. It also has been considered that if set-off is pleaded before the obligee has resorted to self-help remedies, the obligee will not be able to use them if the set-off extinguishes its claim entirely [Eller v Grovecrest Investments Ltd (1995), 1 QB 272, 278E; Fuller v Happy Shopper Markets Ltd (2001) 1 WLR 1681, 1690D]. However, the obligee must be allowed to resort to these remedies as long as the obligor does not declare the set-off. Conversely, if set-off is pleaded as a defence against a contested claim, it is considered that it should have retroactive effect. Another school of thought considers that transactional set-off does not legally extinguish the claim, but the exercise of contractual remedies by the obligee in this case would be abusive.

The UP (Article 8.5), the PECL (Article 13:106) and the DCFR (Article III-6:107) adopt a solution that originates from the Nordic countries. According to these sets of rules, set-off has ex nunc effect after notice has been given by one party to another. This is an optimal solution from the point of view of legal certainty, which also makes legal transactions easier because the existence of all the legal requirements is only relevant at the time of the notification.

With respect to existing solutions, it could seem at first that it would be possible to opt, in the OHADAC principles, for an automatic or ipso jure set-off with ex tunc effects up to its declaration or with ex nunc effects. The option for an automatic effect is the one that currently prevails in OHADAC area legal systems. However, this solution is not appropriate for enhancing cross-border legal relations in the region. On the contrary, it seems that best option with respect to legal certainty is to make the set-off depend on the declaration.

Nevertheless, it is not recommended to assign a retroactive effect to the declaration. This is because the retroactive effect is accepted only for transactional set-offs, and even then with certain reservations However, it does not seem advisable to give retroactive effect to the declaration. On the one side, in common law systems retroactive effect of set-off is only accepted with some reservations in relation to transactional set-off. Moreover, this solution may act as an incentive for the obligor because he will be interested in declaring set-off as soon as possible in order to avoid default interests or contractual or legal remedies for non-performance. If the obligor wants to declare set-off with retroactive or even automatic effect it can always resort to the national regulation which is applicable in order to fill in gaps left by these principles. Likewise, it is advisable to consider a set-off agreement with retroactive effect.

Lastly, set-off extinguishes the obligations concerned, totally if they are of the same value or amount, and partially if they are different. In the second case, set-off reduces the amount of the higher obligation by the amount of the lesser obligation, which will be the only obligation to be extinguished.

Commentary

Article 6.2.2

Eligible obligations

1. Set-off may be declared where both obligations are for an amount of money or for fungibles of the same kind and the same quality, if these have been specified.

2. Obligations expressed in different currencies may be set off provided that both currencies are freely convertible and the parties have not agreed that the obligation of the party declaring set-off shall be paid only in a specified currency.

3. Set-off may only be declared if both obligations are due and payable or performable.

4. An obligor may not declare the set-off if its right is unascertained as to its existence or value unless the set-off will not prejudice the interests of the obligee. Where the rights of both parties arise from the same legal relationship it is presumed that the obligee's interest will not be prejudiced.

1. Obligations eligible for set-off in domestic legal systems of the OHADAC area

In all legal systems of the OHADAC area, set-off is possible with for pecuniary obligations. Most civil law systems also provide for set-off when both obligations are for exchangeable fungible goods of the same kind (Article 1.715 of the Colombian Civil Code; Article 1.291 of the French and Dominican Civil Code; Article 1.075 of the Haitian Civil Code) and of the same quality (Article 806 of the Costa Rican Civil Code; Article 1.470 of the Guatemalan Civil Code; Article 1.474.2º of the Honduran Civil Code; Article 2.187 of the Mexican Civil Code; Article 2.140.1º of the Nicaraguan Civil Code; Article 1.082 of the Panamanian Civil Code; Article 1.150 Porto Rican Civil Code; Article 1.118 of the St. Lucian Civil Code; Article 1.333 of the Venezuelan Civil Code). Article 2.151 of the Nicaraguan Civil Code also states that obligations to perform actions are not eligible for set-off. A partial exception to this more flexible rule can be found in Article 1.723 Colombian Civil Code and Article 2.156 of the Nicaraguan Civil Code: in accordance with both provisions, if the obligations are to be paid in different places, set-off is allowed only if both claims are monetary claims. In this case, the person who pleads set-off must take into account the delivery costs (see Article 6.2.3 of these Principles). The condition of the quality of the goods is not expressly required in Article 1.291 of the French and Dominican Civil Code (but note that Article 219 of the Proposals for the Reform of French Law on obligations of 2013 is more explicit in this respect) nor in Article 1.075 of the Haitian Civil Code, but these codes include the possibility of setting off monetary claim against an undisputed claim in crops or commodities whose price is settled according to market prices. The Dutch and Suriname Civil Code do not refer to these requisites. All common law legal systems only allow set-off with monetary claims.

It is considered in general that foreign currency set-off is possible if the parties have agreed on performance in a specific currency and providing that both currencies are freely convertible. However, given money price fluctuations, set-off with a foreign currency should not be allowed. French case law considers that a claim expressed in a foreign currency is a non-liquidated claim. This solution has been unanimously criticised because of its rigidity and it has been asserted that set-off should be possible when external convertibility is complete. In the civil codes of the OHADAC area the possibility of foreign currency set-off is not mentioned. Nevertheless, this is allowed in Article 8.2 UP, Article 13:103 PECL and Article III-6:104 DCFR, unless performance with a single currency has been agreed by the parties. Foreign currency set-off is also allowed in common law legal systems, but there is considerable uncertainty as to the date that has to be taken into consideration in order to make the conversion. In case of a contractual set-off, the date of conversion will be the one agreed by the parties. If set-off had been exercised out of court, it is held that the date that has to be taken in consideration by the court is the date of the declaration of set-off or, in the event of a possible retroactive effect of the declaration, the time when the requirements for set-off were met. In case of a transactional set-off which is being pleaded for the first time in court, the relevant date can be one in which the counterclaim liquidated or diminished the principal claim, but if the connection between both claim and counterclaim is not a close one, it can be considered to take the date of the judgement as the relevant date. If the requirements for independent set-off are met, it is considered that the date of the judgement should be the relevant one. The alternative of excluding the possibility of set-off in these cases and converting the currency in the execution stage is considered unsatisfactory.

Furthermore, legal set-off is only possible if it affects obligations the performance of which may be claimed. This requires that certain conditions or terms (due dates) are met and the obligations be due and payable. Void or natural obligations can are therefore not eligible for set-off. Although some legal systems of the OHADAC area that follow the model of Article 1.196 Spanish Civil Code explicitly require that the obligation be payable and outstanding (Article 1474.3º of the Honduran Civil Code; Article 1082.3º and 4º of the Panamanian Civil Code; Article 1150.3º and 4º of the Porto Rican Civil Code), in most legal systems, a reference to time and conditions for performance has been considered unnecessary as it is included in the notion of a due claim. Paragraph 2 of Article 6:127 of the Dutch and Suriname Civil Code is vaguer: the party pleading the set-off must be entitled to perform its own obligation and to demand performance from the opposite party. According to common law claims must be mature, which means that they have to be due and payable. A claim is due when an action on the obligation can be brought before the court. A claim becomes payable when the time for payment agreed in the contract arrives. Set-off with a counterclaim that has become due after the principal claim is possible, but only if the counterclaim has become due before the beginning of the proceedings.

It is generally also considered that for set-off to be possible, the existence and amount of the claim must be known. The rigidity of the liquidity requirement as provided in most civil codes of the OHADAC area (Article 1.715.2º of the Colombian Civil Code; Article 806 of the Costa Rican Civil Code; Article 301 of the Cuban Civil Code; Article 1.291.1º of the French and Dominican Civil Code, maintained in Article 219 of the Proposals for the Reform of French Law on obligations of 2013; Article 1.470 of the Guatemalan Civil Code; Article 1.075 of the Haitian Civil Code; Article 1.474.4º of the Honduran Civil Code; Article 2.188 of the Mexican Civil Code; Article 2.140.2º of the Nicaraguan Civil Code; Article 1.082.4º of the Panamanian Civil Code; Article 1.150.4º of the Porto Rican Civil Code; Article 1.118 of the St. Lucian Civil Code; Article 1.333 of the Venezuelan Civil Code), has been occasionally countered at procedural level. Article 2.189 of the Mexican Civil Code deserves special attention. According to this rule, a liquidated claim is a claim the amount of which has been determined or can be determined within nine days. Reference must be also made to Article 2.146 of the Nicaraguan Civil Code, which establishes that in order to plead set-off it is not necessary that the counterclaim be recognised. If the set-off is not accepted, the obligor can resort of all the defences available to him. In common law a distinction must be made again considering the different types of set-off. In transactional set-off, the obligor can assert its counterclaim even when it is still not liquidated. This privilege is given to it due to the close relation between claim and counterclaim. However, transactional set-off is not permitted when the counterclaim of the obligor is so uncertain that its assessment would require extensive investigation [Rawson v Samuel (1840), Cr. Fh. 161, 183]. The possibility of asserting a non-liquidated claim seems to exist also in Saint Lucia because Article 1.127A St. Lucian Civil Code establishes that set-off is possible in all cases in which it may be pleaded by the law of England. As for the independent set-off, mutual claims have to be liquidated or they must be easily and quickly ascertainable on court. The obligor can only assess his claim as counterclaim if he meets the legal requirements [Bennett v White (1910), 2 QB 643, 648; Stooke v Taylor (1880) 5 QB D 569, 575].

According to Article 6:136 of the Dutch and Suriname Civil Code, if the court cannot easily ascertain whether the set-off invoked by the defendant is justified, it may award the legal claim of the opposite party without taking notice of this defence, provided that the legal claim is awardable otherwise. Also the PECL (Article 13:102) and the DCFR (Article III-6:103) resort to judicial discretion with regard to the interests at stake. The court can allow the offsetting of a non-liquidated claim if it considers that this does not affect the interests of the obligor, for example because the liquidation of the claim does not mean a relevant prolongation of the process. It is presumed that the obligor is not affected if the claims are closely connected to each other. This makes sense because due to the fact that the claim and counterclaim derive from the same relationship it can be presumed that their liquidation will take place simultaneously. This is a rebuttable presumption, but it must be recognised that in the majority of cases the possibility of an impairment of the interests of the obligee may be dismissed if the claims are connected. Thus, according to this solution, liquidity is not an essential requirement, but the contrary applies to the right of the obligor not to be damaged because of the absence of liquidity. A less developed solution is found in Article 8.1 (2) UP, which simply assesses the requirement of existence and liquidity except from connected claims.

2. Rights eligible for set-off in the OHADAC Principles

In the OHADAC Principles, it has been considered that not only monetary claims but also claims on exchangeable goods of the same species and quality are eligible for set-off if the parties have agreed to this. The existing limitation in independent and transactional set-off is not an obstacle to this solution, which is regulated by contractual set-off.

However, given that the OHADAC Principles are meant to be applied in cross-border transactions, it is preferable to include a specific rule about set-offs of obligations in foreign currency. Aside from the fact that this is allowed each time the parties do not agree on a given currency for the contract performance and providing that both currencies are convertible, the rules in paragraph 3 of Article 6.1.8 of these Principles will be applied to conversion as far as possible. Consequently, the exchange rate will be usually the one established when notice of the declaration was given at the place where the payment of the set-off must be made.

The lack of liquidity of the counterclaim represents an important obstacle as it makes impossible to assess whether the extinction of the principal claim will be (or has been) total or partial. On one hand, it does not seem very reasonable that the obligor cannot plead the set-off if its counterclaim is non-liquidated, because it prevents it from performing the obligation and consequently it opens it up to any remedies for delay or non-performance from the owner of the principal claim. However, on the other hand, the determination of the amount of the counterclaim during the proceedings may considerably extend its duration and the obligor could use this to delay performance fraudulently, at least with regards to the difference in value between claim and counterclaim. In the context of the OHADAC Principles, it is reasonable to find a solution that does not require the use of the respective domestic procedure laws. It has been considered that granting a certain level of discretionary powers to the court, as in Article 13:102 PECL and III-6:103 DCFR, could be a relevant solution.

Commentary

Article 6.2.3

Obligations payable in different locations

If set-off refers to obligations to be payable in different locations, compensation must be paid for damage derived from the performance not being rendered at the designated place.

1. Obligations payable in the various domestic legal systems of the OHADAC area

Most civil codes in the OHADAC area contain a rule on set-off in the event that the obligations have to be performed in different locations. It originates in Article 1.296 of the French Civil Code, according to which, in this case, set-off may only be raised by making good the costs of delivery. The same wording can be found in Article 1.296 of the Dominican Civil Code, 1.081 of the Haitian Civil Code and 1.123 of the St. Lucian Civil Code and in Articles 1.723 of the Colombian Civil Code and 2.156 of the Nicaraguan Civil Code, although the two last countries allow only set-off with monetary claims. Articles 1.477 of the Honduran Civil Code, 2.204 of the Mexican Civil Code, 1.085 of the Panamanian Civil Code, 1.153 Porto Rican Civil Code and 1.338 of the Venezuelan Civil Code add that delivery or exchange costs at the place of payment must be compensated. In this context, exchange costs are costs arisen because of the transfer of money from one place to another or for commission fees. However, Article 1.476 of the Guatemalan Civil Code does not refer to exchange costs. Article 6:138 of the Dutch and Suriname Civil Code contains a similar rule according to which when the place of performance of the obligations is not the same, the party who makes the set-off has to pay compensation for damage that the opposite party suffers from the fact that parties did not actually perform their obligations at the relevant places of performance. Furthermore, in this case the obligee may oppose set-off. In the common law legal systems this question has not been subject to regulation.

2. Obligations to be performed in different places in the OHADAC Principles

The inclusion of this question in the OHADAC Principles is most advisable if we recall that the Principles are intended for the use in cross-border transactions and therefore there will be numerous cases in which the parties will be interested in a set-off even if the goods or the money are placed in different places of performance by the time the respective claims are payable. The wording that has been adopted is the one in paragraph 1 of Article 6:138 of the Dutch and Suriname Civil Code. However, the extension of a possible opposition to set-off to the whole OHADAC area has been considered too difficult.

Commentary

Article 6.2.4

Multiple obligations

In case of multiple obligations, the obligor must designate the right or claim against to which set-off is declared. Failing that, rules on imputation of payments in Article 6.1.9 of these Principles shall be applied.

1. Set-off in case of multiple obligations in the legal systems of the OHADAC area

If an obligee owns multiple claims and a set-off is possible against all of them, it must be determined which claim or claims are going to be object of set-off. In the legal systems in which set-off requires a declaration, it is possible that the obligor resorts to his contractual autonomy and determines which obligee's claim or claims against it meet the requirements for set-off it wants to fulfil totally or partially with its counterclaim. This is provided in Article 2.196 of the Mexican Civil Code. In some legal systems (Article 6:137 of the Dutch and Suriname Civil Code) the owner of the principal claim can oppose to the determination made by the owner of the counterclaim. The reason for allowing this possibility is the understanding that the imputation of performance cannot depend on which party declared set-off first. If there is no declaration, the rules on imputation of performance are applied. The resort to party autonomy is not specified in those legal systems in which set-off operates automatically. Consequently, in these legal systems, this question is resolved by exclusively applying the norms on imputation of performance (Article 1.722 Colombian Civil Code; Article 810 of the Costa Rican Civil Code; Article 1.927 of the French and Dominican Civil Code; Article 1.477.1º of the Guatemalan Civil Code; Article 1082 of the Haitian Civil Code; Article 1.479 of the Honduran Civil Code; Article 2.155 of the Nicaraguan Civil Code; Article 1.087 of the Panamanian Civil Code; Article 1.155 of the Porto Rican Civil Code; Article 1.125 of the St. Lucian Civil Code; Article 1.339 of the Venezuelan Civil Code).

The PECL and the DCFR also provide for the application of the rules on imputation of performance with “appropriate adaptations” [Articles 13:105 (2) PECL and III-6:106 (2) DCFR] when the party giving notice of set-off has to perform two or more obligations towards the other party. If the party giving notice of set-off has two or more rights against the other party, the notice of set-off must identify the right to which it relates. Article 8.4 (2) UP sets these solutions partially aside and establishes that in the absence of a specification of the obligations to which the declaration refers, the other party may, within a reasonable time, declare the obligations to which set-off relates. If such a declaration is not made, set-off is related to all the obligations proportionally.

2. Set-off in case of multiple obligations and obligations in the OHADAC Principles

Given that it has been provided, in the OHADAC Principles, that set-off will operate only by declaration, it is convenient to assign primacy to freedom of choice on this issue. If there parties have not agreed on a declaration or if the obligation concerned by the set-off cannot be determined from the declaration, the rules on imputation of performance in Article 6.1.9 of these Principles will apply.

Commentary

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