A recent Virginia Court of Appeals case is instructive for attorneys and others who may encounter transactions in which the signer’s authority on behalf of an entity is questionable. This is an important case with regard to anything contractual — business transactions, leases, loans, purchase/sale agreements, etc. — on the issue of accepting the signing authority of a manager for an LLC (and, by possible extension, the authority of a signing partner of a partnership or corporate officer of a company).
In Loan Funder LLC, Series 715 v. Farm Life, LLC, 86 Va. App. 552 (2026), the Court of Appeals affirmed a decision from the Circuit Court of Loudoun County, Virginia, Judge Stephen E. Sincavage presiding, which involved numerous issues of misrepresentations and possible fraud by one of five managers of a limited liability company (LLC). The opinion is thoroughly detailed, researched and written.
At its core, the Court held that the actions of the LLC manager rendered the loan documents unenforceable, as having been unauthorized. The problematic manager, who owned only 14% of the ownership interest in Farm Life, LLC, executed loan documents on behalf of the LLC, including a deed of trust on the LLC’s real estate, in order to procure funds personally for the manager from Loan Funder LLC to invest in his own separate business, which was unrelated to the business for which Farm Life, LLC and its managers were authorized to act.
Farm Life, LLC’s governing documents expressed that “extraordinary matters” could not be taken except by the vote of members “holding at least 51% of the outstanding Percentage Interests entitled to vote.” Among these matters was the act of “sell[ing] or transfer[ing] all or substantially all of the Company assets other than in the ordinary course of business.” Placing a lien was acknowledged as a “transfer.” Farm Life’s business related only to owning nearly 100 acres of real property in Hamilton, Virginia, and not to an “[i]nvestment in Blue Coast Bakery” located in Florida, which the manager had stated on the loan application to have been the express purpose of the loan.
In its decision, the Court of Appeals noted that:
Loan Funder, aware that an LLC manager was seeking to obtain a loan to perform business bearing no relation to the principal’s type of business or geographic location, was on notice that they were not dealing with an ordinary LLC manager and was responsible for dealing with him as such.
In referencing this and the principle of construction that a common law principle such as constructive knowledge is to be binding on a party unless a statute expressly modifies that principle, and that the principle was not modified in the LLC Code provisions, the Court invalidated the deed of trust, holding for Farm Life and against Loan Funder. Thus, if the party dealing with the LLC knows or reasonably should have known that the contract is outside the usual scope of the LLC’s business, then it is on notice to verify the signer’s actual authority.
Co-Authored by Robert H. J. Loftus and Douglas J. Sanderson
