Legal Definitions - record notice

Recoupment refers to a legal principle that allows a defendant to reduce or eliminate a plaintiff's claim for damages. This reduction is permitted when the defendant's reason for the reduction arises from the same transaction or event that forms the basis of the plaintiff's original lawsuit.

Essentially, if a plaintiff sues for money, and the defendant believes the plaintiff also owes them something or failed in their duties within the exact same agreement or situation, the defendant can use recoupment to argue that the amount they owe should be lessened or canceled out entirely.

• Example 1: Construction Contract Dispute

  A homeowner hires a contractor to build an extension. After the work is completed, the contractor sues the homeowner for the final payment of $50,000. The homeowner, however, discovers significant defects in the plumbing and electrical work that will cost $15,000 to repair. Instead of filing a separate lawsuit against the contractor, the homeowner can use recoupment in the contractor's lawsuit. They would argue that the $50,000 owed should be reduced by $15,000 due to the contractor's failure to perform the work properly under the same construction contract. This reduces the contractor's claim to $35,000.

• Example 2: Service Agreement for Software Development

  A small business hires a software development firm to create a custom application. The firm completes the project and sends an invoice for $20,000. The business, however, finds that the software has critical bugs that prevent it from functioning as agreed, requiring them to hire another developer for $7,000 to fix the issues. When the software firm sues for the unpaid $20,000, the business can assert recoupment. They would argue that the firm's claim should be reduced by $7,000 because the firm failed to deliver a fully functional product as promised in the original service agreement, thereby reducing the amount owed to $13,000.