Set-off as a mode of extinction of obligations

Abstract

Set-off is a method of extinction of obligations having its own characteristic features making it different and independent from the other methods of extinction of obligations. It is precisely the aim of this thesis to give a thorough examination of this institute, its different forms and their particular features. Chapter 1 : The purpose of this chapter is to introduce the subject and to embark on a historical journey in order to highlight the development of the institute itself and the legal measures regulating the institute of compensation throughout the years, that is, from the classical Roman times to Justinian and throughout the Middle Ages up to codification. A fairly detailed examination of compensation under Roman law is carried out particularly with a view to facilitate the appreciation of such institute as it stands under Maltese law. The chapter also examines the different types of compensation and compares this method of extinction of obligations with the other methods of extinction of obligations. Chapter 2 : Legal compensation is the only form of compensation which is regulated by the Civil Code, hence its importance and the dedication of two chapters to it. Legal set-off is deemed to be the real and proper compensation, taking place by operation of the law, independently of the will of the parties. Since this type of compensation takes place ipso iuro, the exact moment when it occurs must be determined, and there have been controversies as to when exactly the extinction of the obligations takes place. The chapter examines those cases where legal compensation cannot take place because of reasons of equity and justice, and also examines the cases where a renunciation to legal compensation is made. Chapter 3 : In order for legal compensation to take place, the law specifies certain conditions which must be satisfied. These are (a) the co-existence of two debts, (b) reciprocity, (c) homogeneity, (d) liquidity and (e) exigibility. These requisites are examined in detail one by one. Chapter 4 : This chapter deals with voluntary compensation which encompasses facultative and conventional compensation. Facultative compensation takes place when one of the parties renounces to the benefit of availing himself of an obstacle to legal compensation. Conventional compensation, on the other hand, takes place as a result of an agreement between the parties. The most important examples when conventional compensation takes place are also examined. Chapter 5 : This chapter deals with judicial compensation which emerges from the Code of Organisation and Civil Procedure. This type of set-off may take two forms: either a demand for reconvention or a connection of actions. The requisites, applications and effects of judicial set-off are explored as well as the differences between this type of compensation and the other types. Finally, since the only form of set-off that exists in England is judicial set-off, a brief examination of English law is made. Chapter 6 : In this concluding chapter, the notion of compensation and insolvency is examined. Prior to the enactment of the Set-Off and Netting on Insolvency Act all forms of compensation were blocked in situations of insolvency, except for legal set-off. This law has made set-off and netting possible in cases of bankruptcy and has made Malta a pro-creditor jurisdiction. The different types of netting, the parties effected and the benefits of netting are all examined.