[No. 78564-3. En Banc.]
Argued March 15, 2007. Decided July 19, 2007.
[1] Bankruptcy — Discharge of Debt — Question of Law or Fact — Review — Standard of Review. Whether a debt is discharged in bankruptcy is a question of law that is reviewed de novo. [2] Bankruptcy — Discharge of Debt — Effect. The discharge of a debt in bankruptcy is simply a perpetual injunction that prevents the creditor from attempting to collect on the debt. [3] Bankruptcy — Discharge of Debt — Breach of Contract — Claim for Specific Performance — Dischargeability — Adequacy of Money Damages — Determination. Under 11 U.S.C. § 101(5)(B), a claim for specific performance for breach of contract is not discharged in bankruptcy if money damages will not remedy the breach as much as specific performance. Bankruptcy courts look to underlying state law and to the contract itself to determine whether there is an alternative right to money damages that would compensate the claimant at least as much as specific performance. [4] Equity — Nature — Remedy for Wrong. Equity will not suffer a wrong to be without a remedy. [5] Contracts — Specific Performance — Purpose. Specific performance is an equitable remedy that strives to do perfect justice. When a court's legal powers cannot adequately compensate a loss resulting from a breach of contract with money damages, the court may use its broad equitable powers to compel specific performance of the contract. [6] Contracts — Specific Performance — Adequacy of Money Damages — Determination. When determining whether money damages would provide adequate compensation for a breach of contract as opposed to specific performance of the contract, a court considers (1) the difficulty of proving damages with reasonable certainty, (2) the difficulty of procuring a suitable substitute, and (3) the likelihood that an award of damages could not be collected. [7] Contracts — Specific Performance — Validity — Test. A trial court may order specific performance of a contract only if (1) there is a binding contract; (2) a party has committed or is threatening to commit a breach of its contractual duty; (3) the contract has definite and certain terms; (4) the contract is free from unfairness, fraud, and overreaching; and (5) enforcement of the contract will not be oppressive, unconscionable, or result in undue hardship to any party involved. [8] Landlord and Tenant — Lease — Specific Performance — Validity. Specific performance is a suitable remedy to enforce a lease provision. [9] Vendor and Purchaser — Real Estate Contract — Breach — Remedies Available — Forced Conveyance.A court may use its equitable powers to order a party to convey land as provided in a real estate contract. The rationale underpinning this rule is not only that land is unique but also difficult to value, such that money may not adequately compensate a party when one fails to convey real property as promised. No piece of land has its counterpart anywhere else, and it is impossible to duplicate land by the expenditure of any amount of money. [10] Vendor and Purchaser — Real Estate Contract — Breach — Remedies Available — Election. The injured party in a land conveyance dispute involving a real estate contract may choose between the remedies of specific performance and money damages. [11] Contracts — Specific Performance — Adequacy of Alternative Remedy — Test. The mere fact that a party injured by a breach of contract can obtain some relief at law does not prevent a court from ordering specific performance of the contract. To preclude specific performance, the remedy afforded at law must be as plain, adequate, complete, and efficient as the remedy of specific performance. [12] Bankruptcy — Discharge of Debt — Breach of Contract — Claim for Specific Performance — Dischargeability — Availability of Money Damages — Statutory Provisions — Effect. The provision of 11 U.S.C. § 101(5)(B) that an action seeking equitable relief for a breach of contract is dischargeable in bankruptcy if the breach gives rise to a right to payment is not intended to force a party to choose an inferior remedy. The question is whether money damages would equally compensate the injured party, not merely whether money damages are available. [13] Bankruptcy — Discharge of Debt — Dischargeability — Federal or State Law. The determination of whether a debt is dischargeable in bankruptcy is a question of federal law governed by the bankruptcy code. [14] Contracts — Specific Performance — Discretion of Court — Denial. While a decree of specific performance rests within the sound discretion of the trial court, the court's discretion does not permit it to deny specific performance when it is otherwise appropriate. [15] Bankruptcy — Discharge of Debt — Breach of Contract — Claim for Specific Performance — Dischargeability — Availability of Money Damages — By Contract. One factor considered by a bankruptcy court when determining whether a claim for specific performance for a breach of contract may be discharged in bankruptcy is whether the contract itself gives rise to a money damages alternative. [16] Bankruptcy — Discharge of Debt — Lessee's Breach of Lease Provision Requiring Transfer of Quitclaim Deed — Unique Property — Claim for Specific Performance. Under 11 U.S.C. § 101(5)(B), a lessor's claim for specific performance of a lease provision requiring the lessee to transfer into trust a quitclaim deed for transfer of the property to the lessor if either the lessee defaults under the lease or the lease expires prior to the lessee's purchase of the property is not dischargeable in bankruptcy if money damages would not adequately compensate the lessor for the loss. Nature of Action: The assignees of a lessor sought specific performance of a lease provision that required the lessee to transfer a quitclaim deed into trust and to transfer the deed to the lessor if either the lessee defaulted under the lease or the lease expired prior to the lessee's purchase of the property. The lease expired, but the lessee refused to execute and deliver the deed to the lessor. After the assignees filed their action for specific performance, the lessee filed for bankruptcy and the bankruptcy court discharged the lessee's debts. Superior Court: The Superior Court for Spokane County, No. 03-2-06290-6, Harold D. Clarke III, J., on March 11, 2005, entered a judgment in favor of the assignees, holding that the assignees' claim for specific performance was not discharged in bankruptcy and ordering the lessee to quitclaim his interest in the property. Court of Appeals: The court affirmed the judgment by an unpublished opinion noted at 131 Wn. App. 1032 (2006), holding that the assignees' claim for specific performance was not discharged in bankruptcy. Supreme Court: Holding that the assignees' claim for specific performance was not discharged in bankruptcy, given that the property is unique and impossible to duplicate, and that money damages cannot adequately and completely satisfy the assignees, the court affirms the decision of the Court of Appeals and the judgment. Robert P. Hailey-, for petitioner. Peter A. Witherspoon-, for respondents. En Banc ¶1 SANDERS, J. — 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, 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. 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 recorded. 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. ¶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 A. An equitable claim survives a bankruptcy discharge if there is no alternative right to money damages [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 ¶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. C. There is no viable alternative of money damages to satisfy the Crafts' right to specific performance ¶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, 15 Wn. App. at 79 (ordering specific performance after finding property was unique because it adjoined a family farm). Furthermore, the additional acreage has always been considered part of the entire parcel: the original owners, the Kennedys, sued for adverse possession, the entire area was enclosed by a single fence, and a well that provided water to the entire parcel was located on the 9.83 acres. There is no other piece of land identical to these 9.83 acres, and no amount of money will make the Crafts' property whole. 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 someone else. Andrew Kull, Restitution in Bankruptcy: Reclamation and Constructive Trust, 72 AM. BANKR. L.J. 265, 301 (1998). ¶13 Pitts argues it was possible for the Crafts to elect money damages instead 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, 136 Wash. 410, 423, 240 P. 355 (1925). This does not mean bankruptcy will convert his election of specific performance into a dischargeable claim. Such a holding would require all claims for specific performance to be discharged, rendering 11 U.S.C. § 101(5)(B) meaningless. "The mere fact that a party can get some relief at law does not prevent a court from issuing a decree requiring specific performance. To preclude specific performance, the remedy afforded at law must be as plain, adequate, complete, and efficient as the remedy of specific performance . . . ." 71 AM. JUR. 2D Specific Performance § 11 (emphasis added) (footnote omitted). ¶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, 498 U.S. at 284 ("[T]he issue of nondischargeability has been a matter of federal law governed by the terms of the Bankruptcy Code." (citing Brown v. Felsen, 442 U.S. 127, 129-30, 136, 99 S. Ct. 2205, 60 L. Ed. 2d 767 (1979)). ¶15 In Sheerin v. Davis, 3 F.3d 113 (5th Cir. 1993), the debtor pressed the same argument Pitts makes today. But the Fifth Circuit was unconvinced: 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 (citation omitted); see also In re Udell, 18 F.3d 403, 408 (7th Cir. 1994); In re Chateaugay Corp., 944 F.2d 997, 1007-08 (2d Cir. 1991); In re Indian River Estates, Inc., 293 B.R. 429, 434 (Bankr. N.D. Ohio 2003) ("[11 U.S.C.] § 101(5)(B) does not require that a party accept a monetary alternative if it is clearly not in proportion to the equitable remedy."); In re Mitchell, 249 B.R. 55, 60 (Bankr. S.D.N.Y. 2000) ("The availability of the monetary remedy, however, does not automatically mean that damages are an adequate alternative under state law . . . ."). The question is always whether money damages would equally compensate the injured party—not merely whether they are available. ¶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. ¶17 Bankruptcy courts will also consider whether the contract itself gives rise to a money damages alternative. Abboud, 335 B.R. at 263 ("The lease of the Property contains no language that could be construed as creating a right to money damages. Therefore, the rights of the Landlord do not constitute a claim and cannot be discharged."). Nothing in this lease either creates a right to money damages or suggests the Crafts agreed to forgo their right to specific performance. ¶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, was 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. C. JOHNSON, MADSEN, BRIDGE, CHAMBERS, OWENS, FAIRHURST, and J.M. JOHNSON, JJ.; and QUINN-BRINTNALL, J. PRO TEM., concur.