## Facts

- Namvar Taghipour, Danesh Rahemi, M.D., and Edgar C. Jerez formed a Utah limited liability company to purchase and develop a specific parcel of real property.
- The articles of organization designated Jerez as the LLC’s manager.
- The operating agreement limited borrowing authority: no loans could be contracted on the LLC’s behalf without a members’ resolution.
- Without the other members’ knowledge, Jerez executed a $25,000 loan agreement with Mount Olympus Financial, L.C. on behalf of the LLC.
- As security, Jerez executed a trust deed encumbering the LLC’s real property; $20,000 was disbursed to Jerez and $5,000 was retained for fees.
- Jerez allegedly misappropriated the disbursed funds; the LLC made no payments because the other members were unaware of the loan.
- Mount Olympus foreclosed on the property after default; the other members alleged they were not notified of default or the foreclosure sale.
- The members sued, seeking a declaration that the loan/foreclosure were invalid, damages for negligence based on inadequate inquiry into Jerez’s authority, and partition.

## Issues

1. Whether a mortgage-related document executed by an LLC’s designated manager is valid and binding on the LLC under Utah Code § 48-2b-127(2), even if the operating agreement privately limits the manager’s borrowing authority.
2. Whether a lender owes a negligence-based duty to investigate internal operating-agreement limits on a manager’s authority beyond confirming the manager’s status and obtaining the manager’s execution of the mortgage document.

## Decision

- The Utah Supreme Court affirmed dismissal under Rule 12(b)(6) of all claims against Mount Olympus Financial.
- The Court held that Utah Code § 48-2b-127(2) governed and made the trust deed and related loan documents valid and binding on the LLC because they were executed by the LLC’s manager.
- The Court treated § 48-2b-127(2) as controlling over the more general manager-authority provision in § 48-2b-125(2)(b).
- The Court rejected the negligence theory, concluding the statute did not impose an additional duty on the lender to obtain or verify internal authorization under the operating agreement.
- Any remedy for Jerez’s alleged misconduct lay in claims against Jerez, not in invalidating the lender’s security interest based on undisclosed internal limits.

## Legal Principles

- When a specific LLC statute provides that documents for acquisition, mortgage, or disposition of LLC property are valid and binding if executed by a manager, that rule is effective against the LLC even if internal governance documents restrict the manager’s authority.
- In statutory interpretation, a specific provision controls over a general provision addressing the same subject matter.
- Private operating-agreement limits on managerial authority generally do not defeat the rights of third parties who rely on the manager’s publicly designated status where the statute allocates that risk to the LLC.
- Absent a statutory or other legal basis, a lender does not owe a tort duty to investigate internal LLC authorization procedures beyond confirming the manager’s position and obtaining the manager’s execution of the mortgage instrument.

## Conclusion

The Utah Supreme Court held that a trust deed executed by an LLC’s designated manager bound the LLC under Utah Code § 48-2b-127(2) despite operating-agreement restrictions, and it affirmed dismissal of claims alleging the lender had a further duty to verify internal member authorization.


Taghipour LLC v. Jerez, 2002 UT 74, 52 P.3d 1252 (Utah 2002)