Also known as: rights of set-off · right to set-off · set-off right · right to set off · setoff
Written by attorneys · grounded in primary & secondary sources — see below
An equitable or contractual right allowing one party to deduct an amount owed to it by another from an amount it owes to that other. The right applies to mutual debts and may be exercised by agreement, statute, or operation of law.
Rowan Russell sued Redline Automotive in federal court seeking over $100,000 for breach of a supply contract. After trial the jury awarded only $48,000. Redline held a separate liquidated claim against Russell for $12,000 arising from an earlier transaction. Because the judgment fell below the jurisdictional threshold when computed without regard to setoff, the district court denied costs to Russell and imposed costs on him.
Rocky Mountain Mining maintained a checking account at Union Planters Bank and owed the bank $250,000 on a matured loan. When the bank learned of Rocky Mountain's insolvency it exercised its right of set-off by debiting the account balance of $180,000. The setoff reduced the bank's exposure and left Rocky Mountain with a remaining deficiency of $70,000.
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No. Under 28 U.S.C. § 1332(b) the amount recovered is computed without regard to any setoff or counterclaim. A plaintiff who ultimately recovers less than $75,000 may still face denial or imposition of costs even though a setoff reduced the net judgment.
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A bank may set off a matured debt owed by the customer against funds in the customer's deposit account at that bank. The right is subject to any security interest that has obtained control of the account and to any contractual restrictions.
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No. When a landlord breaches a material lease obligation and the tenant elects to remain, the tenant may apply rent to perform the landlord's promise to the extent reasonably necessary. The tenant need not terminate or vacate to exercise this setoff remedy.
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