Summary
stating that a court should not interfere when the language of the contract itself indicates that "the parties intended to fix for themselves, without judicial intervention, a sum acceptable to both which would prevail as damages in the event of a breach of contract"
Summary of this case from Wallingford Shopping v. Lowe's Home CenterOpinion
(2315)
Argued January 31, 1984
Decision released July 10, 1984
Action to recover damages which resulted from the named defendant's refusal to honor a letter of credit, brought to the Superior Court in the judicial district of Hartford-New Britain at Hartford, where the named defendant impleaded, inter alios, the third party defendant trustee in bankruptcy, who filed a counterclaim against the plaintiff; the court, McCarthy, J., rendered summary judgment as to liability in favor of the plaintiff and the court, Mulvey, J., rendered judgment awarding the plaintiff nominal damages, from which the plaintiff appealed to the Supreme Court, which remanded the case with direction to render judgment in the full amount of the letter of credit; the court, Aspell, J., thereafter rendered judgment for the plaintiff on the counterclaim of the third party defendant trustee in bankruptcy, from which the trustee appealed. No error.
Martin A. Gould, for the appellant (third party defendant trustee in bankruptcy).
John B. Nolan, with whom, on the brief, was James J. Tancredi, for the appellee (plaintiff).
This is an action originally brought by New York Life Insurance Company against Hartford National Bank to recover $180,000 for the failure of the bank to honor a letter of credit issued for James Minges and Richard Gordon, doing business as Talcott Village Company. New York Life Insurance Company and Talcott Village Company had executed an agreement pursuant to which a mortgage commitment was given to Talcott Village Company. The agreement also provided for a liquidated damages deposit of $180,000, in the event Talcott Village Company did not enter into a mortgage with the insurance company. In lieu of the deposit required, the bank issued an irrevocable letter of credit to the insurance company in that amount. Judgment was rendered for the insurance company against the bank in the primary action. New York Life Ins. Co. v. Hartford National Bank Trust Co., 173 Conn. 492, 378 A.2d 562 (1977). The bank impleaded Minges and Gordon as third party defendants, claiming that both had guaranteed payment of the $180,000, and they counterclaimed against the bank. These claims have been settled. The trustee in bankruptcy for Minges in the present action alleges by its cross complaint against the insurance company that the company is not entitled to keep the entire $180,000. The sole issue on appeal is whether the trial court erred in holding that the liquidated damages provision in the loan commitment contract of the insurance company and Talcott Village Company was enforceable and that, therefore, the trustee could not recover any of the amount awarded to the insurance company.
This appeal, originally filed in the Supreme Court, was transferred to this court. Public Acts, Spec. Sess., June, 1983, No. 83-29, 2(c).
On appeal, New York Life Insurance Company raises the issue of whether the trustee has standing to assert the invalidity of the liquidated damages clause. The trial court does not discuss standing in its memorandum of decision. The insurance company did not file a cross appeal nor did it file a preliminary statement of issues. The failure to do either precludes review. Practice Book 3003, 3012(a); Lynch v. Davis, 181 Conn. 434, 437, 435 A.2d 977 (1980).
Three conditions must be met in order to uphold a contractual provision for liquidated damages. They are (1) that the damages are uncertain or difficult to prove; (2) that the parties intended to liquidate damages in advance; and (3) that the amount is reasonable because it is not greatly disproportionate to the amount of damage which the parties assumed at the time of their contract would be sustained if the contract were breached. Norwalk Door Closer Co. v. Eagle Lock Screw Co., 153 Conn. 681, 686, 220 A.2d 263 (1966). The trial court found that all three conditions were met on the basis of the facts of this case. The facts found were not clearly erroneous. See Pandolphe's Auto Parts, Inc. v. Manchester, 181 Conn. 217, 221-22, 435 A.2d 24 (1980).
The damages arising from the failure of Talcott Village Company to borrow nine million dollars at an interest rate of 9 percent per annum were uncertain and would be difficult to prove. Walter E. Heller Co. v. American Flyers Airline Corporation, 459 F.2d 896, 899 (2d Cir. 1972). The liquidation clause itself shows that the parties intended to fix for themselves, without judicial intervention, a sum acceptable to both which would prevail as damages in the event of a breach of contract. The amount of the liquidated damages set by the parties was reasonable, and not plainly disproportionate to the possible loss. Liquidated damages in the amount of 2 percent of the loan commitment is presumptively a reasonable sum to be retained upon breach of the contract. Vines v. Orchard Hills, Inc., 181 Conn. 501, 512, 435 A.2d 1022 (1980). Liquidated damages clauses in loan commitment agreements are valid if the actual damages are difficult to determine and the sum stipulated bears a rational relationship to the loss contemplated at the time the contract was executed. Walter E. Heller Co. v. American Flyers Airline Corporation, supra; Harding v. Pan American Life Ins. Co., 452 F. Sup. 527 (E.D. Va. 1978); New York Life Ins. Co. v. G.H.C. Properties, Ltd., 361 F. Sup. 311 (M.D. Fla. 1972).