In B&C Realty of Ill., LLC v. Chi. Stand-Up Mri, LLC, 2013 IL App (1st) 112064, http://www.state.il.us/court/r23_orders/appellatecourt/2013/1stdistrict/1112064_r23.pdf (Ill. App., 2013), the court held that a buyer of real property that constituted substantially all of the assets of a manager-managed limited liability company could win a title action against a co-manager of the LLC and the LLC, since the manager who signed the transfer documents had apparent authority to act. The court noted such apparent authority under the terms of the Illinois Act, since “to the extent a manager signs and delivers an instrument transferring the company’s interest in real estate without having the authority to do so, the instrument is conclusive in favor of a person who gives value without knowledge of the manager’s lack of authority. 805 ILCS 180/13-5(c)” Other provisions of the LLC Act requiring all managers to consent to a sale of all assets were not sufficient to put buyers on notice that not all managers had consented to the deal.
Take-Away: The doctors who gave a real estate manager a $10,000 per month salary and let him make deals to sell parking spaces and make contracts for development of an MRI facility on his sole signature exposed the MRI development LLC he managed for them to any larger sales or agreements he made on the company’s behalf. This is why careful examination of current and past financial dealings of managers, fidelity bonds, and careful tracking of all dealings of any person in authority can be important. No audit and accounting controls can stop all fraud or other mistakes, but a watchful partner loses less money than an overly trusting one.