Question

Federal Land Bank (FLB) filed an action to foreclose a mortgage on property owned by Howard and Harriet Franklin. Before trial, FLB's attorney wrote to the Franklin's attorney inviting settlement offers. The Franklin's attorney wrote to FLB's attorney expressing an interest in settling.  FLB's attorney responded with an offer that he stated his "client has authorized me to extend." George Johnson, a vice president of FLB, received copies of all letters. The Franklins accepted the offer, but three weeks late the FLB attorney wrote to say that all settlement offers had to be cleared through the Cleveland office. Because their agreement had not been approved by that office, the foreclosure was going to proceed. The Franklins sued, claiming that the FLB attorney had authority to settle the case and that FLB was bound by the settlement agreement. How should the court rule?  Discuss fully.

Answer 1

Federal Land Bank’s attorney acted as the agent of the principal, FLB in assisting in the foreclosure of the mortgage owned by Howard and Harriet Franklin and negotiating any potential settlement offer. FLB’s attorney extended an offer in writing for settlement to the Franklins, in it including a statement “client has authorized me to extend”, proving the support of the principal. After the offer was extended, the Franklins accepted the offer. Three weeks after the offer was accepted, FLB’s attorney wrote that all settlement offers had to be cleared through the Cleveland Office. Because the offer was not cleared in time, the foreclosure still went through as normal. The court should rule in favor of the Franklins that they should recover any damages as a result of the settlement not going through. There was an innocent misrepresentation of the offer when FLB’s lawyer did not notify the Franklins of the need to clear the settlement with the Cleveland office. As a result, FLB will be liable because no matter if the misrepresentation of the agent is on purpose or intentional, the principal is liable.