Court Opinion

ID: 8195
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:35:11+00
Date Added: 2024-06-11T08:49:50.406583
License: Public Domain

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that this opinion should not be published.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.

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