Also known as:right of set-off · set-off rights · setoff rights · set-off · setoff · right to set off
Written by attorneys · grounded in primary & secondary sources — see below
A legal right permitting one party to deduct amounts owed to it from amounts it owes another party, thereby netting mutual obligations without separate payment.
Sources & Authorities· 14 primary sources
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Statutes
Uniform Acts
How it applies
Common Examples
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Diversity Recovery Below Threshold
Roberto Reyes sued Raven Logistics in federal court claiming $90,000 in damages from a contract dispute. Raven asserted a valid $25,000 setoff for prior unpaid services. The jury awarded Reyes only $55,000 after applying the setoff. The court denied costs to Reyes and imposed costs on him because the net recovery fell below the jurisdictional amount.
Bankruptcy Setoff Availability
In re Communication Dynamics, Inc. involved a distribution agreement rejected in bankruptcy. ICX owed CDI on promissory notes but claimed damages from the rejection. The court permitted ICX to exercise setoff rights against the notes because the agreement expressly reserved remedies including setoff for breach.
Put it into practice
Test Yourself
10
Practice Questions5
Restatements
Course Outlines
In re Communication Dynamics, Inc.382 B.R. 219 (Bankr. D. Del. 2003)
Common questions
Frequently Asked
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How does a right of set-off affect the amount-in-controversy calculation in federal diversity cases?+
The amount is computed without regard to any setoff or counterclaim. A plaintiff who recovers less than $75,000 after setoff may lose costs or face imposed costs under the statute.
Supporting sources
Are rights of set-off covered by Article 9 of the UCC?+
No. Rights of recoupment or set-off are excluded from Article 9 with limited exceptions for deposit accounts under section 9-340.
Supporting sources
When may a partnership offset a former partner's debt against a distribution?+
Once an interim distribution is declared, the partner or transferee is treated as a creditor, but the partnership may offset amounts the partner owes the firm before payment.
Supporting sources
Civil ProcedureMotions · Pretrial motions, including motions addressed to face of pleadings, motions to dismiss, and summary judgment motionsUBEIntermediate