In the state of Utah, typically the only person or entity who has authority to sign agreements or other documents on behalf of an LLC is the LLC’s manager(s). Utah law indicates that “[i]n a manager-managed limited liability company . . . , any matter relating to the activities and affairs of the limited liability company is decided exclusively by the manager.” Utah Code Ann. § 48-3a-407(3)(a). This means that typically only the manager has “actual” authority to act on behalf of an LLC, such as by signing agreements or other documents.
However, sometimes exceptions apply, and someone else’s signature besides the manager(s)’ could be legally binding in a manager-managed LLC. A person could be found to possess “apparent” authority to act on behalf of the LLC, if the LLC’s conduct “causes a third party to reasonably believe that someone has authority to act on the principal’s behalf, and a third party relies on this appearance of authority…” Hardy v. Sagacious Grace LC, 2020 UT App 140, P 17 (Utah App. 2020) (internal citations omitted). However, the Utah Court of Appeals has held that apparent authority cannot exist when the third party is capable of viewing the LLC’s public filings and those public documents show that the person lacks authority to act on the LLC’s behalf. Id. at P17.
Another exception under Utah law is when a non-manager has authority to act on behalf of the LLC pursuant to statute. This can occur if the non-manager’s action is outside of the ordinary course of the LLC’s activities, and all members of the LLC vote to support the action. “The affirmative vote or consent of all members is required to . . . undertake any act outside the ordinary course of the limited liability company’s activities and affairs . . . .” Utah Code Ann. § 48-3a-407(3)(c)(ii).
As the Utah Court of Appeals recently reviewed in Hardy, a prospective buyer (“Buyer”) entered into a REPC agreement to purchase land in Utah County from an LLC (the “LLC”). The LLC had one member (“Sole Member”), and one manager (“Manager”). The Sole Member was an individual, but the Manager was another business (whose manager was an individual [someone other than Sole Member]).
The Sole Member, rather than the Manager, signed the REPC. But before closing, the LLC realized that it didn’t actually want to sell the property (Sole Member was confused about which property was intended). The LLC’s attorney told Buyer that Sole Member didn’t actually have authority to sign the REPC, and therefore the signed REPC was not legally binding against the LLC. The LLC did not intend to go through with the closing. Buyer filed suit against the LLC and Sole Member.
Ultimately, Buyer failed to convince the trial court or the Utah Court of Appeals that any exception regarding authority could apply, and the appellate court affirmed that Sole Member’s signature on the REPC was not legally binding. Buyer argued that because the LLC had not sold property in a long time, and because Sole Member (rather than Manager) had signed several other documents on behalf of the LLC during the previous five years, that the court should find that Sole Member’s act of selling property to Buyer was outside of the ordinary course of the LLC’s activities. Buyer argued that because Sole Member was the only member and therefore represented 100% of the member(s)’ vote(s), that pursuant to Utah Code Ann. § 48-3a-407(3)(c)(ii), Sole Member had the proper authority.
The Court of Appeals made clear that to prevail in such an argument, Buyer was required to provide sufficient proof that the activity of selling property was outside the LLC’s normal course of business. For example, Buyer could have produced copies of the LLC’s certificate of organization and/or operating agreement, but he didn’t. Buyer introduced speculative and inconclusive testimony which did not amount to “evidence that gives rise to a ‘reasonable inference’ that selling property was outside [the LLC]’s ordinary course of activities and affairs.” Id. at P21. Essentially, for there to exist such statutory authority by a non-member of an LLC, there has to be compelling evidence that the action completed by the non-member was not a typical or ordinary action of the LLC (in addition to evidence that the LLC’s member(s) unanimously consented to the action).
If you have questions about your own authority to sign documents on behalf of an LLC, or otherwise about the authority of others, or the enforceability of a contract, it is always best to consult with a competent, experienced attorney regarding your specific situation. Call Daniel W. McKay & Associates today to schedule your consult with such an attorney.