Business Associations, Pages 940–944

Taghipour v. Jerez

Supreme Court of Utah, 2002

Facts:

Taghipour, Rahemi, and Jerez formed an LLC to purchase and develop a parcel. Jerez was designated as the LLC's manager. No loans were permitted unless authorized by resolution of the members. The LLC acquired the property, but then Jerez secretly took out a $25,000 loan from Mt. Olympus on behalf of the LLC, using the property as security. Mt. Olympus kept $5,000 of the loan to cover fees, and Jerez absconded with the $20,000 without ever making a payment. Mt. Olympus then foreclosed on the LLC's property without notifying the other members.

Taghipour, Rahemi, and the LLC then filed suit against Mt. Olympus and Jerez. They asserted three claims against Mt. Olympus, claiming that the loan agreement and subsequent foreclosure were invalid because Jerez lacked the authority to bind it, that Mt. Olympus was negligence in failing to determine whether Jerez had authority to enter the agreement.

Procedural History:

  • Trial court dismissed the causes of action against Mt. Olympus because the loan agreement documents were signed by the LLC's manager.

  • Court of appeals affirmed.

Issue:

Were the loan agreements valid and binding on the LLC?

Rules:

  • Certain documents, like loan agreements, bind an LLC when executed by a manager.

  • An LLC's operating agreement can limit or eliminate the authority of a manager to bind an LLC.

Reasoning:

These Utah statutes are in conflict, but the one binding LLCs is more specific than the other. It specifically addresses situation like this one, while the other section addresses every situation in which a manager can bind an LLC. The more specific statute should apply when two are in conflict, so the document must be binding.

Holding:

Yes, the loan agreements were binding on the LLC. Affirmed.

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