The Contracts (General Part) Law, 1973 permits the set-off of mutual obligations (debts) under certain circumstances.
Section 53 of the Law establishes the general rules governing the right of set-off, while Section 61 provides that the provisions of the Contracts Law apply unless another statute contains specific provisions governing the matter.
Accordingly, the right of set-off is not limited to contractual obligations. It may also apply to obligations arising from different legal sources.
For example, if you owe another person ILS 10,000 under a loan agreement, while that person owes you ILS 20,000pursuant to a court judgment in a tort claim, those reciprocal obligations may generally be set off against one another.
Set-Off of Obligations Arising from the Same Transaction
Where the reciprocal obligations arise from the same transaction, and the time for performance has arrived, set-off may be effected simply by one party giving notice to the other.
Set-Off of Obligations Arising from Different Transactions
Where the obligations arise from different transactions, set-off is permitted only if all of the following cumulative conditions are satisfied:
the debt has become due and payable;
notice of the set-off has been given to the other party; and
the obligations are for liquidated amounts.
A claim will not be regarded as liquidated where determining the amount requires complex calculations, extensive assessments, detailed factual inquiries, or the resolution of disputed legal interpretations.
