On consolidated appeal from the Atlantic County District Court, whose opinion is reported at 159 N.J. Super. 507 (1978), and the Essex County District Court.
This is a consolidated appeal of judgments against defendant debtors. Plaintiff creditors brought suit for monies due on promissory notes. Both defendants by way of setoff or recoupment counterclaimed for damages under the Federal Consumer Protection Act, 15 U.S.C. § 1601 et seq. (Act). The trial courts disallowed both claims because such defense was barred by the one-year limitation found in 15 U.S.C. § 1640(e). The reasons for disallowing the claims differ, however.
In Beneficial Finance Co. of Atlantic City v. Swaggerty , 159 N.J. Super. 507 (Cty. D.Ct.1978), the trial court decided that whether defendant could assert a claim under the act as a defense turned on the distinction between setoff and recoupment. Recoupment could be stated as a defense regardless of the limitation while a setoff was subject to the limitation. Id. at 511. Defendant's claim was actually a setoff as it "did not arise out of the mutual obligations or covenants of the loan transaction upon which the suit was founded." Id. at 512, 388 A.2d at 649, citing Hodges v. Community Loan Investment Corp. , 133 Ga.App. 336, 210 S.E. 2d 826, 832 (App.Ct.1974).
In Consumers Financial Services v. Taylor , No. R-06785-76 (Cty. D.Ct. Feb. 3, 1978), the trial court conceded that defendant's right asserted in his counterclaim did arise from the same transaction as plaintiff's principal claim. It distinguished, however, "true statutes of limitation and statutes which create a right and limit the time within which an action may be brought to enforce the right."
Since the right asserted by defendant was not cognizable at common law but created by statute, "[t]he limitation of time * * * enters into and becomes a part of the right of action itself and is a limitation not only on the remedy but of the right also." Id. at 2.
We affirm the decisions of the trial courts and write only to resolve an apparent conflict in reasoning to their results.
It should be noted at the outset that neither defendants' claims should be considered as recoupments. Both claims allege plaintiffs' statutory liability for damages under the act independent of the terms of the actual agreements. In this regard, their counterclaims for damages do not arise out of the same transaction:
Recoupment differs from set off mainly in that the claim must grow out of the identical transaction that furnishes the plaintiff's cause of action and, being in the nature of a claim of right to reduce the amount demanded, can be had only to an extent sufficient to satisfy the plaintiff's claim. In other words, recoupment goes to the justice of the plaintiff's claim, and no affirmative judgment can be had thereon, while set off is not necessarily confined to the justice of such particular claim, and an affirmative judgment may be had for any amount to which the defendant established his right over and above the amount to which the plaintiff has proved he is entitled. [ Gibbins v. Kosuga , 121 N.J. Super. 252, 257 (Law Div.1972), quoting Grand Rapids v. McCurdy , 136 F.2d 615 (6 Cir. 1943); emphasis supplied]
In Spartan Grain & Mill Co. v. Ayers , 581 F.2d 419 (5 Cir. 1978), plaintiff feed supplier sued defendant chicken producer for unpaid balances of its feed bill. Defendant counterclaimed for damages under the act because plaintiff failed to disclose interest rates on credit purchases. The District Court found this claim to be time-barred. Id. at 430. The Court of Appeals affirmed this decision. It conceded that equitable recoupments were not subject to a statute of limitations. Although defendant's claim arises from the contract transaction, the Truth-in-Lending Act involves entirely separate questions of law and fact from those dealing with the producer's liability of their accounts. Ibid. See also, Jacklitch v. Redstone Federal Credit Union , 463 F. Supp. 1134, 1136 n. 1 (N.D.Ala.1979).
Therefore, even under the theory that recoupments are permissible counterclaims notwithstanding the running of the statutory limitation on actions, defendants' claims must fail. But cf. Plant v. Blazer Financial Services, Inc. of Georgia , 598 F.2d 1357 (5 Cir. 1979) (nonfederal ...