This discussion requires you to consider the materials in chapter 32 – Agency Formation and Duties.
DeLorean Motors, Inc. (“DMI”) makes very fast, futuristic gull-wing cars (think Back to the Future). The cars are sold through independent dealers that are not owned by DMI. The cars are very expensive and DMI found that buyers were having problems qualifying for financing. As a result, DMI formed DeLorean Financing, Inc., (“DeLorean Financing”) a company whose only function was to provide financing for the purchasing of DMI’s cars. DMI owned all the stock of DeLorean Financing (in other words, DeLorean Financing was a “wholly owned subsidiary” of DMI).
DeLorean Financing’s credit application clearly disclosed to the borrowers that it was a separate corporation from DMI, and that the borrowers’ obligation to pay any loans made by DeLorean Financing was separate and independent from any warranties that DMI made about the condition of the cars. DeLorean Financing’s credit application stated in large bold letters that any defects in the condition of the DeLorean cars would not excuse the borrowers’ obligation to pay loans made by DeLorean Financing.
After a couple of years over 90% of all DMI cars were purchased with loans made by DeLorean Financing. DMI started a new policy that required all dealers to have an office for the exclusive use of DeLorean Financing, and began to pay the dealers $1,000 for each car that was purchased with a loan from DeLorean Financing.
After 4 years all DeLorean cars were recalled because of defects in their engines and transmissions, and the U.S. Department of Transportation (“DOT”) banned DeLorean cars as unsafe. After learning of the recall, DeLorean Financing sent an email to its borrowers reminding them that it was a separate company from DMI, and that even though the cars had been banned by the DOT the borrowers were still responsible to make all payments on car loans. DeLorean Financing told the borrowers that any claims that they may have about the cars should be directed to DMI.
Do you think that DeLorean Financing’s borrowers should be allowed to stop making payments on the car loans? State the reasons for your conclusion.