Setoff Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Setoff, written in plain English, along with examples of how it is used.

What is Setoff?

History and Meaning of Setoff

Setoff is a legal term that has been used for centuries to adjust the amount of money that one party owes to another in a legal dispute. This is typically done by subtracting the amount of money that one party owes from the amount of money that the other party owes, resulting in a net balance. In some cases, a setoff can occur even if the debts are not related, as long as both parties agree to the setoff.

Examples of Setoff

1. John owes Sarah $1,000 for a loan she gave him, but Sarah also owes John $500 for some work he did for her. In this scenario, Sarah could use setoff to reduce the amount that John owes her to $500 (the remaining amount that he owes after subtracting the $500 she owes him).

2. Jane is involved in a lawsuit where she owes $10,000 in damages to the plaintiff, but the plaintiff also owes Jane $5,000 for work she did. In this case, Jane could use setoff to reduce the amount of damages she owes to $5,000, since that is the net amount that she owes the plaintiff after subtracting the $5,000 that the plaintiff owes her.

3. A company owes a vendor $20,000 for supplies, but the vendor also owes the company $10,000 for services rendered. The company could use setoff to reduce the amount it owes the vendor to $10,000 (the remaining amount after subtracting the $10,000 that the vendor owes the company).

Legal Terms Similar to Setoff

1. Counterclaim - a legal claim made by the defendant against the plaintiff.

2. Cross-claim - a legal claim made by one defendant against another defendant in a lawsuit.

3. Recoupment - a legal claim made by a defendant to reduce the amount of damages owed to the plaintiff by the amount of damages that the defendant has suffered as a result of the same incident.