IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 95-30705
Summary Calendar
IN THE MATTER OF: JIMMY H. BURKS AND JANET SCOTT BURKS, Debtors.
DANNY REX SCOTT, Appellant,
versus
FIRST NATIONAL BANK OF BENTON,
Appellee.
Appeal from the United States District Court for the Western District of Louisiana (95-CV-608)
November 17, 1995
Before HIGGINBOTHAM, DUHÉ, and EMILIO M. GARZA, Circuit Judges.
PER CURIAM:*
Danny Rex Scott appeals from the judgment of the United
States District Court affirming the judgment of the United States
Bankruptcy Court. The bankruptcy court ordered the rescission of
a credit sale deed conveying land owned by First National Bank of
* Local Rule 47.5 provides: "The publication of opinions that have no precedential value and merely decide particular cases on the basis of well-settled principles of law imposes needless expense on the public and burdens on the legal profession." Pursuant to that Rule, the Court has determined that this opinion should not be published. Benton to Danny Rex Scott. We have jurisdiction, 28 U.S.C.
§ 1291, and we now reverse.
I.
In April 1993, First National purchased 49.5 acres of land
in Bossier Parish at a sheriff's sale. Burks was the original
owner of this land but had mortgaged the property to First
National as security for a loan. When Burks later defaulted on
the loan, the bank foreclosed on the property.
Shortly after the bank acquired the property, Burks and the
bank entered into negotiations for the sale of this property back
to Burks. Although Burks was unable to take title in his own
name due to an outstanding judgment against him, he advised the
bank that his brother-in-law, Scott, was willing to purchase the
land.
Subsequently, Burks and the bank agreed to sell the land for
$85,000 to Scott but with a reservation of mineral rights in
favor of the bank. Significantly, Scott did not participate in
these negotiations. Indeed, as the bankruptcy court found, Scott
had no contact with the bank until the day the deed was executed.
Although Burks informed Scott that he had reached an agreement
with the bank for the sale of the land, Scott had no knowledge
that Burks had agreed to the bank's reservation of mineral
rights.
After concluding the negotiations with Burks, Jessie
Williams, the bank's president, contacted an attorney, James
Southerland, and asked him to prepare the deed conveying the
2 property to Scott. Williams did not instruct Southerland to
include a reservation of mineral rights in the deed, and, not
surprisingly, the deed prepared by Southerland did not contain a
reservation of such rights.
In May 1993, Scott and the bank executed the deed, closing
the sale. Williams arrived at Southerland's office prior to the
arrival of Scott, reviewed the deed, and signed it on behalf of
the bank. Scott arrived at Southerland's office later in the
day. Scott asked Southerland if the deed conveyed the mineral
rights, and Southerland responded that it did. After receiving
this assurance, Scott signed the deed and paid $40,000 of the
purchase price, $30,000 of which came from Burks.
After signing the deed, Scott went to the bank to sign the
loan documents for the $45,000 balance remaining on the purchase
price. Williams did not mention any reservation of mineral
rights, nor did he ask about the nature of the relationship
between Burks and Scott. Scott left the bank confident that he
had purchased both the land and the mineral rights from the bank.
A few weeks after the closing, Williams recognized his error
in not including a reservation of mineral rights in the deed. He
approached Scott and asked him to execute a deed of correction
reserving the mineral rights to the bank. Scott refused, and
this lawsuit followed.
After a two-day trial, the bankruptcy judge ordered the
rescission of the sale. Reasoning that Burks was Scott's agent
by estoppel, the bankruptcy judge concluded that Scott was bound
3 by the terms as negotiated by Burks, which included the
reservation of the mineral rights in favor of the bank.
Consequently, the bankruptcy court concluded that because the
deed did not reflect the actual agreement reached by the parties,
there was a mutual error justifying the rescission of the sale.
The district court affirmed the judgment without comment, and
this timely appeal followed.
II.
The judgment of the bankruptcy court rescinding the sale
rests upon the finding that Burks was Scott's agent by estoppel.
Although the bankruptcy court found that Burks was Scott's agent
in fact, Louisiana law requires agency agreements for the
purchase of immovable property to be in writing. La. Civ. Code
art. 2996-97. Because Scott did not give Burks written
authorization to act as his agent for the purchase of the land
from the bank, the bankruptcy court relied upon the common law
doctrine of agency by estoppel, which does not require such
written authorization, to hold that Burks was Scott's agent.
On appeal, Scott contends that Louisiana has not adopted the
doctrine of agency by estoppel and that, even if Louisiana had
adopted the doctrine, the facts as found by the bankruptcy court
fail to satisfy the requirements of agency by estoppel. We agree
with the latter contention.
Although the case law is far from pellucid on this point, we
are persuaded that Louisiana has adopted the doctrine of agency
by estoppel. In Tedesco v. Gentry Development, Inc., 540 So.2d
4 960, 965 (La. 1989), the Louisiana Supreme Court held that a
corporation whose president entered a contract for the sale of
land to Tedesco was not bound by the president's actions under
the doctrine of agency by estoppel since Tedesco had failed to
show detrimental reliance upon the corporation's manifestation of
an agency relationship. Significantly, the court rested its
decision on the failure of Tedesco to satisfy the requirements of
the doctrine of agency by estoppel, not on the doctrine's
inapplicability in Louisiana. In addition, at least one court
has interpreted Tedesco as adopting the doctrine of agency by
estoppel. In re Manville Forest Products Corp., 896 F.2d 1384,
1392 (2d Cir. 1990); see also Bradford-Kennedy Co. v. Brown, 152
La. 29, 92 So. 723, 724, 726 (1922) (holding that plea of agency
by estoppel was well-founded).
Even so, we agree with Scott that the bankruptcy court's
conclusion that the bank satisfied the requirements of agency by
estoppel, which conclusion the district court affirmed, is
erroneous. To prevail on a claim of agency by estoppel, the bank
"not only must show reliance on the conduct of the principal, but
also must show such a change of position on his part that it
would be unjust to allow the principal to deny the agency."
Tedesco, 540 So.2d at 964. The agent's representations that an
agency relationship exists are insufficient to create an agency
by estoppel. In re Manville Forest Products Corp., 896 F.2d at
1392.
5 In this case, First National failed to demonstrate that its
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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 95-30705
Summary Calendar
IN THE MATTER OF: JIMMY H. BURKS AND JANET SCOTT BURKS, Debtors.
DANNY REX SCOTT, Appellant,
versus
FIRST NATIONAL BANK OF BENTON,
Appellee.
Appeal from the United States District Court for the Western District of Louisiana (95-CV-608)
November 17, 1995
Before HIGGINBOTHAM, DUHÉ, and EMILIO M. GARZA, Circuit Judges.
PER CURIAM:*
Danny Rex Scott appeals from the judgment of the United
States District Court affirming the judgment of the United States
Bankruptcy Court. The bankruptcy court ordered the rescission of
a credit sale deed conveying land owned by First National Bank of
* Local Rule 47.5 provides: "The publication of opinions that have no precedential value and merely decide particular cases on the basis of well-settled principles of law imposes needless expense on the public and burdens on the legal profession." Pursuant to that Rule, the Court has determined that this opinion should not be published. Benton to Danny Rex Scott. We have jurisdiction, 28 U.S.C.
§ 1291, and we now reverse.
I.
In April 1993, First National purchased 49.5 acres of land
in Bossier Parish at a sheriff's sale. Burks was the original
owner of this land but had mortgaged the property to First
National as security for a loan. When Burks later defaulted on
the loan, the bank foreclosed on the property.
Shortly after the bank acquired the property, Burks and the
bank entered into negotiations for the sale of this property back
to Burks. Although Burks was unable to take title in his own
name due to an outstanding judgment against him, he advised the
bank that his brother-in-law, Scott, was willing to purchase the
land.
Subsequently, Burks and the bank agreed to sell the land for
$85,000 to Scott but with a reservation of mineral rights in
favor of the bank. Significantly, Scott did not participate in
these negotiations. Indeed, as the bankruptcy court found, Scott
had no contact with the bank until the day the deed was executed.
Although Burks informed Scott that he had reached an agreement
with the bank for the sale of the land, Scott had no knowledge
that Burks had agreed to the bank's reservation of mineral
rights.
After concluding the negotiations with Burks, Jessie
Williams, the bank's president, contacted an attorney, James
Southerland, and asked him to prepare the deed conveying the
2 property to Scott. Williams did not instruct Southerland to
include a reservation of mineral rights in the deed, and, not
surprisingly, the deed prepared by Southerland did not contain a
reservation of such rights.
In May 1993, Scott and the bank executed the deed, closing
the sale. Williams arrived at Southerland's office prior to the
arrival of Scott, reviewed the deed, and signed it on behalf of
the bank. Scott arrived at Southerland's office later in the
day. Scott asked Southerland if the deed conveyed the mineral
rights, and Southerland responded that it did. After receiving
this assurance, Scott signed the deed and paid $40,000 of the
purchase price, $30,000 of which came from Burks.
After signing the deed, Scott went to the bank to sign the
loan documents for the $45,000 balance remaining on the purchase
price. Williams did not mention any reservation of mineral
rights, nor did he ask about the nature of the relationship
between Burks and Scott. Scott left the bank confident that he
had purchased both the land and the mineral rights from the bank.
A few weeks after the closing, Williams recognized his error
in not including a reservation of mineral rights in the deed. He
approached Scott and asked him to execute a deed of correction
reserving the mineral rights to the bank. Scott refused, and
this lawsuit followed.
After a two-day trial, the bankruptcy judge ordered the
rescission of the sale. Reasoning that Burks was Scott's agent
by estoppel, the bankruptcy judge concluded that Scott was bound
3 by the terms as negotiated by Burks, which included the
reservation of the mineral rights in favor of the bank.
Consequently, the bankruptcy court concluded that because the
deed did not reflect the actual agreement reached by the parties,
there was a mutual error justifying the rescission of the sale.
The district court affirmed the judgment without comment, and
this timely appeal followed.
II.
The judgment of the bankruptcy court rescinding the sale
rests upon the finding that Burks was Scott's agent by estoppel.
Although the bankruptcy court found that Burks was Scott's agent
in fact, Louisiana law requires agency agreements for the
purchase of immovable property to be in writing. La. Civ. Code
art. 2996-97. Because Scott did not give Burks written
authorization to act as his agent for the purchase of the land
from the bank, the bankruptcy court relied upon the common law
doctrine of agency by estoppel, which does not require such
written authorization, to hold that Burks was Scott's agent.
On appeal, Scott contends that Louisiana has not adopted the
doctrine of agency by estoppel and that, even if Louisiana had
adopted the doctrine, the facts as found by the bankruptcy court
fail to satisfy the requirements of agency by estoppel. We agree
with the latter contention.
Although the case law is far from pellucid on this point, we
are persuaded that Louisiana has adopted the doctrine of agency
by estoppel. In Tedesco v. Gentry Development, Inc., 540 So.2d
4 960, 965 (La. 1989), the Louisiana Supreme Court held that a
corporation whose president entered a contract for the sale of
land to Tedesco was not bound by the president's actions under
the doctrine of agency by estoppel since Tedesco had failed to
show detrimental reliance upon the corporation's manifestation of
an agency relationship. Significantly, the court rested its
decision on the failure of Tedesco to satisfy the requirements of
the doctrine of agency by estoppel, not on the doctrine's
inapplicability in Louisiana. In addition, at least one court
has interpreted Tedesco as adopting the doctrine of agency by
estoppel. In re Manville Forest Products Corp., 896 F.2d 1384,
1392 (2d Cir. 1990); see also Bradford-Kennedy Co. v. Brown, 152
La. 29, 92 So. 723, 724, 726 (1922) (holding that plea of agency
by estoppel was well-founded).
Even so, we agree with Scott that the bankruptcy court's
conclusion that the bank satisfied the requirements of agency by
estoppel, which conclusion the district court affirmed, is
erroneous. To prevail on a claim of agency by estoppel, the bank
"not only must show reliance on the conduct of the principal, but
also must show such a change of position on his part that it
would be unjust to allow the principal to deny the agency."
Tedesco, 540 So.2d at 964. The agent's representations that an
agency relationship exists are insufficient to create an agency
by estoppel. In re Manville Forest Products Corp., 896 F.2d at
1392.
5 In this case, First National failed to demonstrate that its
reliance on the existence of an agency relationship between Burks
and Scott resulted from the conduct of Scott, the principal in
this transaction. To the contrary, although the bank had
numerous contacts with Burks that led it to believe that Burks
was Scott's agent, the bankruptcy court found that Scott never
discussed the sale with the bank prior to the day he signed the
deed.1
The bank responds that Scott's failure to inform it that
Burks was not his agent is sufficient to justify its reliance on
the existence of an agency relationship between Scott and Burks.
We disagree. Under Louisiana law, "'[o]ne dealing with an agent,
by the mere fact of agency, is given the right and duty to
determine, at his peril, whether the agency purportedly granted
by the principal will permit the proposed act by the agent.'"
Id. (quoting Bamber Contractors, Inc. v. Morrison Engineering &
Contracting Co., 385 So.2d 327, 330 (La. App. 1980)). Given this
duty, the Second Circuit in In re Manville Forest Products Corp.
denied the existence of an agency by estoppel, holding that the
third party's reliance on the purported agent's title and
managerial status was not reasonable. 896 F.2d at 1392.
1 The bank responds that Scott admitted during the course of this litigation that Burks had the authority to negotiate on his behalf. While such an admission is relevant to the determination whether Burks was actually Scott's agent, it is irrelevant to the determination whether Burks was Scott's agent by estoppel. The latter inquiry focuses exclusively on whether Scott's conduct prior to the sale reasonably justified the bank's reliance on the existence of an agency relationship.
6 Similarly, First National's reliance on Scott's silence was
unreasonable, particularly since it had ample opportunity to ask
Scott about Burks's authority to act as his agent.
Finally, the bank claims that Scott ratified Burks'
agreement with the bank by signing and accepting delivery of the
deed. We disagree. "The general theory of ratification of the
unauthorized acts of an agent is that the principal, with full
knowledge of the facts, consents to the unauthorized actions and
adopts the contract as if it had been previously authorized."
Everett v. Foxwood Properties, 584 So.2d 1233, 1236 (La. App.
1991) (emphasis added). Here, the bankruptcy court found that
Scott did not know that Burks had orally agreed to the bank's
mineral reservation. Consequently, Scott did not--indeed, could
not--ratify an agreement the terms of which he did not fully
know.
III.
Because Danny Rex Scott did not induce, by his own conduct,
the bank to reasonably rely on the existence of an agency
relationship, we hold that Burks was not Scott's agent by
estoppel. We REVERSE the judgment of the district court and
REMAND for further proceedings consistent with this opinion.