What is a claim in recoupment?

A claim in recoupment is similar to a personal defense. It allows a payor to offset any claim that she has against the claimant or the original issuee.

Note: A claim in recoupment applies against a holder, but not a holder in due course.

Example: The payee on an instrument owes a debt to the named payor. If a subsequent holder presents the instrument for payment, the payor may offset that claim against payment to the holder. If, however, the payee is a holder in due course, the payor cannot offset that claim.