Karen KUNDA v. William MORSE, et ux.
No. 1059, Sept. Term, 2014
Court of Special Appeals of Maryland.
August 31, 2016
145 A.3d 51
JUDGMENT OF THE CIRCUIT COURT FOR PRINCE GEORGE‘S COUNTY AFFIRMED. COSTS TO BE PAID BY THE APPELLANT.
Argued by: E. Ellis Rollins, Elkton, MD, for Appellant.
Argued by: Michael D. Smigiel, Sr., Elkton, MD, for Appellee.
Panel: Graeff, Kehoe, Reed, JJ.
The small business at the heart of this appeal is the source of a rather large dispute. Karen Kunda, appellant, entered into a contract with William and Sharon Morse, appellees, for the sale and transfer of the Hacks Point General Store and associated property. As part of the transaction, Ms. Kunda agreed to finance a portion of the sale price. Difficulties arose with repayment of the loan and the transaction broke down into accusations of breach of contract. The Morses filed their complaint against Ms. Kunda in the Circuit Court for Cecil County and, after a bench trial, emerged victorious on their breach of contract claim. Based on its factual findings, the trial court awarded the Morses $200,000 in damages, an amount greater than the $102,600 originally requested in the complaint. Ms. Kunda quickly noted her appeal to this Court.
Ms. Kunda presents two questions for our review,1 which we rephrase as follows:
- Did the trial court err when it determined that appellant breached the contract?
- Did the trial court err in its calculation of economic damages?
We answer both of these questions in the negative and, therefore, affirm the trial court‘s order.
FACTUAL AND PROCEDURAL BACKGROUND
Karen Kunda, appellant, entered into an agreement to transfer her small business, the Hacks Point General Store, Inc. (“Hacks Point“), and associated real property to William and Sharon Morse, appellees. Hacks Point is a small general store near the waterfront of the Bohemia River in Earleville, Maryland. Ms. Kunda was the sole shareholder of Hacks Point and holder of the store‘s liquor license. Although Hacks Point was ostensibly a general store, a major source of the business’ revenue was slot machines of questionable legality. With the slot machines, the business allegedly brought in approximately $8,000 per week.
With an eye, perhaps, toward the advantages of this revenue stream, the Morses entered into a contract (the “agreement“) with Ms. Kunda on September 29, 2007, to buy the Hacks Point business and property. Per the agreement, the Morses would purchase the general store building, the adjacent residence, and 99 out of 100 shares of corporate stock for a total of $846,950.2 The financing provision of the sale agreement stated that the Morses would obtain financing in the amount of $622,000, and Ms. Kunda would provide a
The agreement also stated that, pending full repayment of the debt, all shares of the corporation would be placed in a voting trust with Ms. Kunda serving as trustee. She would vote the shares of the corporation to elect the Morses as directors of Hacks Point. In the event of default, however, the shares would be voted as directed by Ms. Kunda.
Settlement was scheduled for October 4, 2007, but the Morses could not arrange for bank financing in that short time-span. The parties agreed in an addendum to the original sale agreement that settlement would take place on May 1, 2011. The addendum required the Morses to make a $100,000 deposit with Ms. Kunda on the date the parties signed the addendum, October 21, 2007. It further required a second deposit of $174,950, either in full or by monthly installments, by June 1, 2008. In addition to the deposits, the addendum required the Morses to pay $4,500 monthly as lease payments to Ms. Kunda.
According to Ms. Kunda‘s trial testimony, the Morses paid the initial $100,000 required by the sale addendum approximately one week after signing that document, on or about October 29, 2007. The Morses then paid approximately $100,000 for the second deposit in June 2008. According to Ms. Kunda, she agreed to amortize the remaining $74,950 over a two-year period.
In June of 2010, the Morses defaulted on the remaining $74,950 debt obligation. Per the voting trust recital of the agreement, Ms. Kunda voted the shares to re-establish herself as director, as well as president, vice president, and secretary of Hacks Point. She then issued a notice to the Morses indicating that they were no longer directors of the corporation, and that they were no longer permitted on the premises.
The Morses filed their complaint with the trial court on December 29, 2010. In it, they alleged several counts of breach of contract against both Ms. Kunda and the corporation. The breaches allegedly arose from Ms. Kunda‘s failure to return the approximately $100,000 paid for the store‘s stock; her preventing the Morses from completing their purchase of Hacks Point; and her failure to disclose the illegality of the slot machines. Ms. Kunda and the corporation answered the complaint on June 30, 2011, and countersued on July 29, 2011.
In the counter-complaint, Ms. Kunda and the corporation alleged the Morses had breached the contract by failing to honor the terms of the agreement and its addendum, and also by failing to pay several outstanding bills of the corporation. The result was damages in the amount of $75,000 for the remaining debt obligation under the agreement, and $10,415 for the outstanding bills of the corporation. Ms. Kunda and the corporation also alleged the Morses converted both corporate and personal property when they removed that property from the store.
After a number of delays, the matter proceeded to a bench trial on July 8 and 9, 2014. At the conclusion of the proceedings, the trial court took the matter under advisement and then issued its opinion on July 17, 2014. The court made several findings of fact in the opinion, including that the Morses had made both the first and second payments of $100,000, and that they were paying approximately $500-$700 monthly for the $75,000 Ms. Kunda agreed to finance. The trial court also did not credit Ms. Kunda‘s assertion that she retook the property on the basis of a corporate decision. Instead, the court determined the Morses were “muscled out” of the property when Ms. Kunda took back the property well before the expiration of
The trial court denied the claims of Ms. Kunda and the corporation, but it also denied the Morses’ claim for non-disclosure of the illegality of the slot machines. Additionally, because the Morses may have known that the slot machines were sources of illegal revenue before signing the agreement, the trial court did not declare the contract an illegal agreement. The court, however, did award $200,000 for the initial installments after determining that Ms. Kunda was in material breach of the agreement. It declined to award the Morses their lease payments because those were not intended to apply to the purchase prices under the agreement, and also declined to award the monthly payments for the owner financing on the basis of insufficient evidence. The opinion and judgment were docketed on July 19, 2014.
Ms. Kunda timely noted her appeal on July 31, 2014.
DISCUSSION
A. Parties’ Contentions
Ms. Kunda claims the trial court erred in two respects in this case. First, she argues that it was the Morses, and not her, who initially breached the agreement. Ms. Kunda contends that the Morses had several opportunities to fulfill the terms of the agreement throughout the life of the contract, but failed. Accordingly, when the Morses notified Ms. Kunda in June 2010 that they would not be able to meet the terms of the agreement, they breached the contract at that time. Moreover, Ms. Kunda contends, even if the Morses were not in default of the agreement, they demonstrated that they were not ready, willing, and able to perform.
In addition to her contract claims, Ms. Kunda argues that the trial court erred in awarding damages of $200,000, which was in excess of the $102,600 that the Morses requested in their pleading.
The Morses counter Ms. Kunda‘s position and state the evidence presented tended to support that Ms. Kunda initially breached the contract.4
Actions tried without a jury are reviewed under
C. Analysis
i. Breach of Contract
Sundry arguments notwithstanding, the parties’ primary dispute is who was first to breach the contract. Ms. Kunda argues the Morses’ purported repeat failures to pay the agreed-upon amounts under the agreement was the initial breach. The Morses, on the other hand, claim Ms. Kunda breached their contract by evicting them prior to the delinquency period.
We are asked, therefore, to determine whether Ms. Kunda or the Morses initially breached the agreement, and whether that breach was material. This is a question of fact that our standard of review, supra, compels us to consider with deference the trial court‘s factual findings.
Generally, a breach of contract is defined as a “failure, without legal excuse, to perform any promise that forms the whole or part of a contract.” Weaver v. ZeniMax Media, Inc., 175 Md.App. 16, 51, 923 A.2d 1032 (2007) (citing 23 Richard A. Lord, Williston on Contracts § 63:1 (4th ed., Supp. 2006)). A promise, as referred to in that definition, is “a manifestation of intention to act in a specified way, so made as to justify a promise in understanding that a commitment has been made.” Weaver, 175 Md.App. at 51 (citing Restatement (2d) of Contracts § 2(1) (1981)). The term “default” is used interchangeably with “breach.” See Nylen v. Geeraert, 246 Md. 4, 10, 226 A.2d 878 (1967) (“When [the term “default” is] used in respect of an obligation created by contract, the ordinary meaning is failure of performance[.]“). When “default” is used with respect to a debt, “it means simply nonpayment.” Id. (citation omitted).
Per the agreement, Ms. Kunda agreed to convey to the Morses the Hacks Point General Store business, 99 of the 100 shares of common stock in the associated corporation, the real estate upon which the business was located, and all of the business’ equipment and sales stock. In exchange, the Morses agreed to pay $846,950 for the entire transaction. The parties agreed that the Morses would obtain a bank loan in the amount of $622,000 and that the owner would finance the remaining $224,950.
When it became apparent that the Morses would not be able to obtain bank financing before the initial closing date of October 4, 2007, the parties signed a sale addendum that slightly restructured the transaction. There, the parties agreed to two deposit payments: The first, in the amount of $100,000, would be payable upon the signing of the sale addendum in October 2007, while the second, in the amount of $174,950, would be payable in June 2008. The record is not entirely clear
Notably, the agreement states that “[The Morses] shall be in default if any payment is not made within 30 days of the due date.” (emphasis added). Ms. Kunda testified the Morses did not make their required payment on June 1, 2010, and that her attorney stated she had the right to evict the Morses before they were technically in default. Although she did not explicitly state she evicted the Morses because they had not yet remitted the June 2010 installment, that may reasonably be inferred from her testimony.
The challenge for Ms. Kunda, however, is that the initial agreement sets forth the above-mentioned delinquency period during which the Morses could remit payment without defaulting under the contract. The Morses could be considered in default only after the passage of 30 days without payment. Moreover, the addendum to the agreement extended the closing date to May 1, 2011, while stating that “[a]ll terms per the original ‘Agreement of Sale’ dated September 29, 2007 will remain in effect.” According to those original terms, the unpaid principal and interest, which the agreement termed the balloon payment, was due 24 months from the settlement date of May 1, 2011, i.e., May 1, 2013. Entering onto the property and evicting the Morses prior to the expiration of the delinquency period—and well before the balloon payment was actually due—was contrary to the terms of the agreement and, therefore, a breach by Ms. Kunda.
The language of the agreement did not support Ms. Kunda‘s premature entry onto the property. The original agreement, all terms of which remained valid after execution of the addendum, stated under the “Possession” subsection:
If for any reason the Buyer defaults on the purchase of the Corporation scheduled for October 4, 2007, the Buyer will relinquish all corporate profits to the Seller (and) will provide adequate back-up information (and) will vacate the premises (and) all Corporate property and assets will remain with the Corporation in the same working order in which they were on October 1, 2007.
(emphasis added). Reading this term along with the extension of the settlement date per the addendum, we determine the contract did not permit for Ms. Kunda‘s eviction of the Morses. The closing date was extended to May 1, 2011, meaning that, so long as the Morses continued to make their monthly payments, they were permitted to remain on the premises. Further still, the Morses had not yet defaulted on their June 2010 payment because they were well within the delinquency period. Accordingly, Ms. Kunda breached the terms of the agreement when she entered onto the property before the Morses had in fact defaulted.
For the reasons outlined above, the trial court correctly determined that Ms. Kunda breached the agreement initially.
ii. Calculation of Economic Damages
Ms. Kunda additionally contends that the trial court erred in awarding the Morses $200,000 in damages. She argues the trial court incorrectly awarded $200,000 in compensatory damages where the Morses prayed for $102,600 in Count I of the complaint. Further complicating matters is that the Morses alleged the
Prior to 2012,
Under the 1998 Rule, however, a plaintiff who did receive a verdict awarding damages greater than what the ad damnum clause demanded could amend that part of her complaint to reflect the actual award. See Bijou v. Young-Battle, 185 Md.App. 268, 290, 969 A.2d 1034 (2009). The plaintiff had to seek this opportunity before the entry of an appealable final judgment, and the amendment was to be accomplished “promptly” after return of the verdict. Id. If a plaintiff failed to seek amendment of the ad damnum clause, the defendant could seek remittitur of the award so it would conform to the complaint, or the plaintiff would have to release the excess at the appellate level in order to prevent a full reversal of the judgment. See id. at 287, 292 (explaining that releasing the excess of an award at the appellate level prevents the judgment from being wholly reversed on appeal, and also that the court erred in failing to grant defendants’ motion for remittitur
The Hoang Court noted that, when amendments to
That version of
[t]he amendment is proposed in light of discussions with attorneys who recommend eliminating the requirement to plead specific amounts in favor of a framework similar to that used in medical malpractice cases. See
[Md.] Code, Courts [& Jud. Proc.] Article, § 3-2A-02(b) . It is thought that ad damnum clauses are damaging to defendants who become frightened upon receiving complaints with huge amounts specified in the clauses; to plaintiffs who may become disillusioned as to the value of their cases; and to the legal profession because they lead to a negative public perception by distorting the attorney‘s actual valuation of the case.The Subcommittee has been advised that defendants and insurance companies do not exclusively rely upon the amount of damages sought in ad damnum clauses to determine the value of the case. Insurance companies set aside reserves based upon their own investigation and experience. Defendants and insurance companies obtain information about the actual value of the case during the discovery process.
Id. Accordingly, the Rules Committee thought it more appropriate simply to set a jurisdictional threshold for an ad damnum, and to allow the parties to reach a realistic amount through discovery and investigation. The gross over- or under-valuation
The amendment of
Although the Morses’ right to compensatory damages is unaffected by the change in the Rule, the Morses’ ad damnum clause in Count I is caught in a procedural purgatory. They pleaded a specific amount of damages per the requirements of the pre-2012 version of
The current version of the Rule, however, presses the reset button on these pre-2012 ad damnum requirements. The pleading, as of the date of trial, was not in full compliance with the Rule for obvious reasons. Nevertheless, the complaint did plead an amount greater than $75,000, although the amended Rule did not require that the Morses list the reason for the demand (repayment of the amount paid for the store‘s inventory). In any case, the Rule does not require we vacate the award and remand to the trial court. The Rules Committee did away with the strict pleading requirements for ad damnum clauses in order to promote the recovery of realistic awards borne out by investigation and evidence, and to mitigate negative perceptions of the legal profession. The award the Morses received is consistent with the
Because the Morses’ substantive rights were not affected by the amendment of
JUDGMENT OF THE CIRCUIT COURT FOR CECIL COUNTY AFFIRMED. COSTS TO BE PAID BY APPELLANT.
Notes
- Was the court in error in determining that Appellees had not first breached the contract? Was the court in error in determining that Appellant breached the contract?
- Was the court in error in its calculation of economic damages?