Bar Exam (Next Generation) Quiz: Llc Member And Manager Liability Ullca 2013

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Llc Member And Manager Liability Ullca 2013Question 1 of 11

State X's LLC Act, Section 108, provides: (a) A person that enters into a transaction on behalf of a limited liability company before the company is formed is personally liable on the transaction unless the person and the other party expressly agree otherwise. (b) If the company is formed and adopts the transaction, the company is liable on the transaction, but the adoption does not release the person from personal liability unless the other party expressly releases the person. (c) A person is not liable under subsection (a) if the other party knew when entering the transaction that the company had not been formed and expressly agreed that the person would not be personally liable. Facts: Before filing articles of organization, Renata signed a three-year lease as 'Managing Member, Juniper Creek LLC, a limited liability company in formation.' Renata told the landlord that Juniper Creek had not yet been formed. The lease did not state that Renata would not be personally liable and did not release her. Juniper Creek was formed ten days later and adopted the lease. Juniper Creek then defaulted, and the landlord sued Renata for unpaid rent.

Under Section 108, is Renata personally liable for the unpaid rent?

No, because the landlord knew when signing that Juniper Creek had not been formed and that Renata was acting as Managing Member.

No, because Juniper Creek was formed and adopted the lease, making the company the party liable on the lease.

Yes, because Renata signed before formation and the lease did not expressly release her or state that she would not be personally liable.

Yes, but only if the landlord can prove Renata intended to deceive the landlord about the company's formation.

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Bar Exam (Next Generation) Quiz: Llc Member And Manager Liability Ullca 2013

Practice Llc Member And Manager Liability Ullca 2013 in Bar Exam (Next Generation) with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

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This quiz focuses on Llc Member And Manager Liability Ullca 2013, giving you a quick way to practice the rules, question types, and explanations that matter most for Bar Exam (Next Generation).

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Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

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Question 1

Under Section 108, is Renata personally liable for the unpaid rent?

No, because the landlord knew when signing that Juniper Creek had not been formed and that Renata was acting as Managing Member.
No, because Juniper Creek was formed and adopted the lease, making the company the party liable on the lease.
Yes, because Renata signed before formation and the lease did not expressly release her or state that she would not be personally liable. (correct answer)
Yes, but only if the landlord can prove Renata intended to deceive the landlord about the company's formation.

Explanation: When you see a pre-formation contract question, remember that the default rule is personal liability for the person signing on behalf of a not-yet-formed entity. The only escape is an express agreement to the contrary—knowledge or good faith alone doesn't cut it. Here, Renata signed before formation, and the lease never stated she would not be personally liable nor released her. Even though the landlord knew Juniper Creek was in formation, Section 108(c) requires both knowledge and an express agreement that Renata would not be personally liable. That didn't happen. Also, Juniper Creek's later adoption of the lease made the company liable, but Section 108(b) explicitly says adoption does not release the individual unless the other party expressly releases her. So Renata is personally liable for the unpaid rent. Now, the wrong answers: "No, because the landlord knew when signing that Juniper Creek had not been formed and that Renata was acting as Managing Member" confuses mere knowledge with the required express release—knowledge alone is insufficient. "No, because Juniper Creek was formed and adopted the lease, making the company the party liable" overlooks that adoption adds liability but does not substitute for the individual's liability. "Yes, but only if the landlord can prove Renata intended to deceive" invents an intent element that the statute does not require; liability is strict unless the express agreement exists. Your takeaway: For pre-formation contracts, ask two questions—Was there an express agreement to release the individual? Was there an express release after adoption? If either is missing, personal liability sticks.

Question 2

State X's Supreme Court held in Hargrove v. Peak Logistics LLC: An LLC's debts are the LLC's alone, and a member or manager is not personally liable on those debts solely by reason of status. An LLC's separate existence will not be disregarded merely because it has a single member, is thinly capitalized, or fails to observe internal formalities. To pierce the LLC veil, a claimant must prove both (1) such unity of interest and ownership that the separate personalities of the owner and the LLC no longer exist, and (2) that adherence to the fiction of separate existence would sanction fraud or promote injustice. The second prong is not satisfied by showing only that the LLC is now insolvent; it requires wrongful use of the entity, such as a fraudulent transfer, siphoning of assets, or a materially false representation of the LLC's financial condition made to induce credit. Facts: Marcus was the sole member and manager of Marcus Movers LLC. He commingled personal and business funds, paid personal expenses from the LLC's account, and never held meetings. To obtain a $100,000 loan for the LLC, Marcus gave the Bank a balance sheet stating that the LLC had $250,000 in cash and no liabilities. In fact, the LLC had $10,000 in cash and owed $80,000 to a supplier. The Bank relied on the balance sheet and made the loan. The LLC defaulted. The Bank sued Marcus, seeking to pierce the LLC veil.

Under Hargrove, which statement best describes the Bank's claim?

The Bank may pierce if it proves both a unity of interest and that Marcus used a materially false financial statement to induce credit, so adherence to the separate entity would sanction fraud. (correct answer)
The Bank may pierce because Marcus's commingling of funds and failure to observe formalities eliminated the LLC's separate existence.
The Bank cannot pierce because a creditor that lends to a single-member LLC assumes the risk of undercapitalization and cannot rely on the LLC's later insolvency.
The Bank cannot pierce because the false balance sheet was given in Marcus's capacity as manager, and Hargrove states that a manager is not liable on company debts solely by reason of status.

Explanation: When you see an LLC veil-piercing question, start by isolating the jurisdiction's test. Here, Hargrove imposes two prongs: (1) unity of interest between owner and LLC, and (2) wrongful use such that honoring the separate entity would sanction fraud or injustice. The second prong demands more than insolvency; it requires fraudulent transfers, siphoning, or a materially false financial statement made to induce credit. The Bank's claim succeeds only if it proves both prongs. Marcus's false balance sheet—claiming $250,000 cash when the LLC had $10,000 and $80,000 in debt—was exactly the kind of materially false representation Hargrove lists as satisfying the second prong. Combined with proof of unity from commingling and ignoring formalities, the Bank may pierce. That is why the answer describing proof of unity plus a false financial statement to induce credit is correct. The choice saying Marcus's commingling and failure to hold meetings alone eliminated the separate existence is wrong: Hargrove expressly says those facts do not by themselves justify disregard. The choice saying the Bank cannot pierce because it assumed the risk of undercapitalization is also wrong—this is not mere undercapitalization or insolvency; it is fraud in inducing the loan. Finally, the choice saying Marcus acted only as manager and therefore cannot be liable misunderstands the rule: managers are not liable solely by status, but they remain liable for their own fraudulent conduct. The false balance sheet was his wrongful use of the LLC, so personal liability is available. Study tip: on veil-piercing questions, ask whether the claimant alleges only status, thin capitalization, or informality—insufficient—versus affirmative misconduct like fraud or asset-stripping that makes the entity a shield for injustice.

Question 3

The state has adopted the ULLCA (2013). Vale LLC is a real estate brokerage. Singh, a member but not a manager, told a buyer that a house listed by Vale had no history of flooding. The buyer purchased the house, then discovered flood damage and sued Vale and Singh for fraudulent misrepresentation. Singh argues that ULLCA shields members from personal liability for acts performed for the LLC.

Which issue is most likely to determine whether Singh is personally liable?

Whether Vale's managers authorized Singh to make representations about the house
Whether Singh knew his statement about flooding was false when he made it (correct answer)
Whether Singh's membership interest in Vale gave him authority to speak for the LLC
Whether the buyer's contract with Vale contained an as-is clause

Explanation: Whenever you see an LLC member asserting the "corporate shield," remember: the LLC protects members from entity debts, not from liability for their own torts. ULLCA (2013) also says membership alone does not make a member an agent of the LLC. Here Singh is sued for fraudulent misrepresentation, so the central question is whether he had the required state of mind for fraud. The issue most likely to determine personal liability is whether Singh knew his statement about flooding was false when he made it. That goes to scienter, an essential element of fraudulent misrepresentation. If Singh knowingly lied, he committed a tort, and acting on behalf of Vale does not immunize him. Limited liability never shields a wrongdoer from personal responsibility for his own misconduct. The choice about whether Vale's managers authorized Singh to make representations is not the key: authorization might establish agency or apparent authority, but managers cannot authorize fraud, and authorization does not erase Singh's knowledge or intent. The choice about whether Singh's membership interest gave him authority to speak for the LLC is also off. Under ULLCA, membership alone does not confer agency authority. Even if he had authority, that would not excuse his own fraudulent statement. Finally, an as-is clause in the buyer's contract could affect reliance or damages, but it does not address whether Singh knowingly made a false statement—and fraud is not automatically waived by an as-is provision. Study tip: when a defendant invokes LLC or corporate protection, ask whether the claim rests on the defendant's own tortious conduct. If it does, the shield is no defense.

Question 4

The state has adopted the ULLCA (2013). At the start of the year, Fern LLC had positive net assets. By autumn, Fern could not pay debts as they became due. The two managing members nevertheless voted to distribute $40,000 to each member. Member Soto, who was not a manager, received the distribution knowing that Fern was insolvent but did not vote on it. Fern's creditors later sued Soto to recover the distribution.

Which issue is most likely to determine whether Soto must return the distribution?

Whether Soto, as a non-manager member, owed a fiduciary duty to Fern's creditors
Whether Soto received the distribution in proportion to his membership interest
Whether the distribution had been approved by the managing members in accordance with the operating agreement
Whether Soto knew that the distribution was improper when he received it (correct answer)

Explanation: When you see an LLC distribution paired with insolvency, your mind should immediately jump to the ULLCA's rules on improper distributions and the liability of the recipient. The key is that the statute does not punish members for their role in the decision—it punishes them for what they knew when they took the money. Under ULLCA (2013) § 405, a member who receives a distribution knowing that it violates the Act (for instance, by rendering the LLC unable to pay its debts as they become due) is personally liable to return it. Soto received the $40,000 while knowing Fern was insolvent. He did not vote on the distribution, but that does not matter—the statute focuses exclusively on the recipient's state of mind at the moment of receipt. Therefore, the controlling issue is whether Soto knew the distribution was improper when he accepted it. The distractor suggesting that Soto, as a non-manager member, owed a fiduciary duty to Fern's creditors is a classic trap—members owe fiduciary duties to the LLC and its members, not to creditors. The idea that the distribution must be proportional to his membership interest is irrelevant because the statute's liability trigger is knowledge, not proportionality. And the fact that the managing members approved the distribution in accordance with the operating agreement does not shield a knowing recipient; internal approval cannot cure a distribution that the recipient knows is improper. Your takeaway: for improper distribution claims, always ask what did the recipient know and when did they know it? That knowledge, not their title or the voting procedure, is the deciding factor.

Question 5

State X's LLC Act provides in relevant part: Section 405. A limited liability company may not make a distribution if after giving effect to the distribution the company would not be able to pay its debts as they become due in the ordinary course, or the company's total assets would be less than its total liabilities. Section 406. (a) A member or manager who consents to a distribution in violation of Section 405 is personally liable to the company for the amount of the distribution exceeding the amount that could have been distributed lawfully. (b) A member or manager who receives a distribution in violation of Section 405 is liable to the company to return the distribution if the person knew or had notice of the violation. (c) A creditor of the company whose claim arose before the distribution may enforce a liability under this section if the company is insolvent and has not commenced a timely action to recover the distribution. (d) The total recovery from all persons under this section may not exceed the amount of the improper distribution. Facts: At the time of a distribution, Kestrel LLC had assets of $400,000 and liabilities of $500,000. Despite this, Manager Tara caused the company to distribute $100,000 to Member Neil. Tara knew the company's liabilities exceeded its assets, and Neil also knew the distribution was improper. Later, creditor Vale, whose claim arose before the distribution, obtained a $300,000 judgment against Kestrel. Kestrel has no assets and has not sued Tara or Neil.

What is the maximum amount Vale may recover from Tara and Neil?

$0, because LLC debts are solely the LLC's and the creditor cannot collect from Tara or Neil solely because one managed the company and the other received a distribution.
$100,000 total from Tara and Neil, because the distribution was improper in that amount and Section 406(d) caps aggregate recovery at the amount of the improper distribution. (correct answer)
$200,000 total, because Tara is liable for consenting to the distribution as manager and Neil is separately liable for receiving it as a member with knowledge.
$300,000 total, because Vale's judgment against the company remains unsatisfied and Section 406 allows a creditor to enforce all company obligations.

Explanation: Whenever you see LLC distribution liability, check two things: whether the distribution was unlawful, and whether any statutory cap limits total recovery. Here, Kestrel's assets (

400,000) were already less than its liabilities (

500,000) before the transfer, so no distribution was lawful; the entire

100,000 paid to Neil was improper. Tara consented as manager, so she is liable under Section 406(a), and Neil received with knowledge, so he is liable under Section 406(b). Vale’s pre-distribution claim lets Vale enforce those liabilities because Kestrel is insolvent and has not sued. But Section 406(d) caps the total recovery from all persons at “the amount of the improper distribution”—

100,000. Therefore, Vale may recover no more than $100,000 total from Tara and Neil, not $100,000 each and not $300,000. The wrong choices test common traps. “LLC debts are solely the LLC’s” ignores the statute’s explicit personal liability for improper distributions. “

200,000 total because Tara and Neil are separately liable" double-counts the same improper distribution and ignores the aggregate cap. "

300,000 because Vale's judgment remains unsatisfied" confuses the creditor's judgment against the company with the limited statutory liability for the unlawful distribution; Vale does not become a guarantor of all company debts. On exam day, remember: even when multiple people are liable for an improper distribution, the statute's cap means the creditor's recovery is limited to the unlawful distribution amount, not the full judgment.

Question 6

The state has adopted the ULLCA (2013). Bramble LLC borrowed $150,000 from First Bank. The loan agreement defined 'Borrower' as 'Bramble LLC and Nadia, individually.' Nadia signed the signature block as 'Bramble LLC, by Nadia, Member.' Bramble defaulted. First Bank sued Nadia, who argued that she signed only in a representative capacity and that ULLCA shields members from LLC debts.

Which issue is most likely to determine whether Nadia is personally liable?

Whether First Bank extended credit in reliance on Nadia's membership in Bramble
Whether the loan agreement's definition of 'Borrower' made Nadia an individual co-borrower despite her representative signature (correct answer)
Whether Bramble was validly organized and in good standing when the loan was made
Whether the loan proceeds were used for Bramble's business rather than Nadia's personal expenses

Explanation: Whenever an LLC member tries to avoid a debt by citing ULLCA's member shield, remember that ULLCA protects members only from LLC obligations arising solely because of membership. It does not immunize them from obligations they voluntarily incur in an individual capacity. Here, the central dispute is contractual: the loan agreement defines "Borrower" as "Bramble LLC and Nadia, individually." That language makes Nadia a co-borrower even if the signature block reads "Bramble LLC, by Nadia, Member." A representative signature creates ambiguity, but the definition of "Borrower" is strong evidence of individual liability. So the most likely determinative issue is whether that definition made Nadia an individual co-borrower despite her representative signature. "Whether First Bank extended credit in reliance on Nadia's membership" is not enough: reliance on membership alone does not create personal liability; ULLCA's shield still applies unless she separately promised to pay. "Whether Bramble was validly organized and in good standing" is also not decisive: a valid LLC does not prevent a member from being liable based on her own contract. "Whether the loan proceeds were used for Bramble's business rather than Nadia's personal expenses" could matter for alter-ego or veil-piercing theories, but it is not the central issue when the agreement itself defines Nadia as a borrower. Strategy: on ULLCA questions, distinguish capacity. A signature as "Member" generally protects the member, but look for additional contract language, guarantees, or definitions creating individual obligation. The signature block is not conclusive.

Question 7

State X's LLC Act, Section 403, provides: (a) A member is obligated to the company to perform a promise to contribute money or property, or to perform a service, if the promise is set forth in a record signed by the member. (b) If a member does not perform a promised contribution, the company may require the member to pay the value of the promised contribution, as stated in the record, plus interest. (c) Section 304 notwithstanding, a creditor of the company that extends credit in reliance on a member's contribution obligation may enforce the obligation directly against the member if (1) the obligation is set forth in a record signed by the member, and (2) the creditor's claim is unpaid. (d) The amount a creditor may recover under subsection (c) is the lesser of (1) the amount of the creditor's claim remaining unpaid after application of the company's assets, or (2) the amount remaining unpaid on the member's contribution obligation. Facts: Priya signed an operating agreement promising to contribute $120,000 to Larkspur Apparel LLC. She has contributed nothing. Larkspur borrowed $90,000 from Community Bank; before making the loan, the Bank received and relied on the operating agreement showing Priya's contribution obligation. Larkspur defaulted, and its remaining assets are $20,000. Priya has not paid her contribution obligation. The Bank sued Priya directly.

What is the maximum amount the Bank may recover from Priya?

$0, because the LLC Act generally makes LLC debts the sole debts of the company and a member's contribution promise is enforceable only by the LLC.
$20,000, because the Bank must first exhaust the remaining LLC assets before it can recover anything directly from Priya.
$70,000, because the Bank's $90,000 claim is reduced to $70,000 by the company's remaining assets, and that is less than Priya's unpaid $120,000 contribution. (correct answer)
$90,000, because the Bank relied on the full contribution obligation and may recover the full amount of its loan without regard to the company's assets.

Explanation: This question tests the narrow exception to LLC limited liability created by Section 403: a creditor who relies on a member's recorded contribution promise can enforce it directly, but only up to the amount the company's assets could not cover. Start with the statute's formula: the creditor recovers the lesser of (1) its unpaid claim after applying company assets, or (2) the member's unpaid contribution obligation. The Bank's claim was $90,000, and Larkspur’s remaining assets are $20,000, so the Bank's claim remaining unpaid is $70,000. Priya’s unpaid contribution obligation is $120,000. The lesser amount is $70,000, so that is the maximum direct recovery. The choice saying $0 confuses the general rule that LLC debts are the company's debts with the statute's explicit direct-enforcement exception; Section 403(c) exists precisely to allow reliance-based creditor recovery. The choice saying $20,000 wrongly treats company assets as the recovery amount or as a precondition to sue—actually, the assets are subtracted from the creditor’s claim, and direct enforcement is allowed without first exhausting company assets. The choice saying $90,000 ignores the statutory offset for company assets; the creditor may not recover the full loan when $20,000 of it is still satisfiable from the company. On similar questions, immediately identify the statutory cap and apply the "lesser of" calculation before comparing liabilities. Write out the arithmetic: unpaid claim minus company assets, then compare to the unpaid contribution promise.

Question 8

The state has adopted the ULLCA (2013). Ellis is the sole member of Prism LLC. A creditor obtained a judgment against Prism and now seeks to hold Ellis personally liable. Ellis argues that ULLCA gives members limited liability.

Which additional fact, if true, would most strongly support holding Ellis personally liable for the judgment?

Ellis failed to hold formal member meetings or keep minutes
Prism was thinly capitalized when it incurred the judgment debt
Ellis regularly paid personal expenses from the LLC account and treated LLC assets as his own (correct answer)
Ellis signed the contract that gave rise to the debt only as Prism's member

Explanation: When you see a question about LLC member liability under the ULLCA, start from the default rule: members are not personally liable for LLC obligations merely because they are members. To hold Ellis liable, you need a recognized exception—most commonly a personal guarantee, a direct tort, or corporate-veil-piercing/alter-ego liability. ULLCA also contains an important rule: the failure to observe formalities is not alone a ground for piercing. Here, the strongest support is that Ellis regularly paid personal expenses from the LLC account and treated LLC assets as his own. That fact shows the LLC was used as an alter ego, blurring the line between member and entity—exactly what veil-piercing asks you to prove. Why not the others? Ellis failing to hold formal member meetings or keep minutes is a trap: under ULLCA, informality is expressly insufficient to impose personal liability, so this fact actually helps Ellis. Thin capitalization can be a factor in some courts, but by itself it is not the strongest evidence of disregard; it must usually be combined with misuse or undercapitalization at inception plus injustice. And Ellis signing the contract only as Prism's member is the opposite of personal liability—that signature confirms he acted in a representative capacity, so the LLC, not Ellis, is bound. Strategy: On LLC liability questions, separate "member status" from "misconduct." Look for facts showing the member personally guaranteed, personally committed a tort, or treated the entity as a sham—those justify piercing.

Question 9

State X's LLC Act, Section 304, provides: (a) A debt, obligation, or other liability of a limited liability company is solely the company's. A member or manager is not personally liable for a debt, obligation, or other liability of the company solely by reason of being or acting as a member or manager. (b) A member or manager is not personally liable for the acts or omissions of another member, manager, employee, or agent solely by reason of being or acting as a member or manager. (c) This section does not limit the personal liability of a member or manager for the person's own tortious conduct, including a failure to exercise reasonable care in hiring, training, or supervising an employee if the member or manager personally undertook that responsibility. Facts: Perla, the manager of CourierConnect LLC, was responsible for hiring and supervising drivers. She knew that Devon's driver's license had been suspended three times and that Devon had caused two at-fault accidents in the last year. She hired Devon anyway and never reviewed his driving record after hiring. While Devon was making a delivery for CourierConnect, he negligently ran a red light and injured Sam. Sam sued Perla personally, alleging negligent hiring and retention.

Does Section 304 bar Sam's claim against Perla?

Yes, because Devon, not Perla, committed the negligent act, and Section 304 shields a manager from vicarious liability for an employee's tort.
Yes, because Perla was acting within the scope of her managerial duties when she hired Devon and managed the delivery operation.
No, because a manager is personally liable for every act taken on behalf of the LLC when the act creates a foreseeable risk of physical injury.
No, because Section 304(c) preserves liability for the manager's own tortious conduct, and Perla's decisions to hire and retain Devon were her own conduct if a jury finds them negligent. (correct answer)

Explanation: Whenever you see an LLC liability question, the key is to separate vicarious liability from direct personal fault. Section 304 shields members and managers from liability solely because of their status or solely for acts of another person, but it does not make them immune from their own torts. Here, Sam is not suing Perla just because Devon ran a red light; Sam is suing her for negligently hiring and retaining Devon. The statute's subsection (c) explicitly preserves liability for a manager's own tortious conduct, including a failure to exercise reasonable care in hiring, training, or supervising an employee if the manager personally undertook that responsibility. Perla was personally responsible for hiring and supervision, knew about Devon's record, and hired him anyway. If a jury finds that was negligent, Section 304 does not bar the claim. The first wrong answer, "Yes, because Devon, not Perla, committed the negligent act," mischaracterizes the claim as vicarious liability. Perla is being sued for her own conduct, not merely for Devon's. The second wrong answer, "Yes, because Perla was acting within the scope of her managerial duties," confuses scope of employment with statutory liability; acting within managerial duties does not erase personal tort liability. The third wrong answer, "No, because a manager is personally liable for every act… that creates a foreseeable risk," overstates the law—foreseeability alone does not create liability without a negligent breach of duty. Study tip: classify whether the claim targets the owner's own behavior or someone else's. If the plaintiff alleges personal negligence in hiring or supervising, the LLC shield likely will not apply.

Question 10

The state has adopted the ULLCA (2013). Three members formed Cobalt LLC. The operating agreement provided that member Amari would contribute $100,000 in cash within six months. Relying on that provision, Cobalt obtained a $200,000 line of credit from Second Bank. Amari contributed only $10,000. Cobalt later defaulted, and Second Bank sued Amari. Amari argues he never guaranteed the LLC's debt and is shielded as a member.

Which legal issue is most directly raised by Second Bank's claim against Amari?

Whether a creditor that extended credit in reliance on a member's promised contribution can enforce that promise against the member (correct answer)
Whether Amari's contribution promise had to be in a separate signed writing to bind him
Whether Second Bank must first obtain a judgment against Cobalt before proceeding against Amari
Whether Amari's failure to contribute was a breach of fiduciary duty to Cobalt's other members

Explanation: When you see a member of an LLC being sued by an outside creditor, separate two questions: Is the member personally liable simply because the LLC defaulted? No. But did the creditor rely on the member's enforceable promise to contribute capital? If so, ULLCA lets the creditor enforce that promise directly. Here, Cobalt obtained the bank's line of credit relying on Amari's operating-agreement commitment to contribute $100,000, and Amari contributed only $10,000. Amari did not need to sign a personal guarantee; under ULLCA, a promised contribution in a signed operating agreement can be enforced by a creditor who extended credit in reliance on it. That is the issue raised: whether the creditor can enforce the contribution promise. The idea that Amari's promise had to be in a separate signed writing misses the point—the operating agreement itself is the signed record, and no separate guarantee is required. The argument that the bank must first obtain a judgment against Cobalt confuses ordinary entity-debt liability with the statutory right to enforce a member's contribution obligation; ULLCA permits direct enforcement by a relying creditor. Finally, treating the failure only as a breach of fiduciary duty to other members overlooks that the creditor's claim comes from the contribution promise itself, not from fiduciary harm among members. On exam, whenever a promised capital contribution and creditor reliance appear together, think direct enforceability against the member under ULLCA.

Question 11

State X's LLC Act, Section 204, provides: (a) If a record delivered to the Secretary of State for filing contains a false statement, a person that suffers a loss by reasonable reliance on the statement may recover damages for the loss from a person that signed the record or caused another to sign it on the person's behalf and knew or had notice of the falsity when the record was signed or delivered. (b) A person is not liable under this section if the person did not know and did not have notice of the falsity. (c) A person is not liable under this section merely because the person is named as a member or manager in the record. Facts: Deva, the manager of Solstice LLC, signed and filed an amended certificate of organization stating that Solstice had $500,000 in members' capital and no debts. Deva knew the company had only $50,000 in capital and owed $400,000 to a supplier. Lender read the filed certificate, reasonably relied on it, and loaned Solstice $200,000. Solstice defaulted, and Lender sued Deva personally.

Is Deva liable under Section 204?

Yes, because Deva signed and caused the false certificate to be filed with knowledge of its falsity, and Lender reasonably relied on it. (correct answer)
No, because the certificate was signed by Deva only in her representative capacity as manager and was not a personal guarantee.
No, because Section 204 does not override the rule that managers are not personally liable for LLC debts solely by reason of being managers.
Yes, because a manager who files a record containing a false statement is strictly liable to any person who relies on it, regardless of knowledge.

Explanation: Whenever you see a statutory cause of action like Section 204, your task is to apply its elements literally, not common-law assumptions about LLC liability. Here the elements are: a false statement in a filed record, signed or caused by the defendant, knowledge or notice of falsity, reasonable reliance, and loss. Deva satisfies each one: she signed the certificate, knew capital was $50,000 not $500,000 and debts existed, and Lender relied on that filed certificate to lend money. So Deva is personally liable. The wrong answer that Deva signed only in a representative capacity misses the point: Section 204 imposes liability on the human being who signed or caused the filing knowing it was false; it does not require a personal guarantee. The answer claiming managers are never personally liable for LLC debts states the general rule, but this statute is an express exception creating personal liability for fraudulent filings. And the answer asserting strict liability regardless of knowledge is wrong because Section 204 explicitly requires knowledge or notice of falsity; subsection (b) confirms lack of knowledge is a defense. Your study tip: when a statute is quoted in the question, read it as a checklist. Ask who signed, what they knew, and who relied. If all elements match, the answer is liability even if the defendant acted in a corporate or managerial role; the statute overrides that shield by its own terms.