Manager's Authority, Ratification, and a Personal Guarantee
Delta Supply LLC sells building materials. In March 2023, Pelican Renovations LLC sends Delta a purchase order for $75,000 of lumber. Pelican's operating agreement, which Delta has never seen, lists Tee as manager and authorizes Tee to execute contracts 'up to $50,000.' Tee signs the purchase order as 'Tee, Manager, Pelican Renovations LLC.' Delta's owner, who had filled a $40,000 order with Tee six months earlier, does not ask about authority. The lumber is delivered to Pelican's job site and used. Pelican later refuses to pay, saying Tee exceeded his authority. Delta sues Pelican and Tee. Tee had also signed a separate one-page document that reads: 'For value received, I personally guarantee payment of this order. /s/ Tee.' Tee argues that the guarantee is unenforceable because it was not approved by Pelican's members and because Delta did not rely on his personal credit.
1. Is Pelican bound by Tee's $75,000 purchase?
Read the worked answer
Pelican's operating agreement limits Tee's actual authority to $50,000. Tee signed a $75,000 order, so he lacked actual authority. Pelican may still be bound by apparent authority or ratification. Apparent authority requires a manifestation by Pelican to Delta that Tee had authority to sign this kind of contract. Pelican held Tee out as manager, and Delta had dealt with Tee on a $40,000 order. But a prior $40,000 order does not by itself manifest authority for $75,000, and Delta never saw the operating agreement. The stronger ground is ratification. Pelican accepted the lumber, used it on its job site, and retained the benefit. Under Louisiana law, a principal ratifies an unauthorized act by knowingly accepting its benefits. Pelican cannot keep the lumber and refuse payment on the ground that Tee exceeded a secret internal limit. Pelican is therefore bound to Delta for the reasonable value or contract price, subject to any defenses.
2. Is Tee personally liable on the separate guarantee?
Read the worked answer
Tee is not personally liable on the purchase order merely because he signed as manager. He disclosed his principal, Pelican, and signed in a representative capacity, so the contract is Pelican's. The separate guarantee is different. Under La. C.C. art. 3038, suretyship must be express and in writing. The one-page document states, 'I personally guarantee payment of this order,' and Tee signed it. That is an express written suretyship. It does not need approval by Pelican's members because Tee is binding himself personally, not the LLC. Delta's delivery of the lumber supplies consideration and the guarantee recites value received. Delta does not have to show that it relied on Tee's personal credit; a surety is liable on the guarantee even if the creditor also looked to the principal. Tee is personally liable as surety.
3. If Pelican is bound, can Delta recover from both Pelican and Tee?
Read the worked answer
Delta may pursue both Pelican as principal debtor and Tee as surety, but it may collect only once. If Pelican is bound by ratification, Tee's suretyship is accessory to a valid principal obligation. If Pelican were not bound at all, Tee could argue the suretyship fails because there is no principal obligation, but the ratification makes that argument unavailable. Tee's liability is not limited by the $50,000 internal cap because the cap governed Tee's authority to bind Pelican, not Tee's personal guarantee. If Delta collects from Tee, Tee may have a recourse action against Pelican. If Delta collects from Pelican, Tee is discharged to that extent.