150 Conn.App. 610
Conn. App. Ct.2014Background
- Bridgeport Portfolio, LLC borrowed $7,780,000 under a multifamily open-end promissory note and mortgage; Wilfredo Santos executed a guaranty. The loan was assigned to Federal National Mortgage Association (Fannie Mae).
- Borrower defaulted on payments due May 1, 2010; lender accelerated the loan and sued for foreclosure and a money judgment on the note and guaranty.
- The note expressly provided for (1) a default interest rate (an increased rate upon delinquency) and (2) a prepayment premium payable on voluntary or involuntary prepayment (including acceleration).
- The trial court granted summary judgment as to liability on the foreclosure count, bifurcated damages, and later held a hearing on damages where a loan servicer’s witness explained the default interest and prepayment premium calculations.
- The trial court found both provisions valid and enforceable, included both default interest and the prepayment premium in the affidavit of debt, and rendered a judgment of strict foreclosure; defendants appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing of guarantor (Santos) to appeal foreclosure judgment | Santos is bound by the foreclosure debt determination and has a real interest because any future deficiency against him would include disputed sums | Santos lacks an adverse judgment against him on the second (deficiency) count and thus is not aggrieved | Santos has standing: he has a real interest because a future deficiency judgment could include the challenged amounts |
| Enforceability of both default interest and prepayment premium together | Fannie Mae: both contractual provisions are valid, distinct, and compensatory; damages differ and are not duplicative | Defendants: combining both levies constitutes a penalty, double recovery, and violates public policy | Court enforced both provisions: parties were sophisticated, terms clear, and defendants failed to show the amounts were punitive or disproportionate |
| Waiver of challenge to damages after liability summary judgment | Fannie Mae: defendants reserved right to contest damages; damages were decided later so no waiver | Defendants: earlier rulings preclude relitigation | Court: no waiver; damages determination occurred at foreclosure judgment, so defendants were entitled to contest amounts |
| Whether liquidated-damages analysis invalidates the clauses | Fannie Mae: clauses are commercially reasonable liquidated-damage measures for different losses | Defendants: combined clauses produce excessive, inconsistent damages akin to a penalty | Court applied liquidated-damages test and ruled defendants failed to rebut presumption of validity; no evidence showed clauses were grossly disproportionate |
Key Cases Cited
- Bellemare v. Wachovia Mortgage Corp., 284 Conn. 193 (2007) (distinguishes penalties from enforceable liquidated damages and sets standards for validity)
- American Car Rental, Inc. v. Commissioner of Consumer Protection, 273 Conn. 296 (2005) (three-part test for liquidated damages: uncertainty of harm, intent to liquidate, and reasonable proportion)
- Tallmadge Bros., Inc. v. Iroquois Gas Transmission System, L.P., 252 Conn. 479 (2000) (commercial contract interpretation gives effect to clear, unambiguous terms)
- Collins v. Sears, Roebuck & Co., 164 Conn. 369 (1973) (public policy voidance of contracts should be applied narrowly)
- Antonino v. Johnson, 113 Conn. App. 72 (2009) (promissory note is a contract governed by contract law)
- Cadle Co. v. D’Addario, 131 Conn. App. 223 (2011) (recognizes lawfulness of default interest as compensation for delinquency)