Reference no: EM133278435

SCENARIO - George Flynt and Stan Hefner were the only two members of Sunshine Landscaping, LLC, a limited liability company organized for the purpose of providing lawn care and landscaping services. Stan regularly took care of all the finances for the company, and George regularly performed the work for clients, though neither had specific duties. George met with clients, quoted them fees, obtained all the tools and products necessary to perform the job, and completed the service for the client. Stan paid the bills and invoiced clients, but sometimes when Stan was on vacation, George would take over the finances while he was away. However, when George was on vacation, the business would be closed for the week because Stan did not want to perform the service work himself.

Sunshine Landscaping had regular accounts with all the local plant nurseries. Normally, George would place an order for plants, Sunshine Landscaping would be invoiced by the nursery, and then Stan would pay the invoice. One day Mary, a customer of Sunshine Landscaping, asked the company to remove from her property a large tree which was touching some power lines. George surveyed the property and could see that, indeed, the tree was dangerously close to the power lines and, because the houses were so close together, there was no place for the tree to fall if he cut it down. He knew the job would be too big for Sunshine Landscaping and would require special skill which neither he nor Stan had. He considered advising Mary to contact a tree removal company, but then decided to accept the job, hire a tree removal company as a subcontractor, and then upcharge Mary 10 percent for acting as the general contractor.

He emailed Tree Down, a company specializing in tree removal, via the company's contact form online. George provided his cell phone number, his business email address, and stated "I need to get a quote to have a tree removed at 203 Main Street. Please provide me with an estimated cost."

That afternoon, Tree Down sent George the following estimate:

Eager to get the project underway, George signed the estimate "George Flynt" above the customer signature line and immediately emailed it back to the company. George called Mary to tell her the cost would be $4,400, and Mary immediately put a check in the mail to Sunshine Landscaping for the full amount. Several days later, Tree Down cut down the tree, hauled it away, and invoiced George Flynt at the email address he provided on the contact form. George printed the email and invoice and then handed it to Stan. Stan put the invoice on a pile of other bills without looking at it.

Several weeks later, Stan proposes to George, "We have so many bills for the business, and we aren't making enough to pay them and pay ourselves a decent amount. Let's just file for bankruptcy for this business. We can get out of paying all these bills and then start a new landscaping company."

George disagreed with Stan's proposal and disliked how Stan handled business matters generally, so George decided to withdraw as a member of the LLC. There was no operating agreement in place for the management of the LLC, so George and Stan decided to write a separation agreement as follows:

A month goes by and having not yet been paid, Tree Down initiated an action against George Flynt, personally, for $4,000. Upset, George starts researching the law and discovers the following state statute:

"§301 Each member of a Limited Liability Company is an agent of the company for the purpose of its business and the member's acts for apparently carrying on in the ordinary course of the company's business binds the company, unless the member lacked the authority to act and the third party knew or should have known that the member lacked authority."

DISCUSSION QUESTIONS -

1. Did Sunshine Landscaping create apparent authority in George to sign any contract on behalf of the business when it allowed George to sign purchase orders from the nurseries?

2. What kind of risks are faced by third parties entering into a contract with someone who has apparent authority to act on behalf of a business?

3. How could a LLC protect itself from the rogue acts of a member who did not have authority in a state with the statutory language provided above?

4. What steps, if any, should a third party take to make sure he gets paid in a state with the statutory language provided above, if he is dealing with an LLC?