Are contracts entered by dissolved partnerships void or voidable? Wittingham v. TNE Limited Partnership Explained

In Wittingham v. TNE Limited Partnership, the Utah Supreme Court clarified a critical distinction for business law practitioners: contracts entered into by dissolved partnerships are presumptively voidable rather than void absent a clear showing that the contract violates public policy.

Background and Facts

The Muir Second Family Limited Partnership was administratively dissolved in 2007. Two years later, Nicholas Muir, the former general partner, obtained a $435,000 loan from TNE Limited Partnership, securing it with a trust deed on apartment buildings owned by the dissolved partnership. The transaction was supposedly to remove an existing encumbrance, but this was actually part of a fraudulent scheme involving a sham trust deed. Wittingham, LLC, a successor-in-interest to the dissolved partnership, brought suit to declare the TNE trust deed void.

Key Legal Issues

The primary issue was whether a contract entered into by a dissolved partnership is void ab initio or merely voidable. This distinction is crucial because void contracts cannot be ratified, while voidable contracts may be ratified or set aside at the election of the injured party. The district court held the trust deed was void because Muir’s actions were not for the purpose of winding up partnership affairs.

Court’s Analysis and Holding

The Utah Supreme Court applied the test from Ockey v. Lehmer, which establishes a rebuttable presumption that defective contracts are voidable rather than void. This presumption can only be rebutted through a showing “free from doubt” that the contract violates public policy. The court considered two factors: (1) whether the legislature declared the type of contract “unlawful” and “absolutely void,” and (2) whether the contract harmed the public as a whole. The court found that the General and Limited Liability Partnerships Act contained provisions protecting third parties who enter contracts with dissolved partnerships, undermining any clear public policy against such transactions. Additionally, the TNE transaction was a typical business transaction that did not harm the public as a whole.

Practice Implications

This decision provides important guidance for practitioners dealing with dissolved business entities. Rather than arguing contracts are void, attorneys should focus on whether such contracts are voidable and whether clients wish to ratify or avoid them. The court also addressed service of process issues, holding that defendants waive objections to insufficient service if not raised before or during trial. Additionally, the opinion demonstrates the importance of proper entity identification in contracts, as courts will consider extrinsic evidence when contract terms are ambiguous regarding party identity.