A set off is a statutory claim. First, determine which California Code section applies to your situation by researching the applicable Code sections.
The California Court of Appeals explained, "California has multiple statutory setoff provisions, including, and in addition to Government Code section 12419.5 and Code of Civil Procedure section 431.70 which authorizes the setoff of cross-demands for money and Code of Civil Procedure section 666, which requires a setoff where a cross-complainant's recovery exceeds that of the plaintiff." Garg v. People ex rel. State Bd. of Equalization, 53 Cal. App. 4th 199
Place Your Claim For Offset In The Correct Pleading
Your claim for an offset may be placed in either an "Answer" or a "Cross-Complaint" or both. Both are called pleadings. It's equitable but most statutes tell you where it goes.
CCP A?431.70 allows an offset to be pled as an affirmative defense for a cross-demand for money only when it was not pled somewhere else before.
431.70. "Where cross-demands for money have existed between persons at any point in time when neither demand was barred by the statute of limitations, and an action is thereafter commenced by one such person, the other person may assert in the answer the defense of payment in that the two demands are compensated so far as they equal each other, notwithstanding that an independent action asserting the person's claim would at the time of filing the answer be barred by the statute of limitations..."
Make Sure Your Case Is Not Barred By Public Policy Limitations From Using Offset
An offset cannot be used in all cases. For example, if a person filed for bankruptcy protection or if the suit is between two insureds, an offset cannot be used because it is void against public policy.
"In the usual case, an offset has the salutary effects of (1) eliminating a superfluous exchange of money between mutual debtors, and (2) protecting each party from the risk that the other may collect the debt owed to him or her, then default upon his or her own obligation. (Ibid.) However, the benefits of a setoff are sometimes outweighed by the risk of unfairness which may be created by allowing a setoff in specific circumstances. When this is the case, in light of the equitable origin of setoff rights, such rights may be restricted by judicial limitations imposed to uphold independent state policy. In Jess v Herrmann  the mandatory setoff provided in Code of civil Procedure section 666 was found inapplicable and improper between insured parties in comparative fault cases..."
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