Deed from LLC Void Where There Was No Actual or Apparent Agency Authority to Sign It on LLC’s Behalf

Deed from LLC Void Where There Was No Actual or
Apparent Agency Authority to Sign It on LLC’s Behalf

 

In a decision from Indiana, it was held that a deed of property from an LLC was void where the person who executed it on behalf of the LLC had neither apparent nor actual authority to do so. On the facts of this case, the subsequent transferees of the real property were held to not have valid title thereto. GO Properties, LLC v. BER Enterprises, LLC, 112 N.E.3d 200 (Ind. Ct. App. 2018).

GO Properties, LLC had two members, Olicorp Properties, LLC and Gracie Properties, LLC. Olicorp’s sole member was Larry Oliver while Gracie Properties’ sole member was Stacy Phillips. As described by the court, Phillips “went rogue,” holding herself out as having authority to act on behalf of GO Properties. This she did withstanding the fact that Olicorp was designated as the “Member Manager” of GO Properties with the sole authority “to sign agreements and other instruments on behalf of [the] Company.” The court noted as well that “Neither Oliver nor Phillips was authorized, as an individual, to do any business on behalf of GO Properties.”

Notwithstanding these limitations on her authority, Phillips purported to sell certain real property owned by GO Properties. For that purpose, she hired Best Title Services to examine the title and provide closing services. Best Title failed to identify a mortgage that GO Properties had granted to Maxim Alliance Group. Further, “Best Title relied on Phillips' representation that she was the owner of GO Properties and as it conducted to examination and later acted as closing agent for the transaction.” After the closing, the purchaser flipped the purchased properties.

Some 20 months later, GO Properties filed a complaint seeking to quiet title in the transferred properties in itself; BER Enterprises, the named defendant, was a subsequent purchaser of one of the parcels of real estate. While the trial court would grant summary judgment in favor of the purchasers, the Court of Appeals reversed.

Reviewing the law of the apparent agency and its requirement that the principal have made a manifestation to the third-party that would instill a reasonable belief that Phillips had authority to act on behalf of GO Properties, such a communication was found to be lacking. Rather:

Here, GO Properties made absolutely no direct or indirect statements indicating that Phillips had authority to act on its behalf. The Operating Agreement clearly states that Olicorp was the sole Member Manager. Neither Oliver and Phillips as individuals nor Gracie Properties as an entity was authorized to act on behalf of GO Properties.

Addressing the due diligence that should have been undertaken, in opposition to Phillips’ bare representation that she was an owner, the court observed:

At the trial court’s request, GO Properties provided examples of underwriting standards for title insurance. Among other things, to insure title from an LLC, it is necessary to obtain a copy of the LLC’s operating agreement, any and all amendments thereto, and a certificate that the operating agreement is a true and correct copy of the agreement in effect at the time of the sale. This practice is wise because it protects both the other members of the LLC and all future purchasers of the property. Had this practice been observed in this case, neither the original nor subsequent transactions would have occurred.

In sum, Phillips did not have actual or apparent authority to sell the Properties on behalf of GO Properties. As a result, the original sale of the Properties to Elden Investments was void. Because the deed that Phillips executed on behalf of GO Properties was void, all future conveyances of the Properties were likewise void. Therefore, the trial court erred by entering summary judgment in favor of BER Enterprises and New Field and by denying GO Properties’ summary judgment motion.

112 N.E.3d at 204 (footnotes and record citation omitted, emphasis in original).