BLTE-8e Case Problem with Sample Answer
Chapter 17: Agency
17.6 Case Problem with Sample Answer
Sam and Theresa Daigle decided to build a home in Cameron Parish, Louisiana. To obtain financing, they contacted Trinity United Mortgage Co. In a meeting with Joe Diez on Trinity’s behalf, on July 18, 2001, the Daigles signed a temporary loan agreement with Union Planters Bank. Diez assured them that they did not need to make payments on this loan until their house was built and that permanent financing had been secured. Because the Daigles did not make payments on the Union loan, Trinity declined to make the permanent loan. Meanwhile, Diez left Trinity’s employ. On November 1, the Daigles moved into their new house. They tried to contact Diez at Trinity but were told that he was unavailable and would get back to them. Three weeks later, Diez came to the Daigles’ home and had them sign documents that they believed were to secure a permanent loan but that were actually an application with Diez’s new employer. Union filed a suit in a Louisiana state court against the Daigles for failing to pay on its loan. The Diagles paid Union, obtained permanent financing through another source, and filed a suit against Trinity to recover the cost. Who should have told the Daigles that Diez was no longer Trinity’s agent? Could Trinity be liable to the Daigles on this basis? Explain. [Daigle v. Trinity United Mortgage, L.L.C., 890 So.2d 583 (La.App. 3 Cir. 2004)]
Sample Answer:
When an agency has been terminated by act of the parties, it is the principal’s duty to inform any third parties who know of the existence of the agency that it has been terminated. In this situation, Trinity was the principal of Diez and should have notified the Daigles when Diez was no longer its agent. Because the Daigles were not notified that Diez no longer worked for Trinity, Diez’s apparent authority continued. Therefore, because the principal is always directly responsible for an agent’s misrepresentation made within the scope of the agency, Trinity is responsible for Diez’s misconduct. In the case on which this problem was based, the court ruled in favor of the Daigles and awarded damages of more than $26,000. Trinity appealed to a state intermediate appellate court, arguing in part that the acts by Diez that caused the harm to the Daigles occurred after Diez left Trinity’s employ. The appellate court affirmed the lower court’s ruling and the award. The appellate court pointed out that “many of the representations made by Diez and relied upon by the Daigles, including the representations that he had secured permanent financing for them upon completion of the home and that it was ... not required that interest payments be made on the [temporary] loan, were made by him prior to the termination of his relationship with Trinity.” The court also explained that a principal must notify third persons with whom its agent is authorized to contract on the termination of the agency. “If the principal fails to do so, he is bound to perform the obligations that the [agent] has undertaken.” Here, “Trinity never notified the Daigles that Diez was no longer associated with their office in spite of the fact the Daigles made numerous calls to Trinity attempting to contact Diez. Trinity is, therefore, responsible for Diez’s actions under the facts of this case.”