Kunda v. Morse

Reed, J. 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: I. Did the trial court err when it determined that appellant breached the contract?

II

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. ²⁹⁹ 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 loan in the amount of $224,950 to be paid back over 240 months with 8% interest.

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, ³⁰⁰ 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 80, 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 ³⁰¹ 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 delinquency period. 3 Moreover, the court additionally found there was no anticipatory breach because the Morses did not inform Ms. Kunda they would not be able to pay the owner financing or principal of the loan. Ultimately, the court determined Ms. Kunda had prevented the Morses from further performing under the contract when she excluded them well before the June 2010 delinquency period and eleven months before the final settlement date of May 1, 2011. The trial court denied the claims of Ms. Kunda and the corporation, but it also denied the Morses’ claim for nondisclosure 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 ³⁰² 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. 4 ³⁰³ B. Standards of Review Actions tried without a jury are reviewed under Maryland Rule 8-131(c).

We shall review the case both on the law and the evidence. See Md. Rule 8-131(c). An appellate court will defer to the trial court’s findings of fact, and will not disturb those findings unless they are clearly erroneous. See State Sec. Check Cashing, Inc. v. Am.

Gen. Fin. Servs. (DE), 409 Md. 81, 110-11 , 972 A.2d 882 (2009); accord Clickner v. Magothy River Ass’n, Inc., 424 Md. 253, 266 , 35 A.3d 464 (2012).

The trial court’s legal conclusions do not receive the same deference. See Banks v. Pusey, 393 Md. 688, 697 , 904 A.2d 448 (2006). We will review the trial court’s application of law to facts de novo. See id.; accord Clickner, 424 Md. at 266 , 35 A.3d 464 .

In an appeal presenting both legal and factual issues, we shall review each issue under the appropriate standard. See Clickner, 424 Md. at 266-67 , 35 A.3d 464 . 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. ³⁰⁴ 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 , 923 A.2d 1032 (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 as to whether the parties agreed to amortize the approximately $75,000 that remained after the Morses made the first deposit payment in full and put $100,000 towards the second. Regardless, what is clear is that Ms. Kunda agreed to extend settlement to May 1, 2011, and there were two deposit ³⁰⁵ payments promised, the latter of which may have been subject to financing. Notably, the agreement states that “[The Morses] shall be in default if any payment is not made within SO 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, ie., 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 I, 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 ³⁰⁶ 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 Mors-es. 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