Crafts v. PittsCrafts v. Pitts
Gordon H. CRAFTS and Jaymie V. Crafts, husband and wife, Respondents,
v.
David PITTS, an individual, Petitioner.
Supreme Court of Washington, En Banc.
*383 Peter A. Witherspoon, Spokane, WA, for Respondents.
Robert Powers Hailey, Spokane, WA, for Petitioner.
SANDERS, J.
¶ 1 We are asked to decide whether Gordon and Jaymie Crafts' action for specific performance of a real property contract was discharged by a federal bankruptcy court. David Pitts contracted to execute a quitclaim deed for 9.83 acres of land to be held in escrow for delivery to Glen Cloninger if Pitts either defaulted on a lease or the lease expired before Pitts exercised his option to purchase. On August 31, 2002 thе lease expired but Pitts refused to execute and deliver the deed to Cloninger. Cloninger *384 then sold his interest in the land to Gordon and Jaymie Crafts, and they sued Pitts for specific performance. Pitts filed for chapter 7 bankruptcy and the bankruptcy court discharged Pitts' debts.
¶ 2 However, a bankruptcy court cannot discharge an equitable claim if there is no adequate remedy at law to compensate the injured party. Both the superior court and the Court of Appeals held the Crafts had such a clаim, ordering Pitts to quitclaim his interest in the land. We agree. These 9.83 acres are unique; money damages cannot adequately and completely satisfy the Crafts, and the equitable claim for specific performance under these facts is not discharged in bankruptcy.
FACTS
¶ 3 We deal with a dispute over who owns a 9.83 acre parcel. This parcel is adjacent to a larger 160 acre parcel, which is currently owned by Gordon and Jaymie Crafts. Over the years the 160 acre parcel has seen numerous owners,[1] but Betty Pitts had legal title to the 9.83 acres at all relevant times.[2] Despite the 160 acres' various owners, David Pitts remained living on the land. Then in November 2001 Glen Cloninger purchased the 160 acres. On March 14, 2002, Cloninger and Pitts reached an agreement entitled, "REAL ESTATE LEASE WITH PURCHASE OPTION." Clerk's Papers (CP) at 74. According to the lease, Pitts kept possession of the entire 160 acres for a six-month period at $1,000 a month. This was intended to give Pitts time to raise capital and buy the 160 acres. A signed quitclaim deed was to be executed and held in trust immediatеly after both parties signed the lease. If Pitts did not exercise his purchase option before the lease expired, or he defaulted, the deed would be delivered to Cloninger for the additional 9.83 acres. Specifically, the lease provided:
Contemporaneously upon execution of this agreement Lessee shall execute a Quit Claim Deed conveying to Lessor any interest of Lessee in said property which deed *385 shall be held in trust by Peter A. Witherspoon, Attorney at Law. In the event Lessee defaults under the foregoing lease and/or fails to exercise the purchase option provided herein said deed shall be released to Lessor upon the termination of expiration of the lease.
CP at 78. Pitts never executed nor deposited the deed in trust as promised. The lease expired on August 31, 2002, absent Pitts either purchasing the property or renewing the lease.
¶ 4 On April 1, 2003, Cloninger conveyed the 160 acres to Gordon and Jaymie Crafts. Then on September 24, 2003, Cloninger also signed a separate "ASSIGNMENT OF INTEREST," which conveyed his interest in the real estate lease to the Crafts, specifically for the 9.83 acres of land. CP at 86. On the same day the Crafts sued Pitts for specific performance. In March 2004 Pitts filed bankruptcy, and in June 2004 the bankruptcy court discharged Pitts' debts. At that point the Crafts moved for summary judgment in their state action seeking specific performance on the 9.83 acres. The trial court granted the Crafts summary judgment and specific performance, ordering Pitts to quitclaim the 9.83 acres. After the Court of Appeals affirmed, Pitts sought and obtained our review on whether the bankruptcy court discharged Crafts' action for specific performance.
ANALYSIS
¶ 5 There are no disputed facts. The only issue whether the Crafts' claim for equitable relief was discharged in bankruptcy is an issue of law, which we review de novo. See Niemann v. Vaughn Cmty. Church,
A. An equitable claim survives a bankruptcy discharge if there is no alternative right to money damages
¶ 6 After he successfully completed a chapter 7 bankruptcy proceeding, all of Pitts' debts and liabilities on any "claims" were discharged.[3] 11 U.S.C. § 727. A discharge is simply a perpetual injunction that prevents creditors from attempting to collect on a past debt. Specifically, federal law provides:
[A] discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter, and any liability on a claim that is determined under [11 U.S.C. § 502] as if such claim had arisen before the commencement of the case. . . .
11 U.S.C. § 727(b). A "claim" is explicitly defined by bankruptcy law. An action seeking equitable relief for breach of contract is discharged only "if such breach gives rise to a right to payment." 11 U.S.C. § 101(5)(B). In other words, a right to specific performance (or any other equitable remedy) will not be discharged if money damages will not remedy the breach as much as specific performance. Bankruptcy courts look to underlying state law and the contract itself to determine whether there was an alternative right to money damages that would at least equally compensate the claimant. Grogan v. Garner,
¶ 7 We must determine (1) whether the Crafts had a right to specific performance; and (2) if there was such a right, was there an alternative right of money damages that would adequately and completely satisfy the Crafts' claim.
B. The Crafts had a right to specific performance because money damages cannot adequately compensate for the loss of a unique parcel of land
¶ 8 "Equity will not suffer a wrong to be without a remedy." Manning v. Potomac Elec. Power Co.,
¶ 9 We have also recognized specific performance is a suitable remedy to enforce a lease provision.[5]Barnett v. Buchan Baking Co.,
¶ 10 The trial court was well within its power to grant the Crafts' request for spеcific performance to both enforce a conveyance of real property and enforce a lease provision for which there was no adequate remedy at law. Pitts' contractual duty to deliver a quitclaim deed to Cloninger in the 9.83 acres was breached either when Pitts defaulted on his lease or his lease expired absent purchase.[6]
*387 C. There is no viable alternative of money damages to satisfy the Crafts' right to specific performance
¶ 11 Pitts admits all of this but arguеs the Crafts' claim could be satisfied with money. But damages cannot adequately and completely compensate the Crafts for loss of this adjoining acreage. It is well established that a court may use its equitable powers to order a party to convey land. See RESTATEMENT, supra, § 360 cmt. e ("Contracts for the sale of land have traditionally been accorded a special place in the law of specific performance. A specific tract of land has long been regarded as unique and impоssible of duplication by the use of any amount of money."). The rationale underpinning this rule is not only that land is unique but also difficult to value, thus money may not adequately compensate a party when one fails to convey real property as promised.[7]Carpenter,
¶ 12 But we need not decide whether every parcel of land is unique, only whether this particular parcel of land is unique. These 9.83 acres abut the 160 acres already owned by the Crafts. See Egbert,
¶ 13 Pitts аrgues it was possible for the Crafts to elect money damages instead *388 of specific performance and therefore the claim was discharged. But the injured party in a land conveyance dispute always has a choice between specific performance and money damages. Kritzer v. Moffat,
¶ 14 Federal courts have construed 11 U.S.C. § 101(5)(B) not to force a party to choose an inferior remedy. While we must determine the contours of Washington state law regarding to specific performance, construction of the Bankruptcy Code statutes is governed by federal law. Grogan,
¶ 15 In Sheerin v. Davis,
The ability of a debtor to choose between performance and damages in some cases is not the same as a debtor's liability for money damages for failing to satisfy an equitable obligation. While section 101(5)(B) encourages creditors to select money damages from among alternative remedies, it does not require creditors entitled to an equitable remedy to select a suboptimal remedy of money damages.
Id. at 116-17 (citations omitted); see also In re Udell,
¶ 16 While the Crafts could have elected, at their discretion, to seek damages, they chose specific performance believing it to be the only adequate remedy.[10] While a decree of specific performance rests within the sound discretion of the trial court, this does not permit a court to deny specific performance when otherwise appropriate. See Egbert,
¶ 17 Bankruptcy courts will also consider whether the contract itself gives rise to a money damages alternative. Abboud,
¶ 18 The trial court did not abuse its discretion when it ordered Pitts to quitclaim his interest in the 9.83 acres. The contract, which contained clear and definite terms, wаs breached by Pitts. Because these 9.83 acres are unique there is no adequate remedy at law, and compelling Pitts to quitclaim his interest helps the Crafts achieve perfect justice.
¶ 19 We hold the Crafts' action for specific performance survived the discharge of Pitts' debts by the bankruptcy court and, accordingly, affirm the Court of Appeals.
WE CONCUR: TOM CHAMBERS, CHARLES W. JOHNSON, SUSAN OWENS, BARBARA A. MADSEN, MARY E. FAIRHURST, JAMES M. JOHNSON, BOBBE J. BRIDGE, Justices, and CHRISTINE QUINN-BRINTNALL, Justice Pro Tem.
NOTES
Notes
[1] Though the 160 acre parcel is not at issue in this case, understanding these conveyances is necessary to understand who owns thе 9.83 acres. In 1990, John and Ruth Kennedy owned the 160 acre parcel in Spokane County and sold the property to Betty Pitts. Shortly thereafter, it was discovered the property was not square as originally thought and the Kennedys sued for adverse possession of the adjacent parcel, quieted title in the additional 9.83 acres (the focus of this litigation), and quitclaimed their interest in the 9.83 acres to Betty Pitts. In June 1993 Betty Pitts deeded the property to her son, David Pitts. But the deed's description refers solely to the 160 acres; thеrefore she retained legal title to the 9.83 acres.
In 1999 Pitts executed a contract to sell the 160 acres to Mr. V. Ram Gopal. The statutory warranty deed was inadvertently delivered to Gopal before Gopal executed a corresponding deed of trust to secure his obligation to pay. To resolve the dispute, Gopal agreed to pay a portion of the price to Pitts for 110 acres and return the 50 acres Pitts was living on. Neither their agreement nor a deed was ever recоrded. Instead Gopal transferred the entire 160 acres to Kenneth Lohmeyer in March 2000. In January 2001, in lieu of foreclosure, Lohmeyer quitclaimed the property to Partners Development LLC. In November 2001 Partners quitclaimed the 160 acres to Glen Cloninger during another foreclosure action. Cloninger eventually sold the 160 acres to the Crafts, who now own the property. Throughout the various conveyances and foreclosures of the 160 acres, David Pitts remained on the land, believing he still owned 50 of the 160 acres pursuant to his agreement with Mr. V. Ram Gopal. After Cloninger purchased the 160 acres, he informed Pitts that Gopal never properly recorded the deed and now he, Cloninger, owned the entire 160 acres.
[2] Betty Pitts, passed away in 1999, and at the time of this briefing her will was still in probate. Presumably, the 9.83 acres will be distributed to Betty Pitts' heirs through the residuary clause of her will. David Pitts is one of those heirs. However, this uncertainty as to how much, if any, interest David Pitts has or will have in the 9.83 acreage does not defeat the Crafts' action for specific performance. A quitclaim deed, unlike a warranty deed, transfers only the interest the grantor has in the subject property. Scramlin v. Warner,
[3] An automatic stay prevents creditors from collecting against the debtor during the pendency of the bankruptcy proceeding. 11 U.S.C. § 362.
[4] The Restatement (Second) of Contracts details other restrictions on specific performance, though none are pertinent here. RESTATEMENT, supra, §§ 361-369. Additionally, the well-known equitable defenses of estoppel, laches, and unclean hands are available to any defendant against whom performance is sought. Cascade Timber Co. v. N. Pac. Ry. Co.,
[5] Aside from leases, specific performanсe is recognized in a variety of other contexts. RCW 14.08.200(12) (stating contract between two municipalities for joint airport operations may be enforced by specific performance); RCW 15.66.210(2) (stating a party may specifically enforce a provision of the Washington State Agricultural Commodity Commission); RCW 24.36.450 (stating the provisions of the Fish Marketing Act may be enforced by specific performance); RCW 88.46.070 (stating the prevention plans of the vessel oil spill prevention and response act may be enforced by specific performance); Golden v. McGill,
[6] Actually, Pitts breached his duty to execute and deposit the quitclaim deed in trust long before that.
[7] Others argue the motivation behind specific performance being the presumed remedy for land is deeper than land merely being unique or being difficult to value. Professor Cohen examines English history and early contract cases to develop a broader understanding beyond uniqueness and valuation problems. David Cohen, The Relationship of Contractual Remedies to Political and Social Status: A Preliminary Inquiry, 32 U. TORONTO L.J. 31 (1982). He argues the ancient relаtionship between land ownership and political identity, legal authority, and social status gave parcels of land paramount importance. Id. at 39. This integral relationship between land and status drove the development of early English contract law to carve out special remedies for landholders. Whatever the rationale, however, it is clear when a party breaches a contract to convey real property, the presumptive remedy is specific performance. 71 AM.JUR.2D Specific Performance § 133 (2001); see Jacobson v. Gulbransen,
[8] At oral argument, Pitts' counsel claimed if we allow the Crafts' specific performance claim to stand, then a bankruptcy court could never discharge a real property conveyance. But the language of the contract itself can always give rise to monetary damages, and often a party will choose damages over spеcific performance. See Zastrow v. W.G. Platts, Inc.,
Bankruptcy and the common law of property share the objective of determining what is the property of the debtor, and therefore of the estate, and what is the property of others. Bankruptcy respects the common-law determination of property rights because the courts have said so, and because any failure to do so would either deprive the creditors of assets properly subject to their claims, or else satisfy those claims with assets belonging to somеone else.
Andrew Kull, Restitution in Bankruptcy: Reclamation and Constructive Trust, 72 AM. BANKR. L.J. 265, 301 (1998).
[9] Pitts focuses solely on one decision by a bankruptcy court, In re Asian,
[10] Beсause the Crafts also sought "further or additional relief which the court finds equitable, appropriate or just," CP at 5, Pitts argues the Crafts complaint could be satisfied with money damages. This boilerplate language, however, is insufficient to show the Crafts thought money was an adequate remedy.
[11] Pitts argues lease language that says if he defaults on a rent payment the "Lessor may, at his option and without prejudice to the exercise of any other remedies which may be available to him, treat the lease as terminated." CP at 74. This pertains only to a default and does not obviate the Crafts' specific performance right.