Opinion ID: 2625065
Heading Depth: 2
Heading Rank: 1

Heading: claim for damages under atgf policy

Text: ¶ 29 Booth and Tevini claim they were told by lenders that they could not get refinancing on the Travelodge due to problems with the title. They also claim that a prospective purchaser insisted on a $250,000 discount to fix the title problems. They claim that they suffered damages due to the unmarketability of the Travelodge title. Booth and Tevini claim the title is unmarketable for three reasons: (1) MTLP did not have an order from the Utah bankruptcy court before selling the Travelodge; (2) the California bankruptcy court handling Rose's chapter 7 bankruptcy had not given approval for the sale of the Travelodge; and (3) Rose did not have the authority to act for MTLP due to his chapter 7 bankruptcy. ¶ 30 Defendants counter that (1) MTLP had been given the authority to manage its affairs without further order from the bankruptcy court and that court confirmed this with its ruling in June 1995; (2) the California bankruptcy court did not have jurisdiction over the assets owned by MTLP and MTLP's assets were not included in Rose's bankruptcy estate; and (3) Rose had been authorized to manage MTLP's affairs pursuant to MTLP's confirmed bankruptcy plan, the MTLP partners ratified that Rose had been the managing general partner since MTLP's formation, and Utah Code Ann. § 48-1-13 (1998) provided that Rose had authorization by estoppel. ¶ 31 Title insurance is defined as the insuring, guaranteeing, or indemnifying of owners of real or personal property or the holders of liens or encumbrances on that property, or others interested in the property against loss or damage suffered by reason of liens or encumbrances upon, defects in, or the unmarketability of the title to the property, or invalidity or unenforceability of any liens or encumbrances on the property. Utah Code Ann. § 31A-1-301(91) (Supp. 2000). A commitment for title insurance is `no more than a statement of the terms and conditions upon which the insurer is willing to issue its title policy.' Culp Constr. Co. v. Buildmart Mall, 795 P.2d 650, 653 (Utah 1990) (quoting Lawrence v. Chicago Title Ins. Co., 192 Cal.App.3d 70, 237 Cal.Rptr. 264, 268 (1987)); see also Gildea v. Guardian Title Co. of Utah, 970 P.2d 1265, 1271-72 (Utah 1998). ¶ 32 A purpose for obtaining title insurance is to guarantee a certain position in the chain of title. See Culp, 795 P.2d at 654. Therefore, the title insurance company will defend against adverse claims and indemnify the holders for any loss or damages actually sustained due to problems such as unmarketability of the title. If Booth and Tevini actually sustained damages as a result of unmarketability of the Travelodge title, they are entitled to be indemnified for that loss. Therefore, we first address the marketability of the Travelodge title, and we need address the issue of damages only if the title is found to have been unmarketable. ¶ 33 Marketable title is one that may be `freely made the subject of resale' and that can be sold at a `fair price to a reasonable purchaser or mortgaged to a person of reasonable prudence as security for the loan of money.' Kelley v. Leucadia Fin. Corp., 846 P.2d 1238, 1243 (Utah 1992) (quoting 77 Am.Jur.2d Vendor and Purchaser § 131, at 313-14 (1975)). ¶ 34 Booth and Tevini first claim that the Travelodge title was unmarketable because MTLP was involved in a chapter 11 bankruptcy proceeding at the time of closing and the Utah bankruptcy court had not authorized the sale. A chapter 11 bankruptcy proceeding is a rehabilitative form of bankruptcy. See 9 Am.Jur.2d Bankruptcy § 38 (1991). As such, the bankruptcy code was written contemplating that in a chapter 11 proceeding, the current management would continue to manage its property and operate its business without appointment of a trustee. [9] See id. §§ 271, 343. In fact, the specific rights, powers, and duties of the manager of a business in chapter 11 bankruptcy include us[ing], sell[ing], or leas[ing] property. Id. § 346, at 358. ¶ 35 In MTLP's chapter 11 bankruptcy, Rose, who had been the managing partner, was confirmed by the Utah bankruptcy court as manager of MTLP's ongoing business concerns. Upon confirmation of the MTLP bankruptcy plan, the court ordered that MTLP was entitled to manage its affairs without further order of the Court. As we have noted, the bankruptcy code contemplates that in managing its affairs, Rose, as manager, was entitled to sell the Travelodge. The court's confirmation order authorized Rose to sell the Travelodge without permission from the bankruptcy court. The Utah bankruptcy court confirmed this in its holding in 1995. Therefore, MTLP's chapter 11 bankruptcy did not affect the marketability of the Travelodge title. ¶ 36 Booth and Tevini next claim that because Rose was in bankruptcy, permission from the California court with jurisdiction over Rose's chapter 7 bankruptcy was necessary to sell the Travelodge. Since a partnership is a legal entity separate from the partners themselves, partnership assets will be excluded from a debtor-partner's estate. Where the [bankruptcy] debtor is a partner in a partnership, the debtor's estate will instead include the debtor's interest in the partnership, that is, the right to receive the debtor's share of any profits generated by the partnership. Id. § 1004; see also In re Newman, 875 F.2d 668, 670 (8th Cir.1989). ¶ 37 As a general partner in MTLP, Rose had an interest in MTLP's assets. However, MTLP's assets were excluded from Rose's bankruptcy estate. Instead, Rose's bankruptcy estate included Rose's interest in MTLPthe right to receive Rose's share of any profits generated by MTLP. Therefore, the California bankruptcy court had no jurisdiction over the Travelodge, which was MTLP's asset. Rose's chapter 7 bankruptcy estate did not include the Travelodge, but instead included only Rose's share of any profits generated by the sale of the Travelodge. As a result, consent by the California bankruptcy court was unnecessary, and the lack thereof had no effect on the marketability of the Travelodge title. ¶ 38 Finally, Booth and Tevini argue that due to his bankruptcy, Rose did not have the authority to act for MTLP. They rely on sections 48-1-28(5) and -32(3)(b) of the Utah Code for their argument. [10] Section 48-1-28(5) provides that a partnership is dissolved upon the bankruptcy of any partner of a partnership. Section 48-1-32(3)(b) further provides that upon dissolution of a partnership, the partnership is not bound by the acts of a bankrupt partner. ¶ 39 MTLP's articles for limited partnership provide that [t]he Partnership shall not be dissolved by the death, withdrawal, bankruptcy, or adjudication of insanity or incompetency of an individual General Partner. Partners may make any agreement between themselves so long as it is not in violation of public policy or the common law, and their agreement generally controls as to matters between them. See 59A Am.Jur.2d Partnership § 1279, at 875 (1987); see also, e.g., Knutson v. Lauer, 627 P.2d 66, 68 (Utah 1981) (holding that general rule concerning remuneration applies unless partnership agreement or any other agreement between partners provides otherwise); Jackson v. Caldwell, 18 Utah 2d 81, 85, 415 P.2d 667, 670 (1966) (holding that general rule concerning good will applies unless parties have provided otherwise in partnership agreement). Therefore, Rose's bankruptcy did not cause the dissolution of MTLP, and the statutes Booth and Tevini relied on are inapplicable. ¶ 40 Rose was the only acting general manager of MTLP. Even after declaring personal bankruptcy, Rose was confirmed by the Utah bankruptcy court as the manager of MTLP's ongoing business concerns. All MTLP partners later ratified the actions of Rose as the managing partner, particularly the actions concerning the sale of the Travelodge. The MTLP limited partnership provided that the partnership was not dissolved upon the bankruptcy of a general partner. Therefore, Rose had authority to act for MTLP and sell the Travelodge. As a result, the title to the Travelodge was marketable. ¶ 41 As stated above, if Booth and Tevini had sustained actual loss or damages due to the unmarketability of the title, ATGF would have to indemnify them. However, the title was marketable. Because the title was marketable, the issue of damages need not be addressed. Furthermore, Booth and Tevini conceded at oral argument that because they never made any written application for financing and did not accept the discounted offer to buy, they did not suffer any actual damages. Therefore, there is no claim for damages under the ATGF policy.