Answer:
The right of offset or right of set-off is governed by state law and/or court cases. For example, in the state I'm in, Oklahoma, it is set forth in a statute called the Banker's General Lienstatute, which says that "A banker has a general lien, dependent on possession, upon all property in his hands belonging to a customer, for the balance due to him from such customer in thecourse of the business."
Typically, applicable laws will provide that you cannot exercise a right of set-off against a "special" deposit. So, for example, if you know that the funds are being held by the individualwho is indebted to you as agent for someone else, your state law probably would not allow to use the set-off right. Also, most, if not all, states have statutes that exempt certain types ofproperty from attachment and execution, so those statutes might prevent you from being able to set-off against certain types of deposits, too. Examples would be social security payments andIRA accounts.
The bottom line is that you need to check your state law for guidance in this area.
First published on BankersOnline.com 2/5/01
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