Set-off in Lithuania

Modification and termination of contractual obligations

Set-off is a unilateral declaration (legal act) by one party that changes the contractual relationship between a creditor and a debtor, provided there are mutual, homogeneous, and eligible claims between them. An obligation terminates when a counterclaim of the same kind, whose due date has passed or whose due date is unspecified or determined by the moment of demand, is set off. Through set-off, one claim is applied against the opposing party’s claim, thereby reducing the amount owed by one party and extinguishing the obligation of the other.

The main purpose and effect of set-off is the termination of an obligation. Once one party’s claim is set off against the other’s, one of the obligations ceases to exist.

For a set-off to be possible, the following conditions must be met:

1. The creditor’s and debtor’s claims must be mutual – both parties must have reciprocal rights and obligations, meaning the debtor must also be the creditor of their creditor, and the creditor must also be the debtor of their debtor.
2. The counterclaims must be of the same kind (the subject matter of both obligations must be identical).
3. For each claim subject to set-off, the due date must have passed, be unspecified, or be determined by the moment of demand. In addition, the claims must be valid and enforceable.
4. The set-off must be unconditional (it cannot depend on certain conditions) and without a time limit (no deadlines may be set for the set-off).

Set-off is carried out based on a unilateral declaration, so the will of one party is sufficient. The declaration of set-off and the notification can be made by a unilateral act or document. This means that the other party to the obligation has no right to decide whether they agree to the set-off. If the creditor holds a debt document issued by the debtor, the set-off is made by entering a note in the debt document and returning it to the debtor. If the set-off does not cover the full claim or the debt document is required by the creditor to exercise other rights, the creditor may retain the debt document with a note about the set-off but must notify the debtor in writing.

Set-off is prohibited for:

1. Claims disputed in court;
2. Claims arising from a contract for the transfer of property with a lifetime maintenance condition;
3. Claims whose performance is linked to the personality of a specific creditor;
4. Claims for damages due to injury to health or loss of life;
5. Claims against the state, although the state has the right to apply set-off;
6. When the subject of the obligation is property that cannot be seized;
7. Other claims specified by law.

The debtor has no right to set-off if they are obliged to compensate for damage caused by intentional acts.