Template:Contractual set-off capsule

You are free to agree what you like in a contract (within reason and subject to overriding provisions of mandatory law, equity and public policy). You can, therefore — within those bounds, which are important when it comes to the discharge of mutual debts — agree what you like about set-off in a contract. This is called contractual set-off.

Where the parties to a transaction owe each other at the same time, they may agree that, instead of making separate payments, the party owing the larger amount should simply pay the difference.

In that it is conferred by contract, close-out netting resembles contractual set-off, but it is not the same. Exacly why is discussed in more detail in the premium content section.

Strict (non-close-out netting related) contractual set-off in master agreements is okay, but it doesn’t earn you a cigar. Set-off provisions in master agreements thus tend to have a different purpose, which is to pull in anything else between the parties that might be lurking around at the moment of bankruptcy, allowing the Non-defaulting Party to be a bit opportunistic in minimising its outstanding exposure against any liabilities of any kind it owes the Defaulting Party.