Chapter 27 Case 6

Facts:
-The Hathorns purchased a group home from the Batchelders, the purchase agreement stated that the sale of the home was contingent upon the parties agreement to a management contract
-The parties agreed that the B would manage the home
-As a result for the agreement the Hathorns executed a 10000 promissory not to the B
-The note was secured by a mortgage
-the first payment was due in last September 1989 but there was a dispute regarding the B performance as managers so the H elected to terminate the management contract
-H sought a declaratory judgment and they lawfully terminated the management contract
-In August of 89 the B transferred the promissory note and the mortgage to Loftus (lawyer) who represented the B as partial payment for his attorney fees, the B owed him 20,000 the H told him that they would pay the Sept 1989 installment on the note in escrow until the declaratory litigation on the judgment was resolved
-In May of 1992 the court ruled against the B finding that they would have to pay the H attorney fees and costs of $11,000
-The H petitioned to have the $11,000 set off against the mortgage and note
-June of 93- the trial court ruled that the H promissory note was discharged in full “subject to the rights” if any of third parties
-Loftus claimed t be the holder in due course of the note and refused to release the mortgage
- The H filed a petition to quiet title in 1994 L counterclaimed demanding payment, the trial court ruled for L and the H appealed

Issue:
Whether the H are qualified for defense of set-off or “defense or claim in recoupment”

Rationale:
They do not qualify for recoupment bc pg. 704 last 3 paragraphs

Conclusion:
The Hathorns are required to pay the amount due on the promissory note