Liquidated Damages Provisions

No provision in a written contract for the purchase or lease of goods or services primarily for personal, family or household purposes that provides for the payment of liquidated damages in the event of a breach of the contract shall be enforceable unless he contract contains a statement in boldface type at least twelve points in size immediately following such liquidated damages provision stating “I ACKNOWLEDGE THAT THIS CONTRACT CONTAINS A LIQUIDATED DAMAGES PROVISION”, and the person against whom such provision is to be enforced signs such person's name or writes such person's initials next to such statement. (C.G.S.A. § 42-150u)

UCC Article 2 states that damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty. (C.G.S.A. § 42a-2-718)

UCC Article 2A states that damages for default or any other act or omission, including indemnity for loss or diminution of anticipated tax benefits or loss or damage to the lessor's residual interest, may be liquidated in the lease agreement but only at an amount or by a formula that is reasonable in light of either the actual loss or the then anticipated loss caused by the default or other act or omission. (C.G.S.A. § 42a-2A-710)

Connecticut courts have recognized that "[a] contractual provision for a penalty is one the prime purpose of which is to prevent a breach of the contract by holder over the head of a contracting party the threat of punishment for a breach ... A provision for liquidated damages, on the other hand, is one the real purpose of which is to fix fair compensation to the injured party for a breach of the contract." Berger v. Shanagan, 142 Conn. 726, 731 (1955) (Citation omitted.) It is well settled in Connecticut that liquidated damages clauses are generally enforceable if they meet the following three conditions: (1) the damage which was to be expected as a result of a breach of contract was uncertain in amount or difficult to prove; (2) there was an intent on the part of the parties to liquidate damages in advance; and (3) the amount stipulated was reasonable. See Berger v. Shanahan, 142 Conn. at 732; Hanson Development Co. v. East Great Plains, 195 Conn. 60, 64-65 (1985). The party enforcing the clause has the burden of proof. See Hertz Commercial Leasing Corp. v. Dynatron, Inc., 37 Conn. Supp. 7, 17 (1980).