Legal Definitions - equitable right to setoff

The equitable right to setoff is a legal term that refers to the right of a bank to cancel cross-demands. This is usually done by taking the amount owed by a customer from their deposit accounts. For example, if a customer owes the bank $100 and has $50 in their account, the bank can use the equitable right to setoff to take the $50 and apply it towards the customer's debt.

One example of the equitable right to setoff is when a customer has a loan with a bank and also has a deposit account with the same bank. If the loan becomes due and the customer has not paid it, the bank can use the funds in the deposit account to pay off the loan.

Another example is when a customer has multiple accounts with a bank, such as a checking account and a savings account. If the customer owes the bank money and has funds in both accounts, the bank can use the equitable right to setoff to take the funds from one account to pay off the debt in the other account.