Boulos v. Morrison
503 So.2d 1 (1987)
Sections
Rule of Law:
The doctrine of apparent authority binds a principal for the unauthorized acts of an agent only if the principal has manifested the agent's authority to an innocent third party and that third party reasonably relies on such authority.
Facts:
- Plaintiffs Boulos and Durso, partners in a wholesale jewelry business, visited New Orleans and entered the defendant's electronics store, 'Casa Alejandro,' to purchase goods.
- The store was owned by Morris Lew and managed by his brother-in-law, Pactor; an individual named 'Mike' frequented the store and received commissions for bringing in customers but was not a salaried employee.
- Boulos purchased a cassette player from the manager, Pactor, for $130 cash, after which the plaintiffs discussed purchasing other video equipment with both Pactor and Mike.
- Pactor informed the plaintiffs that the bulk items they wanted were not currently in stock.
- The plaintiffs left the store to obtain funds and returned later; Pactor was no longer present or visible in the front of the store.
- Plaintiffs entered a back office with Mike and agreed to purchase cameras, videos, and lighters.
- Plaintiffs handed Mike $8,250 in cash in exchange for a receipt signed only 'M' and a verbal promise that Mike would deliver the goods to their hotel that evening.
- Mike provided the plaintiffs with a business card bearing the store's name and 'Mike at your service,' though the owner later denied authorizing such cards.
- Mike disappeared with the cash, and the merchandise was never delivered.
Procedural Posture:
- Plaintiffs sued the store owner in the state trial court to recover the stolen funds.
- The trial court dismissed the plaintiffs' suit, ruling that they failed to prove Mike had apparent authority.
- Plaintiffs appealed the dismissal to the Court of Appeal of Louisiana.
- The Court of Appeal affirmed the trial court's judgment.
- The Supreme Court of Louisiana granted a writ of certiorari to review the case.
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Issue:
Did the plaintiffs prove that the individual known as 'Mike' possessed apparent authority to bind the store owner, thereby making the owner liable for funds Mike accepted for undelivered merchandise?
Opinions:
Majority - Justice Watson
No, the plaintiffs failed to establish apparent authority because the store owner did not manifest an intent to make Mike an agent, and the plaintiffs' reliance on Mike's authority was unreasonable. The Court reasoned that apparent authority is a form of estoppel that requires two distinct elements: a manifestation by the principal and reasonable reliance by the third party. Here, the owner and manager testified that Mike was not an employee and was not permitted to use the cash register or write sales slips. Furthermore, the Court found the plaintiffs' reliance unreasonable. As sophisticated business persons, handing over $8,250 in cash to a purported agent for out-of-stock goods on a holiday weekend, based solely on a receipt signed 'M' and a promise of hotel delivery, was imprudent. These suspicious circumstances triggered a duty to inquire into the extent of Mike's authority, which the plaintiffs failed to do.
Dissenting - Justice Lemmon
Yes, the store owner should be liable because his conduct created circumstances leading the plaintiffs to reasonably believe Mike had authority to act for the store. The dissent argued that by allowing Mike to 'hang around' the store, access the sales area, and participate in merchandise discussions alongside the manager, the owner clothed Mike with apparent authority. Since the plaintiffs had previously interacted with the manager and Mike together, they were justified in believing Mike was authorized to conclude the transaction when they returned.
Analysis:
This case serves as a critical limitation on the doctrine of apparent authority, emphasizing that it is not enough for a third party to simply believe someone is an agent. The ruling places a significant burden on the third party to verify authority when circumstances are unusual or suspicious (such as a large cash transaction without a formal tax receipt). It protects business owners from liability for the criminal acts of non-employees or loose affiliates, provided the owner has not actively held those individuals out as having authority. The decision reinforces the 'duty to inquire,' preventing commercial actors from claiming 'blind reliance' to recoup losses from fraudulent transactions.
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