Right of Offset

Offset -- the processing of netting out reciprocal claims that two people or entities may have against one another -- is a means of self-help, and it's recognized at common law in most U.S. states to one degree or another. (Please note that I am only licensed in Texas, and don't know what in particular Minnesota law may be on this subject.)

It's the sort of thing that tends to distract and dismay the bean-counters, who might prefer that the two companies exchange checks with the full amount of each's claim against the other.

And it tends to be provocative -- a strong signal from one side to the other that "I may not trust you to make good on your obligation to me, so I'm exercising self-help rights to limit my downside in case you misbehave."

Moreover, the risks from taking an offset multiply very substantially if there is any mismatch in identities. If you have a payable in favor of one separately incorporated subsidiary, and a receivable owed by a different subsidiary, the fact that both subsidiaries have the same ultimate parent company may not be enough to justify your attempt to offset the receivable against the payable. That would be especially true in the case of non-wholly owned subsidiaries. A somewhat stronger defense could be made if you'd offset a payable against a receivable from two different unincorporated divisions (which lack the same sort of distinct legal identities that separate corporations have).

There are times when I've advised clients to take a risky offset because, frankly, the size of the risk they were hedging against justified the risk that the offset would be later found to be improper. But that's been a carefully calculated recommendation after looking closely at the nature of the entities and parties and all of the other risk factors. Tread carefully. Especially if there are substantial sums involved, you may well want to get detailed legal advice from a flesh-and-blood lawyer in face-to-face (non-internet) consultations.