Crafts v. Pitts

• Decision Date: 19 July 2007
• Docket Number: No. 78564-3.,78564-3.
• Citation: 161 Wn.2d 16,162 P.3d 382
• Court: Washington Supreme Court
• Parties: Gordon H. CRAFTS and Jaymie V. Crafts, husband and wife, Respondents, v. David PITTS, an individual, Petitioner.

162 P.3d 382

161 Wn.2d 16

Gordon H. CRAFTS and Jaymie V. Crafts, husband and wife, Respondents, v. David PITTS, an individual, Petitioner.

No. 78564-3.

Supreme Court of Washington, En Banc.

Argued March 15, 2007.

Decided July 19, 2007.

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 the lease expired but Pitts refused to execute and deliver the deed to Cloninger. Cloninger 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 claim, 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 immediately 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 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, 154 Wash.2d 365, 374, 113 P.3d 463 (2005).

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, 498 U.S. 279, 283, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).

¶ 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., 230 Md. 415, 422, 187 A.2d 468, 472 (1963). Specific performance is one such remedy that, like all equitable remedies, strives to do perfect justice. Montana Co. v. St. Louis Mining & Milling Co., 152 U.S. 160, 167, 14 S.Ct. 506, 38 L.Ed 398 (1894) ("The very great powers with which a court of chancery is clothed were given it to enable it to carry out the administration of nicer and more perfect justice than is attainable in a court of law."); Huntt v. Gov't of Virgin Islands, 382 F.2d 38 (3d Cir.1967). When a court's legal powers cannot adequately compensate a party's loss with money damages, then a court may use its broad equitable powers to compel a party to specifically perform its promise. RESTATEMENT (SECOND) OF CONTRACTS § 360 (1981). When determining whether damages would provide adequate compensation, courts inquire as to (i) the difficulty of proving damages with reasonable certainty, (ii) the difficulty of procuring a suitable substitute, and (iii) the likelihood that an award of damages could not be collected. RESTATEMENT, supra, § 360.⁴ Furthermore, because specific performance is uniquely a contract remedy, a trial court may order specific performance only if there is a valid binding contract; a party has committed or is threatening to commit a breach of its contractual duty; the contract has definite and certain terms; and the contract is free from unfairness, fraud, and overreaching. Egbert v. Way, 15 Wash.App. 76, 79, 546 P.2d 1246 (1976); 71 AM.JUR.2D Specific Performance § 9 (2001). Lastly, a court should ensure enforcement will not be oppressive, unconscionable, or result in undue hardship to any party involved. 71 AM. JUR.2D Specific Performance § 9.

¶ 9 We have also recognized specific performance is a suitable remedy to enforce a lease provision.⁵ Barnett v. Buchan Baking Co., 108 Wash.2d 405, 738 P.2d 1056 (1987) (holding specific performance was appropriate to enforce an option to purchase contained in a lease); Feigenbaum v. Brink, 66 Wash.2d 125, 130-31, 401 P.2d 642 (1965) (holding "specific performance will lie to enforce the landlord's duty to repair"); Carpenter v. Folkerts, 29 Wash.App. 73, 76, 627 P.2d 559 (1981) ("It is accepted in Washington that a lease containing a lessee's option to purchase is enforceable by specific performance."); see also 71 AM.JUR.2D Specific Performance § 168 (2001) ("[E]quity will, in a proper case, exercise its jurisdiction to enforce specific performance of covenants in a lease, the violation of which is not adequately remediable by an action at law."). And federal bankruptcy courts have similarly recognized specific performance is an appropriate remedy to enforce a lease provision. In re Ground Round, Inc., 335 B.R. 253, 263 (2005) (landlord had a right under state law to specifically enforce a provision of the lease requiring lessee to transfer his liquor license to the landlord and such right survived discharge).

¶ 10 The trial court was well within its power to grant the Crafts' request for specific 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

C. There is no viable alternative of money damages to satisfy the Crafts' right to specific performance

¶ 11 Pitts admits all of this but argues 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 (...