251 P.3d 216
Or. Ct. App.2011Background
- Three Oregon venture funds (Pls) sue EVI to collect on a promissory note and foreclose on a security interest under a loan agreement.
- Dispute centers on whether an amendment to the loan agreement extending EVI's deadline was binding on Pls.
- Berkman, the manager of the funds, executed the September 2004 amendment on Pls’ behalf and a separate Unanimous Consent allowing Wiita to sign for EVI.
- Pls removed Berkman as manager in 2004, but the amendment had already been signed; EVI did not pay or obtain new investments by the deadline.
- SAV later invested $1 million, EVI purportedly converted the debt to equity, and suit ensued; trial court granted EVI summary judgment and dismissed related funds.
- On appeal, the issue is whether Berkman had authority to bind Pls to the amendment; the court held he did.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Berkman’s authority to bind Pls to the amendment | Berkman breached fiduciary duties and/or lacked authority; authority was limited by letters. | Operating agreements gave exclusive managing authority to Berkman; third parties may rely on his authority; no limitation proved. | Berkman had express authority; letters did not limit authority; amendment binding. |
| Effect of fiduciary duties and conflicts on binding | Berkman’s self-dealing breached duties; conflicts invalidated amendment. | Conflicts permitted by operating agreements; rights and duties allow such actions; no statutory bar. | Conflicts permitted by the operating agreements; ORS 63.130 does not apply to defeat binding. |
| Whether plaintiffs ratified the amendment by silence | Pls knew of the amendment seven months later; ratification should bar enforcement. | Ratification requires action; no necessary ratification occurred and authority remained. | Ratification not required to bind; Berkman’s authority existed and binding. |
Key Cases Cited
- Fine v. Harney Co. National Bank, 181 Or. 411 (1947) (agency knowledge of dual capacity limits authority; not binding when agent acts in self-interest)
- Houck v. Feller Living Trust, 191 Or. App. 39 (2003) (power of attorney scope; awareness of self-dealing requires inquiry into authority)
- Kaiser Foundation Health Plan v. Doe, 136 Or. App. 566 (1995) (agency authority—actual/apparent authority binds principal unless lacking authority and reliance knows)