ORIAN P. WELLS, JR. AND ALBERT H. CRIPPEN, JR., APPELLANTS/CROSS-APPELLEES,
v.
DONALD R. COBB, APPELLEE/CROSS-APPELLANT
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Wells and Crippen purchased Cobb's interest in an accounting partnership via a promissory note. When Cobb breached the sale agreement regarding a client billing that became uncollectible, Wells and Crippen withheld payment on the note as a setoff. The trial court found the setoff proper but also upheld Cobb's acceleration of the debt. The appellate court reversed, holding that because the setoff was valid, Wells and Crippen were not in default and Cobb's acceleration was improper.
The court affirmed that the setoff was proper because Cobb's obligation for the liquidated $7,350 sum was due and immediately owing to Wells and Crippen. However, because the setoff was valid, Wells and Crippen were not in default on the promissory note when Cobb attempted acceleration, and therefore Cobb's exercise of the acceleration option was improper.
[1] A party is not in default on a promissory note when they have a valid, liquidated set-off claim against the payee that equals or exceeds the amount of the next scheduled…
[2] A payee's breach of a contract for the sale of an accounting practice, resulting in the uncollectability of a client's account receivable, may entitle the payor to a set-…
Previewing 2 of 4 headnotes on this case. FLexlaw’s editorially structured points of law — every proposition, pinpointed — are reserved for members.
Join FLexlaw to unlock all legal intelligence“Because the $7,350 offset was for a liquidated sum to which Wells and Crippen were immediately entitled, they were not in default on the promissory note when Cobb attempted to accelerate the debt, so Cobb's exercise of his option to accelerate was not proper.”
The court's central holding that a valid setoff negates default and renders acceleration improper.
Previewing 1 of 3 key quotes on this case — the court’s exact language, pinpointed for members.
Join FLexlaw to unlock all legal intelligenceOn December 30, 1977, Cobb sold his interest in an accounting partnership to Wells and Crippen for $95,000 (with $80,000 payable via a promissory note…
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ORFINGER, Judge.
Appellants/cross-appellees Wells and Crippen appeal a final judgment awarding appellee/eross-appellant Cobb accelerated sums on a promissory note offset by certain sums awarded Wells and Crippen. Appellants argue that although the offset award to them was proper, the court’s finding that Cobb properly accelerated payments on the promissory note was error because they were never in default. We agree and reverse.
The parties entered into a contract on December 30, 1977, whereby Cobb agreed to sell to Wells and Crippen his interest in an accounting practice in which the three were partners. In exchange, Wells and Crippen agreed to pay Cobb $95,000, $15,-000 in cash and the balance of $80,000 represented by a promissory note. The promissory note required that principal payments of $5,000 each be made on August 20 and November 20 of each year until the note was paid in full.
The bill of sale from Cobb to Wells and Crippen reflected that $20,000 of the purchase price was allocated to “all clientele, working papers, files and goodwill arising therefrom” and that $27,500 of the purchase price was attributed to “all accounts receivable and work-in-process.” By addendum to the bill of sale Cobb agreed to assist in the delivery of clients and to continue working on their accounts for a reasonable period of time, for which Cobb would be compensated at a rate of $20 per hour plus expenses.
The trial court found, based on substantial evidence, that Cobb had breached the agreement with respect to a past due billing of $7,350 due the firm from a client, A.W. Killian, by personally accepting part of that sum and by making collection of the remainder impossible. When the partners determined that Cobb had made this billing uncollectable, they withheld the next $5,000 installment, advising Cobb that they were applying that sum to the uncollected billing. From the next due installment, they withheld the remaining $2,350, and submitted payment for the balance of $2,650, ($5,000 less $2,350) again informing Cobb of what they were doing. Cobb held that check and did not negotiate it, as he did the next two checks of $5,000 each which appellants timely paid. After Wells’ and Crippen’s initial withholding of the $5,000 payment, Cobb filed his complaint, accelerating payment and demanding judgment.
We see no reason to disturb the trial court’s finding that the set-off was proper, because there was competent evidence to support the conclusion that the Killian obligation was due, was liquidated and that Cobb was obligated to appellants for that sum. This finding however, militates against the conclusion that appellants were in default when the complaint was filed. Because the $7,350 offset was for a liquidated sum to which Wells and Crippen were immediately entitled, they were not in default on the promissory note when Cobb attempted to accelerate the debt, so Cobb’s exercise of his option to accelerate was not proper. Accordingly, we reverse the judgment and remand the cause to the trial court with directions to dismiss the complaint. The remaining issues on appeal as well as the cross-appeal are rendered moot.
REVERSED and REMANDED
COBB, C.J., and FRANK D. UP-CHURCH, Jr., J., concur.