Offsetting

Definition and legal basis:

Offsetting is a legal institution under the law of obligations by which two mutual claims are extinguished insofar as they coincide. It is regulated in Sections 387-396 of the German Civil Code (BGB). Offsetting makes it possible to offset claims and counterclaims without an actual exchange of services, which is a simplified form of fulfillment.

Prerequisites for offsetting:

The following requirements must be met for offsetting to be effective:

1. reciprocity (Section 387 BGB):
The claims must exist between the same persons.

2. similarity (Section 387 BGB):
The claims must be similar, typically monetary claims.

3. due date of the principal claim (Section 387 BGB):
The claim against which the set-off is made must be due.

4. satisfiability of the counterclaim (Section 387 BGB):
The claim set off must be satisfiable.

5. declaration of set-off (§ 388 BGB):
The set-off must be made by declaration to the other party.

Types of offsetting:

There are various forms of offsetting:

1. statutory set-off (Sections 387 et seq. BGB):
The standard form of set-off regulated in the BGB.

2. contractual offsetting:
The statutory requirements can be modified by agreement.

3. procedural offsetting:
Offsetting in the context of court proceedings.

4. offsetting under insolvency law (sections 94 et seq. InsO):
Special regulations for offsetting in insolvency.

Effect of offsetting:

Offsetting has the following consequences:

1. extinguishment of claims (Section 389 BGB):
The claims are extinguished in the amount covered.

2. retroactive effect (Section 389 BGB):
The effect occurs at the time at which the claims were set off against each other.

3. interest and costs (Section 396 BGB):
Special regulations for the offsetting of interest and costs.

Exclusion of offsetting:

Offsetting is excluded in certain cases:

1. contractual exclusion (section 391 BGB)
2. set-off against non-garnishable claims (section 394 BGB)
3. set-off against claims arising from intentional tort (section 393 BGB)
4. special statutory prohibitions on set-off (e.g. section 309 no. 3 BGB for general terms and conditions)

Practical significance and areas of application:

Offsetting plays an important role in various areas:

1. business relationships:
Offsetting of mutual receivables between business partners.

2. labor law:
Offsetting wage claims against counterclaims of the employer.

3. tenancy law:
Offsetting rent reductions against rent payment claims.

4. insolvency law:
Special significance of offsetting as a means of security in insolvency.

5. procedural law:
Offsetting as a means of defense in civil proceedings.

Design options and strategic considerations:

Offsetting offers various options:

1. set-off agreements:
Contractual modification of the set-off requirements.

2. set-off reservations:
Securing the set-off option for future claims.

3. waiver of set-off:
Contractual waiver of the possibility of set-off.

4. strategic use:
Use of offsetting as a means of pressure or to secure liquidity.

Differentiation from other legal institutions:

Offsetting must be distinguished from related concepts:

1. right of retention:
Only permits the refusal of performance, does not lead to the expiry of the claims.

2. offsetting:
Accounting transaction without legal effect.

3. balancing:
Summary of several items to a total amount.

Current developments and case law:

The case law on offsetting is constantly evolving:

1. digitalization:
New issues in the context of electronic payment systems and automated billing.

2. international aspects:
Treatment of set-off in cross-border legal relationships.

3. consumer protection:
Trend towards greater protection for consumers in the event of offsetting.

4. insolvency law:
Further development of case law on offsetting in insolvency.

Summary and outlook:

Offsetting is an important and flexible instrument of the law of obligations that enables the efficient settlement of mutual claims. Its correct application requires precise knowledge of the legal requirements and possible exclusions. In an increasingly interconnected business world, the strategic use of offsetting, particularly in complex business relationships and international transactions, is becoming increasingly important. At the same time, issues of fairness and creditor protection remain relevant, particularly in crisis situations or where there is an imbalance of power between the parties. Future developments will probably be aimed at further differentiating and adapting the offsetting rules to new economic realities and technological possibilities.