Settlement of Debt by Set-Off — practice questions

Correct answer: C. Clause 2: A set-off is to extinguish a debt receivable by a debt payable. It is divided into two main forms, mandatory set-off and contractual set-off. Clause 2/1 divides mandatory set-off into compulsory set-off (on both parties) and set-off on demand (of the creditor of the superior debt). ‘Judicial’ set-off is not a category in the Standard, and the restricted/unrestricted division belongs to Hawalah (Standard (7)), while waiver of obligation and composition are outside the scope under Clause 1.

Correct answer: B. Clause 4/2 states that a set-off may take place between a financial Institution accepting a cheque and the drawer of the cheque through the clearing house, and Clause 4/3 states that set-off may be concluded among Institutions through national or international networks such as card organisations. In both cases the set-off may be compulsory or contractual depending on whether the state giving rise to it meets the conditions of compulsory set-off (Clause 2/1/2) or contractual set-off (Clause 2/2/2).

Correct answer: D. Clause 2/1/2(b): Both debts should be equal in kind, type, description and maturity; if the debts are not equal in amount, set-off takes place for an equivalent amount on both sides and the party owed the larger debt remains a creditor for the balance. Mutual consent characterises contractual set-off (Clause 2/2/2), and the relinquishment of a superior right characterises set-off on demand (Clause 2/1/4(b)).