24.13 Business Ethics Warren and Kristina Mahaffey were approached by a salesman from the Five Star Solar Screens Company (Five Star). The salesman offered to install insulation in their home at a cost of $5,289. After being told that the insulation would reduce their heating bills by 50 percent, the Mahaffeys agreed to the purchase. To pay for the work, the Mahaffeys executed a note promising to pay the purchase price with interest, in installments. The note, which was secured by a deed of trust on the Mahaffeys’ home, contained the following language: “Notice: Any holder of this consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained pursuant hereto or with the proceeds thereof.” Several days after Five Star finished working at the home, it sold the installment note to Mortgage Finance Corporation (Mortgage Finance).
There were major defects in the way the insulation was installed in the Mahaffeys’ home. Large holes were left in the walls, and heater blankets and roof fans were never delivered, as called for in the purchase contract. Because of these defects, the Mahaffeys refused to make the payments due on the note. Mortgage Finance instituted foreclosure proceedings to collect the money owed. The Mahaffeys alleged that the Federal Trade Commission rule protects them and allows them to assert the defense of breach of contract by Five Star against the enforcement of the note by Mortgage Finance. Did Five Star Solar Screens Company act ethically in this case? Can the Mahaffeys successfully assert the defense of breach of contract by Five Star against the enforcement of the note by Mortgage Finance?
