Can title be marketable when sold by a partnership in bankruptcy without court approval? Booth v. Attorneys' Title Guaranty Fund Explained

In Booth v. Attorneys’ Title Guaranty Fund, the Utah Supreme Court addressed whether title to real property is marketable when sold by a partnership operating under a confirmed chapter 11 bankruptcy plan without additional bankruptcy court approval.

Background and Facts

Booth and Tevini purchased the Moab Travelodge from the Moab Travelodge Limited Partnership (MTLP) in 1990 for $1,725,000. MTLP was operating under a confirmed chapter 11 bankruptcy plan that authorized the partnership to “manage its affairs without further order of the Court.” Years later, when Booth and Tevini attempted to refinance, they discovered potential title issues related to the bankruptcy proceedings and filed a claim against their title insurance company, arguing the title was unmarketable.

Key Legal Issues

The court addressed three main issues regarding marketable title: (1) whether additional Utah bankruptcy court authorization was required for the sale; (2) whether approval from the California bankruptcy court handling the managing partner’s personal bankruptcy was necessary; and (3) whether the bankrupt partner had authority to act on behalf of the partnership. The court also considered whether claims for fraudulent concealment were barred by the statute of limitations.

Court’s Analysis and Holding

The Utah Supreme Court held that title was marketable. The court found that the confirmed chapter 11 plan explicitly authorized MTLP to manage its affairs without further court approval, including the right to sell property. Additionally, the California bankruptcy court lacked jurisdiction over MTLP’s assets because partnership property is separate from individual partners’ bankruptcy estates. The court also determined that the partnership agreement prevented dissolution upon a partner’s bankruptcy, preserving the managing partner’s authority.

Practice Implications

This decision emphasizes the importance of carefully reviewing confirmed bankruptcy plans when evaluating title issues. Practitioners should note that partnerships in chapter 11 proceedings may have broad authority to conduct ordinary business transactions without additional court approval if their plan so provides. The ruling also reinforces that fraudulent concealment claims are subject to strict statute of limitations requirements, particularly when buyers had opportunities to discover relevant facts through reasonable diligence.