OLR Bill Analysis

sHB 6897

AN ACT CONCERNING LIQUIDATED DAMAGES PROVISIONS IN CONTRACTS, REQUESTS FOR MORTGAGE PAYOFF STATEMENTS AND THE REPOSSESSION OF MOTOR VEHICLES IN BANKRUPTCY CASES.

SUMMARY:

Under this bill, no provision in a contract to purchase or lease goods or services primarily for personal, family, or household purposes that provides for the payment of liquidated damages in the event of a breach is valid or enforceable unless:

1. the contract contains a statement in boldface type at least 10 points in size immediately following the liquidated damages provision that states “I HAVE READ THIS LIQUIDATED DAMAGES PROVISION AND UNDERSTAND ITS MEANING” and

2. the person against whom the provision is to be enforced signs his or her name or writes his or her initials next to the statement.

Current law requires the mortgagee, upon written request of the mortgagor or the mortgagor's attorney or other authorized agent, to provide a payoff statement in writing to the person requesting the payoff statement on or before the date specified in such request, if the request date is at least 10 business days after the date the mortgagee received the written request. The bill requires that the request date be at least eight business days instead of 10 after the date the request was received.

If the request for a payoff statement is made in connection with a default on the mortgage, the bill authorizes the mortgagor's attorney to make the written request directly to the mortgagee, if it contains a representation that the person requesting the payoff statement is the mortgagor's attorney and that the mortgagor has authorized the request.

By law, when the retail buyer is in default in the payment of any sum due under a retail installment contract or installment loan contract, or in breach of any other condition, which is expressly made a ground for the retaking the goods, the lesser or other holder of the contract may retake possession. The bill specifies that the filing of a petition in bankruptcy under Chapter 7 of Title 11 of the United States Code by the retail buyer of a motor vehicle, or such retail buyer's status as a debtor in bankruptcy, is not by itself a default or a ground for the retaking of the motor vehicle.

EFFECTIVE DATE: October 1, 2007

BACKGROUND

Liquidated Damages

“Liquidated damages” is an amount of money agreed upon by both parties to a contract that one will pay to the other upon breaching (breaking or backing out of) the contract or if a lawsuit arises due to the breach.

Common Law

Currently, there is both common law (judge-made) law and statutory law in Connecticut that affects the enforceability of liquidated damages contract clauses. Under Connecticut common law, a contract provision that fixes liquidated damages for breach of contract is enforceable if (1) the damage that was to be expected as result of a breach of contract was uncertain in amount or difficult to prove; (2) the parties had the intent to liquidate damages in advance; and (3) the amount stipulated was reasonable because it was not greatly disproportionate to the amount of the damage which, as the parties looked forward, seemed to be the presumable loss that would be sustained in the event of a contract breach (American Car Rental, Inc. v. Comm'r of Consumer Protection, 273 Conn. 296, 306-307, 869 A. 2d 1198 (2005)).

Related Statutes

Under Connecticut's commercial code provisions dealing with the sale of goods, damages for breach by either party may be liquidated in the contract but only at an amount that is reasonable in the light of (1) the anticipated or actual harm caused by the breach, (2) the difficulties of proof of loss, and (3) the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy (CGS 42a-2-718). A similar statute exists for the leasing of goods (CGS 42a-2A-710(a)).

Other statutes impose certain limits or requirements on liquidated damages provisions in funeral service contracts, the involuntary liquidations of the businesses and property of foreign banks, and transfers of structured settlements (CGS 33-213, 36a-428n, 42-202(e), 52-225 (13) and (19), 52-225h).

Bankruptcy Code –Chapter Seven

Individuals can file for bankruptcy in a federal court under Chapter 7 (“straight bankruptcy,” or liquidation (11 USC 701 et seq)). In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. Some liens, however (such as real estate mortgages), survive. The value of property which can be claimed as exempt varies from state-to-state. Other assets, if any, are sold by the interim trustee to repay creditors. Many types of unsecured debt are legally discharged by the bankruptcy process, but there are many classes of debt that are not discharged. Common exceptions to discharge include child support, most taxes, most student loans, and fines and restitution imposed by a court for any crimes committed by the debtor.

COMMITTEE ACTION

Judiciary Committee

Joint Favorable Substitute

Yea

40

Nay

0

(04/13/2007)