Banker's right of set-off meaning

The banker’s right of set-off (often called “combination of accounts”) is the common-law right by which a bank may combine a customer’s accounts in the same name and capacity, setting credit balances against debit balances to arrive at a single net sum owed one way. It is recognised in case law rather than statute and is applied on substantially similar principles in England & Wales, Scotland (as compensation), Northern Ireland and Ireland. Unless excluded by express agreement or by implication from the course of business (for example, where an account is earmarked for a specific purpose), a bank may combine accounts even if they are at different branches of the same bank. Mutuality is essential: the accounts must be between the same legal person in the same capacity, and sums must be due and payable. A bank cannot set off between personal and joint accounts, or against client or trust accounts, or where it knows the funds are held for another. This right is distinct from, and subject to, statutory insolvency set-off, which applies automatically on bankruptcy or liquidation. Banks typically exercise the right on default or overdraft; customer terms often regulate notice and exclusions.