Can a sole member of a manager-managed LLC sign binding contracts? Hardy v. Sagacious Grace Explained

In Hardy v. Sagacious Grace, the Utah Court of Appeals addressed a critical question about authority in manager-managed limited liability companies. The case demonstrates the importance of understanding LLC management structures when entering into significant transactions.

Background and Facts

David Hardy sought to purchase property in Springville from Sagacious Grace LLC for $150,000. During negotiations through the company’s attorney, Hardy prepared a real estate purchase contract that was signed by Leslie Mower. While Mower was the sole member of Sagacious Grace, she was not its manager—the company was managed by another LLC called LC Manager. After Mower signed the contract, Sagacious Grace repudiated it, claiming Mower lacked authority to bind the company.

Key Legal Issues

The central issue was whether Mower, as the sole member but not the manager of a manager-managed LLC, had authority to sign the purchase contract. Hardy argued that Mower had authority under Utah Code Ann. § 48-3a-407(3)(c)(ii), which allows members to undertake acts outside the ordinary course of business. He claimed selling the property was outside Sagacious Grace’s ordinary course of activities.

Court’s Analysis and Holding

The court applied Utah Code Ann. § 48-3a-407(3)(a), which provides that in manager-managed LLCs, “any matter relating to the activities and affairs of the limited liability company is decided exclusively by the manager.” The court found Mower lacked both actual authority (she wasn’t the manager) and apparent authority (Hardy should have known from public filings that she lacked authority). Crucially, the court rejected Hardy’s argument that selling property was outside the ordinary course of business, noting that Hardy failed to present sufficient evidence about the company’s business purpose or activities. The court emphasized that mere speculation cannot survive summary judgment.

Practice Implications

This decision underscores the critical importance of verifying authority before entering into contracts with LLCs. Practitioners should review the company’s certificate of organization and operating agreement to understand its management structure. The case also demonstrates that parties claiming an action falls outside the ordinary course of business must present concrete evidence, not speculation, to support their position. When dealing with manager-managed LLCs, ensure the actual manager signs significant contracts to avoid enforceability issues.