Set-Off Rights Clarified
by Thomas V. Bennett

It is fairly common for a creditor, when suing a debtor, to seek to attach its bank account by way of trustee process in an attempt to obtain prejudgment security for the amount sued for. An Appeals Court recently answered a question of when a bank is served with a trustee process writ and it has accounts for the debtor and has a loan arrangement with the debtor, may the bank answer "no funds" and set-off the funds in the account against the debt owned the bank? The Court case answered in the affirmative.*
 

The facts in this case were the bank had a depositor to whom it had loaned in excess of $1,300,000.00 at the time of the service of the trustee process writ. Under the terms of its loan agreement, all deposits of the debtor at all times constitutes security for the obligations due the bank and "may be set-off against any Obligations at any time whether or not they are then due . . ." The Court in its analysis and its discussion of the facts involved in the case and the applicable law noted that since 1837 cases have stood for this principle: "If a trustee has a right of set-off at the time the trustee process summons arrives, equal to or exceeding the amount sought to be attached, the trustee may answer "no funds." The Court further quoted from other decisions which held that "Money that is susceptible to attachment through a trustee process summons must be due from the trustee to the defendant absolutely and without any contingency." The Court found that so long as the bank has the right to hold deposits as security for a debt from the debtor and only funds not due to the debtor by the bank absolutely and without contingency can be reached by a creditor with a trustee process writ.

If you have questions regarding this or any real estate matter, please contact Thomas V. Bennett at tvb@barronstad.com or (617) 531-6574.

Read more about real estate law - Thomas V. Bennett's weekly column "Open House" in The Boston Courant.