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Set Off Agreement Example

If a debtor is unable to fulfil an obligation to the bank, the bank may seize the assets mentioned in the clause. A set-off clause can also be part of a supplier agreement between the supplier, for example. B a manufacturer, and a buyer, for example. B a retailer. This type of clause can be used in place of a bank credit and gives the provider access to deposit accounts or other assets held with the buyer`s financial institution if the buyer does not pay. A set-off clause allows the seller to receive a payment equal to the amount due to him under the supplier contract. Clearing clauses are most frequently used in credit agreements between lenders such as banks and their borrowers. They can also be used for other types of transactions in which a party is exposed to the risk of default, for example. B in the case of a contract between a manufacturer and a purchaser of its products. The Truth in Lending Act prohibits non-payment clauses from applying to credit card transactions; This protects consumers who refuse to pay for defective goods purchased with their cards using what is known as a retrobook. A credit clearing clause is often included in a credit agreement between a borrower and the bank in which they hold other assets, for example. B money in a chequing, savings or money market account or a certificate of deposit. The borrower undertakes to make these assets available to the lender in the event of default.

When assets are held with this lender, the lender can more easily access them to cover a defaulted payment. However, a set-off clause may also include rights to the assets of other institutions. While these assets are not easily accessible to the lender, the set-off clause gives the lender the contractual agreement to seize them when a borrower is late. The parties sometimes agree on a contractual right of set-off, for example. B where they have a current business relationship; on the other hand, they may accept the exclusion of rights of set-off….

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