Pearse, 9 Misc 3d 964, 804 NYS2d 640 (NY Civil Ct. 2005) ("The obligation [of a landlord
relating to security deposits] . . .do[es] not permit a cofiduciary to claim exemption from
responsibility based upon passivity, ignorance of the law, or even the contrary advice of
counsel")).
It is well-established that where a landlord commingles a security deposit with personal
funds, the commingling constitutes a conversion, and the tenant is entitled to the immediate
return of the commingled funds (See General Obligations § 7-103; LeRoy v. Sayers, 217
AD2d 63, 635 NYS2d 217 (1st Dep't 1995)). Consequently, Defendant's claim for an offset
against the security deposit due to Plaintiffs' failure to fulfill their contractual obligations
pursuant to the Lease is misplaced.
As a general principle, "[t]he right of setoff . . . allows entities that owe each other money to
apply their mutual debts against each other, thereby avoiding the absurdity of making A pay B
when B owes A" (See Westinghouse Credit Corp. v. D'Urso, 278 F.3d 138 (2d Cir. 2002)
(internal citation omitted)). To permit a setoff as Defendant requests, the debt and credit must
have been mutual inasmuch that they were "due to and from the same persons in the
same capacity" (In re Midland Ins. Co., 79 NY2d 253, 582 NYS2d 58 (1992) (emphasis
added) (holding that the transactions need not be the same for there to be mutuality in the
obligations)). On the other hand, an offset is not permitted where the "obligations lack
mutuality . . . [for instance] where one party is a trust beneficiary asserting his or her rights
against a trustee, and the other is a creditor exercising his or her contractual rights"
(Westinghouse Credit Corp., supra , 278 F.3d at 149 (emphasis added) (quoting In re