Wittingham LLC v. TNE Ltd. P'ship

• Decision Date: 01 September 2016
• Docket Number: No. 20140751–CA,20140751–CA
• Citation: Wittingham LLC v. TNE Ltd. P'ship, 380 P.3d 397, 2016 UT App 187 (Utah App. 2016)
• Parties: Wittingham LLC, The Muir Second Family Limited Partnership, and Dorothy Jeanne Muir, Appellees and Cross-appellants, v. TNE Limited Partnership, Appellant and Cross-appellee.
• Court: Utah Court of Appeals

380 P.3d 397

2016 UT App 187

Wittingham LLC, The Muir Second Family Limited Partnership, and Dorothy Jeanne Muir, Appellees and Cross-appellants,

v.TNE Limited Partnership, Appellant and Cross-appellee.

No. 20140751–CA

Court of Appeals of Utah.

Filed September 1, 2016

Jeffrey L. Silvestrini and Bradley M. Strassberg, Attorneys for Appellant and Cross-appellee TNE Limited Partnership.

James K. Tracy and Stacy J. McNeill, Attorneys for Appellees and Cross-appellants.

Judge Gregory K. Orme authored this Opinion, in which Judge. Michele M. Christiansen and Senior Judge Pamela T. Greenwood concurred.¹

ORME, Judge:

¶1 TNE Limited Partnership appeals an adverse district court ruling regarding the validity of a contract in its suit against Nick Muir, The Muir Second Family Limited Partnership (the Muir Partnership), and Wittingham LLC, the most recent successor to the Muir Partnership. The contract, which purported to bind the Muir Partnership, was signed by its putative general partner, Nick Muir, after the partnership had been dissolved. In view of Utah Supreme Court precedent, we must agree with the district court that the contract is void rather than voidable. And we reject a cross-appeal challenging the district court's refusal to award attorney fees. Accordingly, we affirm the district court's decision.

BACKGROUND

¶2 The Muir Partnership was administratively dissolved on May 3, 2007. Two years later, Nick Muir, its former general partner, arranged for a loan in the amount of $435,000 from TNE, ostensibly for the purpose of removing a valid encumbrance on a pair of apartment buildings owned by the Muir Partnership. Nick Muir signed the note memorializing the loan in the name of the Muir Partnership. The TNE loan was apparently secured by a trust deed recorded against the apartments, but Muir did not reveal to TNE that the Muir Partnership had been dissolved. Nor did Muir reveal that the prior encumbrance was illusory, instead stating that it secured a loan on which a substantial balance was still owed. In reality, the prior encumbrance was a sham, the result of some contrivance by Muir and others in which a trust deed had been recorded for which no meaningful consideration had been given.

¶3 After TNE disbursed the funds to Muir, the existing “encumbrance” was released, and the apartment buildings were transferred between successive business entities owned by members of Muir's family, the last transfer being to Wittingham LLC. Shortly after TNE disbursed the loan funds to Muir—and once the sham encumbrance and Muir's misappropriation of the TNE loan proceeds were discovered—Wittingham LLC, the Muir Partnership, and Dorothy Jeanne Muir (collectively, Wittingham) filed this action, seeking to have the TNE trust deed declared void. TNE filed a counterclaim against Wittingham and Nick Muir, seeking a determination that the trust deed was valid.

The district court determined that the TNE trust deed was void because the Muir Partnership was already dissolved when Muir signed the note and trust deed in favor of TNE. Thus, the court concluded that TNE could not enforce the trust deed.² Although TNE also raised claims against Muir personally, the district court determined that it lacked personal jurisdiction over him as he had never been served with process and had never made an appearance in the case. The court declined to grant Wittingham's request for attorney fees premised upon the fee provisions of the TNE trust deed. Both TNE and Wittingham appeal. We affirm.

ISSUES AND STANDARD OF REVIEW

¶4 TNE argues that the district court erroneously “ruled that the TNE Trust Deed was void rather than voidable” and “that it lacked jurisdiction to render a disposition on TNE's cross-claims against Nick Muir.” Wittingham challenges the district court's denial of its request for attorney fees pursuant to its contract. All three of these issues³ are “legal questions, which we review for correctness.” See Hi–Country Estates Homeowners Ass'n v. Bagley & Co. , 2008 UT App 105, ¶ 8, 182 P.3d 417 (void contract); National Advertising Co. v. Murray City Corp. , 2006 UT App 75, ¶ 11, 131 P.3d 872 (jurisdiction); Watkins v. Henry Day Ford , 2013 UT 31, ¶ 19, 304 P.3d 841 (contract interpretation).

ANALYSIS

I. The Trust Deed Was Void Under Utah Law.

¶5 “The distinction between void and voidable is important” because a voidable contract “may be ratified at the election of the injured party” while a void contract may not. Ockey v. Lehmer , 2008 UT 37, ¶ 18, 189 P.3d 51. Despite this important distinction, however, Utah appellate courts have, on occasion, been imprecise in their use of the terms and used “void” and “voidable” somewhat interchangeably. Id. Generally speaking, “the difference between void and voidable contracts is whether they offend public policy.” Id. ¶ 19. An invalid contract is generally void if it “offend[s] public policy or harm[s] the public,” but it is voidable if it offends only the aggrieved party. Id. Typical examples of contracts that offend public policy are those that involve egregious or illegal behavior, such as contracts to pay a gambling debt, see, e.g. , Appleton v. Maxwell , 10 N.M. 748, 65 P. 158, 159 (1901) ; contracts tending to encourage or facilitate prostitution, see, e.g. , Rosenblath v. Sanders , 150 La. 882, 91 So. 252, 252 (1922) ; Hunstock v. Palmer , 4 Tex.Civ.App. 459, 23 S.W. 294, 295 (1893) ; life insurance contracts entered into in contemplation of murder, see, e.g. , Lopez v. Life Ins. Co. of Am. , 406 So.2d 1155, 1159 (Fla. Dist. Ct. App. 1981) ; Colyer's Adm'r v. New York Life Ins. Co. , 300 Ky. 189, 188 S.W.2d 313, 314–15 (1945) ; and contracts concerning the sale of a child, see Utah Code Ann. § 76–7–203(2)(a) (LexisNexis 2012). As the Utah Supreme Court explained,

The actual fact is that the courts look at the over-all picture of each such questioned contract and determine upon the facts of the individual case whether the ends of justice demand that [a contract be considered void, rather than voidable]. In making such determination the following factors are taken into consideration: (a) the degree of criminality or evil involved; (b) the moral quality of the conduct of the parties; (c) comparison between them as to guilt or innocence; (d) the equities between them; and (e) the effect upon third parties or the public.

McCormick v. Life Ins. Corp. of Am. , 6 Utah 2d 170, 308 P.2d 949, 952 (1957).

¶6 The contract at issue in this case—a rather commonplace loan secured by a trust deed, albeit one entered into between the putative general partner of an administratively dissolved limited partnership and another party apparently unaware of the administrative dissolution—does not fall within the ambit of the public policy rationale outlined above or meet the five-part test announced in McCormick. Nonetheless, as the Utah Supreme Court held in Houston v. Utah Lake Land, Water & Power Co. , 55 Utah 393, 187 P. 174 (1919), contracts entered into by dissolved corporations are void in Utah, no matter how inoffensive the subject matter. See id. at 177. The same has been true with respect to limited partnerships until recently, because “[a] limited partnership is an entity equivalent to a corporation for litigation purposes[.]”⁴ Margulies ex rel. Margulies v. Upchurch , 696 P.2d 1195, 1200 (Utah 1985). While this result is surely open to criticism⁵ —and, indeed, it has recently been changed by the Legislature with respect to limited partnerships⁶ —we see no way around it in this case.

¶7 TNE does not appeal the district court's conclusion that the trust deed was an invalid contract under Utah Code section 48–1–32, which was the governing statute in effect when TNE sued the Muir Partnership, and so we have no occasion to revisit this determination. Section 48–1–32 recognized only limited circumstances in which the contracts of a dissolved partnership would be valid, none of which TNE contends are applicable here. See Utah Code Ann. § 48–1–32(1)(a)–(b) (LexisNexis 2010). Thus, the only question remaining is whether the invalidity of the TNE trust deed resulted in a void or a merely voidable contract.

¶8 TNE maintains that the contract, though contrary to section 48–1–32, was voidable rather than void. It does so based on a common-law rule that it believes the Utah Supreme Court announced in Miller v. Celebration Mining Co. , 2001 UT 64, 29 P.3d 1231. In Miller, the former president of an administratively dissolved corporation sought to enforce a written agreement between himself, on behalf of the dissolved corporation, and the chairman of Celebration Mining Company. Id. ¶ 1. The Miller court held that where a person represents himself as having authority to contract on behalf of a dissolved corporation, the misrepresentation induces another party to enter into such a contract, and the other party was justified in relying upon the misrepresentation, the contract is voidable as between the person who engaged in the misrepresentation and the other party , at the other party's option. See id. ¶¶ 10, 12–16. Although Miller could be, and by this court has indeed been, read more broadly than this, see Orvis v. Johnson , 2006 UT App. 296U, para. 5, 2006 WL 1917915, we are persuaded that such a reading was perhaps the product of a little wishful thinking and was, in any event, in error.

¶9 A careful reading of Miller may explain this court's misstep in Orvis v. Johnson , where we stated, citing Miller, that a corporation's postdissolution contracts are “merely voidable ” at the other party's option. See Orvis v. Johnson , 2006 UT App. 296U, para. 5, 2006 WL 1917915 (emphasis in original). But Miller did not overrule the Utah Supreme Court's decision in Houston,⁷ because whereas Houston specifically holds that contracts signed on behalf of dissolved corporations are void, see 187 P. at 177, Miller finessed the issue by stating that such contracts are merely voidable as between the individual who signed the agreement ,...