“Setoff” and “Offset”

Today I encountered in a contract the following use of offset:

Unless it has notified Company otherwise, the Vendor shall offset the Search Fees payable by the Company under this Agreement against the Vendor’s payment obligations to Company under this agreement.

To asses the merit of this use of offset, first let’s consider a different word, setoff. Here’s part of the entry for setoff in Garner’s Dictionary of Legal Usage:

setoff, n., = (1) a counterdemand, generally of a liquidated debt growing out of an independent transaction for which a lawsuit might be maintained; or (2) the general right of a debtor to reduce the amount of a debt by any sum that the creditor owes the debtor. …

As a verb, the term is written as two words—e.g.: “on the other hand, a subsequent agreement between the parties to set-off [read set off] a claim of the buyer in satisfaction of part of the purchase price may satisfy the statute.”

So, how does that compare to offset? As regards its use as a noun, GDLU says that offset is equivalent to setoff and is commonplace, and it offers some examples.

As regards use of offset as a verb, it says that it “might be considered inferior to set off, although it cannot rightly be condemned as an error.” But consider the two examples offered in GDLU. Here’s one of them:

“The division of property was, or will be, approximately equal and the two amounts would offset each other.” Welsh v. Welsh, 869 S.W.2d 802 (Mo. Ct. App. 1994).

But in both this example and the second example, offset is used as a stative verb. By contrast, in the example that prompted this post, offset is used as a dynamic verb. Here’s what the useful University of Victoria page on dynamic and stative verbs (here) has to say:

Verbs in English can be classified into two categories: stative verbs and dynamic verbs. Dynamic verbs (sometimes referred to as “action verbs”) usually describe actions we can take, or things that happen; stative verbs usually refer to a state or condition which is not changing or likely to change.

A couple of examples:

  • Dynamic: She play tennis every Friday.
  • Stative: I hate chocolate.

The Wikipedia page on the subject (here) notes that “The same verb may act as stative or dynamic. An English phrase like ‘he plays the piano” may be either stative or dynamic, according to context.'” Well, offset is that kind of verb.

Why does this matter to us? Use of offset as a stative verb in legal contexts matches its colloquial use, as in My curiosity was offset by my shyness. By contrast, use of offset as a dynamic verb is unorthodox. Because the alternative, set off, is well established, that’s what you should use instead. That being the case, it make sense, for the sake of consistency, to stick with the noun form, setoff, too.

Booyah!

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.