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Kunda v. Morse

Court of Special Appeals of Maryland

August 31, 2016


          Graeff, Kehoe, Reed, JJ.


          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.

         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, 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 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 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 ...

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