James E. Klapmeier, Jack Dekker, Zaven A. Dadekian, and David S. Wilbourn, as Assignees of Telecheck International, Inc. v. Harry M. Flagg

This action has been brought by appellants on a promissory note executed by ap-pellee and assigned to appellants by the payee. Jurisdiction is founded on diversity of citizenship. The appeal is taken from summary judgment rendered in favor of appellee. The question presented is whether appellee was entitled to set off debts owed to him by the payee against the amount due on the note. We agree with the District Court that he was.

Telecheck International, Inc. (TCI) was formed in 1963 in the State of Hawaii largely through the efforts of appellee. In 1969 it entered into negotiations with Am-fac, Inc. to acquire Amfac’s building materials division. In 1970 agreement for the acquisition was reached but the means for financing it remained unsettled. In May, 1970 eleven directors and officers of TCI, including appellee, executed promissory notes in favor of TCI in the sum of $50,000 each, taking in return convertible debentures of TCI in the same amount. The notes were held by Amfac as security for the payment due on TCI’s acquisition. In May, 1972 TCI was adjudged bankrupt. Appellee, as a general creditor filed claims against the corporation totaling $117,746.34, all of which were…