Fact Pattern: You are the buyer’s agent for a pending sales transaction using the C.A.R. Residential Purchase Agreement. The owner and seller of the property is an LLC. Escrow is about ready to close. However, the listing agent has just informed you that one of the members of the LLC refuses to sell the property.

Multiple Choice Question: Is the LLC seller obligated to sell to this buyer? Pick the best answer:

A. Yes, if the people who signed the RPA as the LLC seller are authorized to act in that capacity on behalf of the LLC.
B. Yes, if Answer A is true, and a C.A.R. Representative Capacity Signature Disclosure (RCSD-S) was properly incorporated into the RPA.
C. Yes, if Answers A and B are true, and the seller has provided the buyer with evidence of the signers’ authority to act on behalf of the LLC.
D. No. 

Answer: The correct answer is A. A sales contract is generally binding and enforceable against an LLC seller if it is signed by managers, members, or other persons who are authorized to act on behalf of the LLC. The problem is, as the buyer or buyer’s agent, you cannot tell by just looking at an RPA as to whether a signer is authorized to act on behalf of the LLC seller. Yet, you definitely do not want to wait until right before close of escrow to find out something like that!

Hence, as stated in Answer B, a buyer and buyer’s agent would want the RCSD-S to be properly incorporated into the RPA. However, even with an RCSD-S, you are still relying on nothing more than a signer’s own unverified statement that he or she is authorized to act on behalf of the LLC.

In addition to the RCSD-S, and as stated in Answer C, you would also want the seller’s side to provide separate documentation proving the signers’ authority to act on the LLC’s behalf, such as, but not limited to, an LLC resolution to sell the property.

Agents and their clients often rely on escrow officers and title companies to determine whether someone signing on behalf of an LLC seller has the authority to do so. Yet, that is precisely how a buyer and buyer’s agent can get caught off guard right before close of escrow.

To help protect against last minute surprises, you can look up certain limited information about an LLC doing business in California, including its Articles of Organization and Statement of Information. That information is available from the California Secretary of State’s Business Search webpage.

Additionally, under the RPA, anyone acting in a representative capacity on behalf of a seller must generally provide the buyer (and escrow) with documentation evidencing the signer’s authority to act within 3 days after contract acceptance (see paragraph 19 of the RPA). If the seller does not provide such evidence of authority within the allotted timeframe, the buyer can serve the seller with a Notice to Seller to Perform (NSP) (see paragraph 14D(2)(viii)).

-Thank You to Clara Eisenman (Tustin Office Manager) for suggesting this week’s legal tip!

Copyright© 2021 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of June 7, 2021. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals.