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Common Law Set Off Essay

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2.1 Introduction In the previous chapter, I discussed the title, purpose and research methodology of this dissertation. The central point of the dissertation surrounds the question whether common law set-off as it relates to credit agreements governed by the NCA, have been superseded by section 90(2)(n) read with section 124B of the NCA. However, before this analysis is undertaken, it is essential to obtain a firm grasp of the general requirements for set-off. In this chapter, I will investigate the general principle, requirements as well as the operation of set-off in South African law. I will further examine whether set-off operates automatically, - ipso iure (operation of law) – or must set-off specifically be raised and pleaded by the …show more content…

It allows the termination of obligations without an exchange of performance. Common law set-off (compensatio) involves the discharge of mutual debts between two persons. This occurs by means of the one debt being set-off against the other. The result may be that both debts are completely discharged or, where one debt is larger than the other, the larger debt is reduced by the amount of the smaller debt. Set-off avoids the need for each party to perform its obligation separately. The principal function of set-off is to circumvent circuity of performances; it is unnecessary for one party to pay the other only to have the same performance returned. It is for this very reason that set-off is commonly used by banks as it is a quick and effective collection …show more content…

The relationship between the bank and its customer, specifically the holder of a current account, must be explained in terms of the general principles of the law of obligations and in particular, the law of contract. However it is difficult to identify the exact type of contract as it does not specifically fit into one category recognised in Roman and Roman- Dutch law. The main differentiating factor of the bank-customer relationship is that it is one of mandate. For the present purposes, we can accept the view that the bank-customer relationship is a multi-faceted relationship. It customarily involves various types of contract, such as, mandate, loan for use, depositum and deposit-taking. The parties to the bank-customer relationship may, depending on the circumstances, fulfil the role of either debtor or creditor. The bank becomes the owner of money that is deposited or paid into the customer’s account. The customer retains a claim or personal right against the bank. This is known as commixtio, whereby the consumer loses ownership of money deposited into the bank because that deposit mixes with other money of different customers. The bank is therefore the customer's debtor in respect of those funds. The concept of commixtio is what gives effect to the bank’s right to set-off

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