Recoupment, generally, means the recovery or collection of money that was previously unduly paid out. More specifically, it can mean a defendant’s affirmative defense to reduce a plaintiff’s claim by an amount the defendant argues that the plaintiff owes the defendant arising from the same transaction. Also referred to as equitable recoupment or, in civil law jurisdictions, reconvention. Unlike a setoff, recoupment is not an independent claim but rather an equitable remedy, which means it is intended to achieve fairness in the context of the specific transaction. This principle is commonly applied in contract disputes and insurance claims.
The purpose of recoupment is to allow the court to consider the transaction in its entire context to ensure a just result. By examining the whole transaction, the court can address the equities between the parties more accurately. To this end, the Missouri Court of Appeals in RPM Plumbing Mechanical v. Plunkett points out that the principle that recoupment is a “purely defensive matter going only to the reduction or satisfaction of the plaintiff’s claim.”
For example, in F.D.I.C. v. Kooyomjia, a First Circuit case, the defendant raised a recoupment defense for an action to enforce a promissory note and foreclose on a mortgage, arguing that the initial contracts were breached and that the plaintiff fraudulently induced the defendant into signing them. The Court emphasized that a recoupment defense must arise from the same transaction as the plaintiff’s original claim.
[Last updated in May of 2024 by the Wex Definitions Team]