When can you set off a debt?

In terms of the common law of set off, there are four basic requirements which need to be met, before debts can be set-off against each other.

Firstly, there must be reciprocal debts between the same parties in the same capacities. This is better known as the ‘mutuality requirement’. Secondly, the debts must be of the same nature. Thirdly, both debts must be due, owing and payable and therefore enforceable and lastly, both debts must be liquidated. The notion of a liquidated debt means that the debt must be easily ascertainable, quantifiable and proven.

Notwithstanding the above, in some instances, certain contracts are subject to an automatic set-off in respect of an implied right of common law set-off with no requirement for express or written consent and notice required. However, in order to deal with this seemingly inequitable circumstance, Section 90(2)(n) of the National Credit Act 34 of 2005 (NCA) comes into play and this section renders a credit agreement unlawful which permits the credit provider to satisfy an obligation of a consumer by ‘setting-off’ the amount against a deposit made by the consumer, unless the credit provider complies section 124 of the NCA.

Section 124 of the NCA required a creditor to obtain the consumer’s authorisation in regard to inter alia the account from which funds can be drawn, the debt outstanding, the quantum of the money to be set-off and the date of transfer. Further in this regard, the credit provider must notify the consumer of its intention to set-off before doing so.

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