Recoupment, generally, means the recovery or collection of money that was previously unduly paid out. More specifically, it can mean a defendant’s affirmative defense to reduce a plaintiff's claim by an amount the defendant argues that the plaintiff owes the defendant arising from the same transaction. Also referred to as equitable recoupment or, in civil law jurisdictions, reconvention. Recoupment differs from a setoff in that it is not an independent claim, but is an equitable remedy.
The purpose of recoupment is to allow the court to consider the transaction in its entire context to ensure a just result. To this end, the Missouri Court of Appeals in RPM Plumbing Mechanical v. Plunkett points out that the principle that recoupment is a “purely defensive matter going only to the reduction or satisfaction of the plaintiff’s claim.” For example, in F.D.I.C. v. Kooyomjia, a First Circuit case, the defendant raised a recoupment defense for an action to enforce a promissory note and foreclose on a mortgage, arguing that the initial contracts were breached and that the plaintiff fraudulently induced plaintiff into signing them. The court emphasized that a recoupment defense must arise from the same transaction as the plaintiff’s original claim and denied plaintiff’s arguments that the contracts were unrelated because of an exception for certain foreclosed loans.