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Criteria for “Apparent Authority” to Enter a Binding Contract, Including the “Apparent Authority” of a Member of a Limited Liability Corporation, Explained

In determining the criteria for apparent authority, including apparent authority under the Limited Liability Corporation Law, had been met, the Fourth Department held that member of the defendant limited liability corporation (Sultan) entered into a binding contract on behalf of the defendant corporation:

“Essential to the creation of apparent authority are words or conduct of the principal, communicated to a third party, that give rise to the appearance and belief that the agent possesses authority to enter into a transaction. The agent cannot by his own acts imbue himself with apparent authority. Rather, the existence of apparent authority depends upon a factual showing that the third party relied upon the misrepresentation of the agent because of some misleading conduct on the part of the principal — not the agent” … . Here, we conclude that plaintiffs reasonably relied on, inter alia, their prior course of dealing with Sultan in his capacity as president, principal and manager of defendant … . * * *

…[W]e note that Limited Liability Company Law § 412 (a) provides that, “[u]nless the articles of organization of a limited liability company provide that management shall be vested in a manager or managers, every member is an agent of the limited liability company for the purpose of its business, and the act of every member, including the execution in the name of the limited liability company of any instrument, for apparently carrying on in the usual way the business of the limited liability company, binds the limited liability company, unless (i) the member so acting has in fact no authority to act for the limited liability company in the particular matter and (ii) the person with whom he or she is dealing has knowledge of the fact that the member has no such authority.” A nearly identical subsection provides that, where management of an LLC is vested in a manager, the acts of the manager are binding upon the LLC unless the manager at issue has in fact no authority to act for the LLC, and the person with whom he or she is dealing knows that the manager lacks such authority (§ 412 [b] [2] [A], [B]). Thus, regardless whether Sultan was acting as a manager of defendant, as reflected by his signature on the contract, or as a member of defendant, as he and defendant’s attorney previously had indicated to plaintiffs, he had apparent authority to act and his acts were binding upon defendant unless, inter alia, plaintiffs had “knowledge of the fact that [Sultan] ha[d] no such authority” … . Pasquarella v 1525 William St LLC, 2014 NY Slip Op 05745, 4th Dept 8-8-14

 

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