## Facts

- Kinwood Capital Group, LLC was formed to develop real property; its operating agreement required approval by members holding at least 75% of the LLC for transactions involving company property.
- A minority member, Michael Earwood, did not have authority under the operating agreement to convey Kinwood’s property and was not the LLC’s managing member.
- Earwood secretly formed Northlake Development, LLC, wholly owned and controlled by him.
- Earwood executed a warranty deed purporting to transfer Kinwood’s real property to Northlake, signing as Kinwood’s “Managing Member.”
- Northlake borrowed funds from BankPlus, which took a deed of trust on the property as collateral; the title work was prepared by Earwood’s law firm.
- Earwood allegedly diverted most or all of the loan proceeds for personal use.
- Northlake later filed for Chapter 11 bankruptcy and listed the property as a Northlake asset.
- Kinwood and its principal challenged the transfer in an adversary proceeding; the bankruptcy court declared the deed to Northlake and BankPlus’s deed of trust null and void, and the district court affirmed.
- On appeal, the Fifth Circuit certified a state-law question to the Mississippi Supreme Court concerning whether the unauthorized deed was void or merely voidable.

## Issues

1. Whether a deed conveying LLC property, executed by a member without actual or apparent authority under the LLC operating agreement and without ratification, is void ab initio or merely voidable under Mississippi law.
2. If the deed is unauthorized, whether a subsequent lender claiming good faith and lack of notice can enforce a deed of trust derived from that conveyance.

## Decision

- The Mississippi Supreme Court answered the certified question by holding the deed was void, not voidable.
- Because Earwood lacked both actual and apparent authority and Kinwood did not ratify the transfer, the purported conveyance was of no legal effect.
- Since the deed conveyed no interest to Northlake, BankPlus could not obtain a valid security interest through a deed of trust based on that conveyance.

## Legal Principles

- An LLC is not bound by a member’s conveyance of company property when the member lacks actual authority under the operating agreement and the LLC has not ratified the act.
- Apparent authority cannot validate a transfer where the purported agent had no authority and the transferee is charged with the agent’s knowledge, including when the transferee is the agent’s wholly owned entity.
- A deed executed without actual or apparent authority, and without ratification, is void ab initio and conveys no title; downstream purchasers or lenders cannot derive enforceable interests from a void deed.

## Conclusion

The court held that an unauthorized conveyance of LLC real property, made without actual or apparent authority and without ratification, is void from the outset; consequently, no valid deed of trust can arise from the void transfer, even in favor of a lender asserting good faith and lack of notice.


In re Northlake Dev., LLC, 60 So. 3d 792 (Miss. 2011)