Can one LLC manager bind the company without required co-manager consent? Zions Gate v. Oliphant Explained

Background and Facts

In Zions Gate R.V. Resort v. Oliphant, a dispute arose over a 99-year recreational vehicle lease that Darcy Sorpold signed on behalf of Zions Gate R.V. Resort, LLC. The company’s articles of organization expressly required both managers—Sorpold and Dale Jones—to consent before acting on behalf of the company. When Sorpold signed the lease unilaterally as payment for Oliphant’s work, Zions Gate later sued for unlawful detainer, claiming the lease was invalid due to lack of authority.

Key Legal Issues

The court examined three potential sources of authority: (1) statutory authority under the Utah Revised Limited Liability Company Act, (2) apparent authority under common law agency principles, and (3) potential ratification by the company. The central question was whether Oliphant could reasonably rely on Sorpold’s apparent authority despite the limitations in the filed articles of organization.

Court’s Analysis and Holding

The Court of Appeals found Sorpold lacked both statutory and apparent authority. Under Utah Code section 48-2c-802, a manager has “no authority” to bind the company when the articles expressly limit that authority. More significantly, the court held that Utah Code section 48-2c-121 provides constructive notice to third parties of limitations set forth in filed articles of organization. Because the articles were publicly available and expressly permitted to contain authority limitations, Oliphant had notice of Sorpold’s restricted authority, defeating any apparent authority claim. However, the court found disputed facts regarding when Zions Gate learned of the unauthorized lease and whether it ratified the agreement within a reasonable time, making summary judgment inappropriate.

Practice Implications

This decision emphasizes the importance of due diligence when contracting with LLCs. Utah law places the burden on third parties to verify manager authority by reviewing filed articles of organization. The court rejected arguments that requiring such review is “unreasonable and unrealistic,” noting that one dealing with an agent has the responsibility to ascertain that agent’s authority. Practitioners should advise clients to always obtain and review LLC articles of organization before entering significant agreements, as constructive notice will defeat apparent authority claims regardless of the manager’s representations.