Also known as: right of setoff · setoff rights · rights to setoff · set-off rights · right of offset · setoff
Written by attorneys · grounded in primary & secondary sources — see below
A right allowing one party to deduct an amount owed by the other from a sum the first party owes, thereby satisfying both obligations to the extent of the smaller debt. The right arises when mutual debts exist between the same parties in the same right and capacity. It prevents the inefficiency of requiring each party to pay the full amount owed before collecting what is due in return.
Ricardo Rojas sued Raven Logistics in federal court claiming $90,000 in damages from a contract dispute. At trial the jury awarded him only $60,000. Because the statute requires the amount recovered to be calculated without regard to any setoff or counterclaim, the court treated the $60,000 figure as the recovery for purposes of deciding whether to shift costs.
Rising Sun Electronics filed a federal action under a commerce statute seeking $25,000. After trial the court entered judgment for only $7,000. The statute directs that the recovery amount be determined without regard to any setoff, so the court evaluated the cost-shifting question on the basis of the $7,000 figure alone.
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The statute requires that the plaintiff's recovery be computed without regard to any setoff or counterclaim. A court therefore determines whether the plaintiff met the $75,000 threshold by looking only at the amount the plaintiff is entitled to recover, ignoring any offsetting claims the defendant may have.
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No. The UCC expressly preserves a collecting bank's rights of setoff even while the bank holds the item as agent for the owner. The owner's rights to proceeds remain subject to the bank's setoff rights arising from advances or other obligations.
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A partnership may offset amounts a dissociated partner owes it against a distribution once the partner becomes entitled to receive the distribution. The offset applies because the partner acquires creditor status subject to the partnership's existing rights to collect debts from that partner.
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No. Noncompliance with disposition rules does not by itself extinguish the underlying debt. The guarantor remains liable for any deficiency, although the guarantor may obtain an offset, damages, or a reduction in the deficiency amount depending on the jurisdiction's approach.
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