Namvar Taghipour, Danesh Rahemi, and Edgar Jerez (Jerez) formed a limited liability company known as Jerez, Taghipour

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Namvar Taghipour, Danesh Rahemi, and Edgar Jerez (‘‘Jerez’’) formed a limited liability company known as Jerez, Taghipour and Associates, LLC (the ‘‘LLC’’), on August 30, 1994, to purchase and develop a particular parcel of real estate pursuant to a joint venture agreement. The LLC’s articles of organization designated Jerez as the LLC’s manager. In addition, the operating agreement between the members of the LLC provided: ‘‘No loans may be contracted on behalf of the [LLC] * * * unless authorized by a resolution of the members.’’ 

   On August 31, 1994, the LLC acquired the intended real estate. Then, on January 10, 1997, Jerez, unbeknownst to the LLC’s other members or managers, entered into a loan agreement on behalf of the LLC with Mt. Olympus. According to the agreement, Mt. Olympus lent the LLC $25,000 and, as security for the loan, Jerez executed and delivered a trust deed that conveyed the LLC’s real estate property to a trustee with the power to sell the property in the event of default. Mt. Olympus then dispensed $20,000 to Jerez and retained the $5,000 balance to cover various fees. In making the loan, Mt. Olympus did not investigate Jerez’s authority to effectuate the loan agreement beyond determining that Jerez was the manager of the LLC.

   After Mt. Olympus dispersed the funds pursuant to the agreement, Jerez apparently misappropriated and absconded with the $20,000. Jerez never remitted a payment on the loan, and because the other members of the LLC were unaware of the loan, no loan payments were ever made by anyone, and consequently, the LLC defaulted. Therefore, Mt. Olympus foreclosed on the LLC’s property. The members of the LLC, other than Jerez, were never notified of the default or pending foreclosure sale. 

   On June 18, 1999, Namvar Taghipour, Danesh Rahemi, and the LLC (collectively, ‘‘Taghipour’’) filed suit against Mt. Olympus and Jerez. Taghipour [sought] against Mt. Olympus [a] declaratory judgment that the loan agreement and subsequent foreclosure on the LLC’s property were invalid because Jerez lacked the authority to bind the LLC under the operating agreement. * * * Mt. Olympus moved to dismiss * * * asserting that pursuant to Utah Code Section 48–2b–127(2), the loan agreement documents are valid and binding on the LLC since they were signed by the LLC’s manager. This section provides:

   Instruments and documents providing for the acquisition, mortgage, or disposition of property of the limited liability company shall be valid and binding upon the limited liability company if they are executed by one or more managers of a limited liability company having a manager or managers or if they are executed by one or more members of a limited liability company in which management has been retained by the members.  

   [Citation.] The trial court granted Mt. Olympus’ motion and dismissed Taghipour’s claims against Mt. Olympus, ruling * * * that the complaint alleges that Jerez is the manager of the LLC, and that therefore the loan documents Jerez executed are valid and binding on the LLC.

   Taghipour appealed to the Utah Court of Appeals. Taghipour argued that the trial court’s interpretation of Section 48–2b–127(2) was in error, inasmuch as it failed to read it in conjunction with Utah Code Section 48–2b– 125(2)(b), which provides that a manager’s authority to bind a limited liability company can be limited by the operating agreement. * * *

   [Citation.] The Utah Court of Appeals affirmed the trial court, concluding that the plain language of section 48–2b– 127(2) provided no limitation on a manager’s authority to execute certain documents and bind a limited liability company * * * if executed by one or more managers. [Citation.] Further, the court of appeals concluded that this specific statute prevailed over the general statute, Section 48–2b– 125(2)(b), and that the loan documents executed by Jerez were therefore binding upon the LLC in this case. [Citation.] * * * Taghipour petitioned this court for certiorari, which we granted.

*** 

   To determine whether the loan agreement in this case is valid and binding on the LLC, it must first be determined whether this case is governed by Section 48–2b–127(2), which makes certain kinds of documents binding on a limited liability company when executed by a manager, or Section 48–2b–125(2)(b), which provides that a manager’s authority to bind a limited liability company can be limited or eliminated by an operating agreement.

   * * * ‘‘[W]hen two statutory provisions conflict in their operation, the provision more specific in application governs over the more general provision.’’ [Citations.]  

*** 

   Section 48–2b–127(2) is the more specific statute because it applies only to documents explicitly enumerated in the statute, i.e., the section expressly addresses ‘‘instruments and documents’’ that provide ‘‘for the acquisition, mortgage, or disposition of property of the limited liability company.’’ [Citations.] Thus, this section is tailored precisely to address the documents and instruments Jerez executed, e.g., the trust deed and trust deed note. * * * Conversely, Section 48–2b–125(2)(b) is more general because it addresses every situation in which a manager can bind a limited liability company.

*** 

   In this case * * * Jerez was designated as the LLC’s manager in the articles of organization. Jerez, acting in his capacity as manager, executed loan agreement documents, e.g., the trust deed and trust deed note, on behalf of the LLC that are specifically covered by the above statute. [Citation.] As such, these documents are valid and binding on the LLC. * * * * * * Accordingly, we affirm.

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Smith and Roberson Business Law

ISBN: 978-0538473637

15th Edition

Authors: Richard A. Mann, Barry S. Roberts

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