Kunda v. Morse

REPORTED

IN THE COURT OF SPECIAL APPEALS

OF MARYLAND

No. 1059

September Term, 2014

______________________________________

KAREN KUNDA

v.

WILLIAM MORSE, ET UX.

______________________________________

Graeff,
Kehoe,
Reed

JJ.
______________________________________

Opinion by Reed, J.
______________________________________

Filed: August 31, 2016
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.

FACTUAL AND PROCEDURAL BACKGROUND

1
Ms. Kunda originally presented her questions to this Court as follows:

1. 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?

2. Was the court in error in its calculation of economic
damages?

1
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.

2
Ms. Kunda would retain one share of stock, and the Morses had the option, upon
repayment of the full debt obligation, to purchase the final share for the price of $1.00.

2
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

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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 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

3
Per the agreement, the Morses would be in default 30 days after the due date of a
payment.

4
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 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

5
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

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 (2009); accord Clickner v. Magoth River Ass’n, Inc.,

424 Md. 253, 266 (2012). The trial court’s legal conclusions do not receive the same

4
The Morses additionally argue in their brief that the trial court erred in finding they
could not prove their claim for deceit. They urge this Court to reverse the trial court
because it failed to draw an adverse inference against Ms. Kunda when she asserted her
Fifth Amendment privilege not to testify regarding the legality of the slot machines. This
argument, however, is not presented in response to the appellant’s contentions regarding
Count I of the complaint. It is presented to seek our review of the trial court’s denial of
Count III of the complaint. As such, it resembles less a counterargument and much more
a cross-appeal. Maryland Rule 8-202(e) requires notice of a cross-appeal to be filed
“within ten days after the date on which the first notice of appeal was filed or within any
longer time otherwise allowed by this Rule.” The record does not demonstrate that the
Morses filed a notice of a cross-appeal in this case. Accordingly, “if a timely cross-appeal
is not filed, we will ordinarily review only those issues properly raised by the
appellant[.]” Maxwell v. Ingerman, 107 Md. App. 677, 681 (1996). Our review in this
matter will be limited to those questions presented by the appellant in her brief, which are
limited to a review of Count I of the complaint.
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deference. See Banks v. Pusey, 393 Md. 688, 697 (2006). We will review the trial court’s

application of law to facts de novo. See id.; accord Clickner, 424 Md. at 266. 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.

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 (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

7
with “breach.” See Nylen v. Geeraert, 246 Md. 4, 10 (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 non-

payment.” 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 payments promised, the latter of which may have been subject to

financing.

8
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:

9
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 damages were for

the general store’s stock, but, in the record, they indicated the amount was for one of the

two down payments they made. Accordingly, Ms. Kunda argues the trial court should not

10
have awarded $200,000 where the Morses specifically demanded $102,600. The current

landscape of the law, however, persuades us that the trial court did not err.

Maryland Rule 2-305 explains the requirements for a valid pleading in the circuit

court. Per the Rule, a plaintiff must include in her pleading “a clear statement of the facts

necessary to constitute a cause of action and a demand for judgment of the relief sought.”

Md. Rule 2-305. Notwithstanding other requirements for pleadings under the law, a

demand for damages that exceeds $75,000 “shall not specify the amount sought, but shall

include a general statement that the amount sought exceeds $75,000.” Id. The Rule,

however, had different requirements before 2012.

Prior to 2012, Rule 2-305 required that “[a] pleading that sets forth a claim for

relief . . . shall contain a clear statement of the facts necessary to constitute a cause of

action and a demand for judgment for relief sought. Unless otherwise required by law, a

demand for a money judgment shall include the amount sought.” Hoang v. Hewitt Ave.

Assocs., LLC, 177 Md. App. 562, 585 (2007) (quoting former Rule 2-305 (1997)

(amended 2003)) (emphasis added) (omissions in original). This version of the Rule was

an amendment adopted in early 1998. See Hoang, 177 Md. App. at 585. It embraced the

common law rule that a plaintiff was limited to the damages sought in the ad damnum

clause of the operative pleading. See id. at 587 (“It was implicit in the Maryland common

law rule limiting recovery of damages to the amount sought in the operative pleading that

the ad damnum clause of that pleading set forth the amount of damages being sought;

otherwise, it would be impossible to determine whether the amount awarded exceeded

the amount requested. The 1998 amendment to Rule 2–305 thus added language stating

11
expressly what already was required implicitly.”). Per these pleading requirements, a

plaintiff could not state simply that she sought damages “in excess of” a given amount.

Id. at 588. Such a demand would not give fair notice to a defendant as to the amount

being sought. See id. (explaining that a concrete figure gives a defendant proper notice of

the amount at stake, whereas a demand “in excess of” a certain amount only sets a floor

for damages). It was necessary as a matter of fairness, therefore, that a plaintiff demand a

specific amount so the defendant was on notice as to how much he would potentially be

required to pay.

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

(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 where the

plaintiff did not amend the ad damnum clause).

The Hoang Court noted that, when amendments to Rule 2-305 were being

considered in 1998, the Courts of Appeals Standing Committee on Rules of Practice and

12
Procedure (“Rules Committee”) considered a number of possible amendments to the

Rule. See id. at 584. One proposed amendment was to eliminate the need for ad damnum

clauses altogether and to require that a plaintiff simply state in her pleading that the

jurisdictional amount was met and that she was demanding a money judgment. See id. at

584. The Rules Committee decided against that amendment at the time, opting instead for

the addition of language indicating that “a demand for a money judgment shall include

the amount sought.” Id. at 584, 587. The Hoang Court explained that the amendment

ultimately adopted by the Court of Appeals requiring the demand of a concrete figure of

damages was consistent with the main purpose of pleading, i.e., fair notice. See id. at 583,

587–88 (citing Scott v. Jenkins, 345 Md. 21, 27–28 (1997)).

That version of Rule 2-305 prevailed until 2012, when the Rule was again

amended. The 2012 amendment to the Rule adopted one of the rejected 1998 proposals

and fully eliminated the requirement that a plaintiff plead a specific amount of damages

in all instances. See Court of Appeals Standing Comm. on Rules of Practice and

Procedure, 174th Rep., July 26, 2012, at 217. In addition, it simplified the pleading

requirements such that they were tied to a jurisdictional amount of $75,000. See id. If the

amount demanded was greater than $75,000, only a statement to that effect was

necessary; if, however, the amount demanded was less than $75,000, then a specific

figure was required because the amount was relevant to the question of circuit court

13
jurisdiction and the right to a jury trial.5 See id. In proposing its recommended

amendment, the Rules Committee explained that

[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 undervaluation of

damages was harmful to the perceptions of parties relative to their cases, and to the

public’s perception of the legal profession.

The amendment of Rule 2-305 between the time the complaint was filed in 2010

and the time a judgment was entered in 2014 in favor of the Morses does not significantly

5
The $75,000 threshold was selected because that is the amount necessary for removal to
a federal district court on the basis of diversity of citizenship jurisdiction. See 28 U.S.C. §
1332 (West 2015); see also Rules Committee, 174th Rep., at 216.
14
affect that judgment. Generally, “[c]ourts must apply the law in effect at the time a case

is decided, provided that its application does not affect intervening vested rights.” Mraz

v. Cnty. Comm’rs of Cecil Cnty., 291 Md. 81, 90 (1981) (emphasis added) (citations

omitted). Parties do not hold vested rights in the procedures used to enforce their

substantive rights, meaning that a change in procedural law not affecting substantive

rights will apply to “all actions whether accrued, pending, or future unless a contrary

intention is expressed.” Id. (emphasis added); accord Roth v. Dimensions Health Corp.,

332 Md. 627, 637–38 (1993). Rule 2-305 is the rule governing the pleading requirements

for claims to relief in the circuit court—it is a classic procedural rule. The Morses’

substantive right to damages for a breach of contract is not affected by the change in the

Rule. It only affects how the Morses would have had to request damages and, arguably, it

favors them by simplifying the requirements. Moreover, the Court of Appeals, which

adopted the 2012 amendment to Rule 2-305, did not express a “contrary intention” to the

amendment being applied to “accrued, pending, or future [actions].” Mraz, 291 Md. at

90. To the contrary, by Rules Order dated October 4, 2012, the Court of Appeals

specifically stated that the amendment “shall take effect and apply to all actions

commenced on or after January 1, 2013 and, insofar as practicable, to all actions then

pending.” (Emphasis added).

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 Rule 2-305—the $102,600 they paid for the inventory of the general

15
store. The trial court, however, awarded them $200,000, ostensibly for the two $100,000

deposits they made to Ms. Kunda. Were the prior version of Rule 2-305 still in effect,

either the Morses would have had to seek leave to amend their complaint in order to

conform the ad damnum to the trial court’s award, or Ms. Kunda would have had to file

for remittitur. See Bijou, 185 Md. App. at 292. The record demonstrates that neither of

those motions were filed after the trial court entered judgment in favor of the Morses for

$200,000. Once the judgment became final and appealable, under the pre-2012 Rule, the

Morses would have had to release the excess $97,400 in order to save the judgment from

complete reversal. See id. at 289, 292.

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 purposes of the current Rule. It was neither an

absurdly high nor absurdly low figure and was supported by evidence of the down

payments the Morses made to Ms. Kunda. Moreover, the Morses did not seek a grossly

16
overinflated amount of compensatory damages in an effort to strongarm Ms. Kunda into

an unjustified settlement.

Because the Morses’ substantive rights were not affected by the amendment of

Rule 2-305, the present version of the Rule applies to the damages award they received.

Nevertheless, because the underlying purpose of the Rule has changed, we hold that Ms.

Kunda was not required to seek remittitur, nor were the Morses required to seek leave to

amend the ad damnum clause or file for a release of the excess award in this Court. The

trial court’s award is supported by the evidence and factual findings of that court, and,

accordingly, the judgment conforms to the purpose of the current version of the Rule.

Accordingly, we affirm the judgment of the trial court.

JUDGMENT OF THE CIRCUIT COURT FOR
CECIL COUNTY AFFIRMED. COSTS TO BE
PAID BY APPELLANT.

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