Setoff, Offset, and Recoupment in Utah: Turning a Time-Barred Claim into a Shield

A plaintiff waits. The statute of limitations runs on what the plaintiff owes the defendant, and then the plaintiff sues on its own claim, expecting the defendant’s side of the ledger to be off the table.

Utah law does not reward that strategy. A defendant can often use a claim that would be time-barred as a lawsuit of its own to reduce, or wipe out, what the plaintiff recovers. That is the work setoff and recoupment do. They are among the most frequently overlooked defenses in commercial litigation, and among the most valuable.

1. The rule: cross demands are deemed compensated

The starting point is Utah Rule of Civil Procedure 13(i). When cross demands have existed between persons under circumstances in which, if one had sued the other, a counterclaim could have been asserted, “the two demands shall be deemed compensated so far as they equal each other.”

The Utah Court of Appeals applied that rule in Collard v. Nagle Construction, Inc. The trial court had found the seller’s breach-of-contract claims accrued years before the suit. Even so, the court held, the seller could use those counterclaims as an offset or recoupment against the buyer’s claims. Under the doctrine, a defendant may use a counterclaim normally barred by the statute of limitations to offset the plaintiff’s claim (Collard, ¶¶ 22–23, citing Coulon v. Coulon).

The policy is fairness in timing. Allowing the offset prevents a plaintiff from waiting to assert its claim until the defendant’s counterclaim is barred (Collard, ¶ 26).

2. Setoff versus recoupment

The two doctrines overlap, and Utah courts have said that the distinctions among recoupment, offset, and counterclaim have been dissolved (Mark VII Financial Consultants Corp. v. Smedley, as quoted in Collard, ¶ 23). The traditional labels still help organize the argument:

In Collard, both worked. Offset was available because the parties’ causes of action coexisted, and recoupment was available because the claims arose from the same contract (¶ 24). When the facts support both, plead both.

3. The coexistence requirement

Offset is not unlimited. The claims must have coexisted: there must have been a period when both were live and enforceable, so that if one party had sued, the other could have asserted its claim in response. The Utah Supreme Court described this as an overlap of live demands in point of time. If one party’s demand was already barred before the other party’s demand came into existence, the barred demand is not available (Salt Lake City v. Telluride Power Co.).

That makes accrual dates the battleground. A defendant asserting an offset should build a timeline showing when each claim accrued and when each limitations period would have run. A plaintiff resisting the offset should look for a gap: a defendant’s claim that expired before the plaintiff’s claim arose.

4. Mutuality: same parties, same capacity

Setoff and recoupment rest on mutuality of obligation. The claims must run between the same parties, in the same capacity. The classic failure is a capacity mismatch: a claim held against someone as a fiduciary, met by a setoff the same person asserts individually, or the reverse (First Security Bank v. Utah Turkey Growers; Robison v. Robison).

Mutuality problems show up most often with guaranties, assigned notes, estates and trusts, and affiliated entities. Before relying on an offset, confirm who holds each claim, in what capacity, and whether an assignment changed the parties after the claims arose.

5. A shield, not a sword

A time-barred claim used as an offset reduces the plaintiff’s recovery. It does not revive the claim. Under Rule 13(i), the demands are compensated “so far as they equal each other,” which means the barred claim can cancel the plaintiff’s claim, up to its amount, but cannot support an affirmative judgment for the defendant on the excess.

Claims that are still timely are different. Those should be pleaded as counterclaims for affirmative relief. The practical approach in most cases is to plead the defendant’s claims as counterclaims, assert setoff and recoupment as defenses, and let the limitations analysis determine whether a given claim seeks affirmative recovery or only reduction.

6. Pleading and proving the offset

The Court of Appeals has held that offset and recoupment are not affirmative defenses that are waived if not pleaded (Collard, ¶ 25). That is a safety net, not a strategy.

7. For plaintiffs: evaluating the offset risk before you sue

A plaintiff should assume the defendant’s old claims are still in play. Before filing, identify every claim the defendant could assert arising from the relationship, when each accrued, and whether it coexisted with yours. If the defendant’s claims expired before yours arose, be ready to prove it. If they coexisted, value the case net of them.