Default Interest Not Triggered Where Loan Matures Not Accelerated

A California appeals court determined that the lender could not charge a default rate of interest under the note’s acceleration clause after the note matured or otherwise became fully due and payable. In JCC Development Corp. v. Levy, 208 Cal. App. 4th 1522, 146 Cal. Rptr. 3d 635 (August 31, 2012), the subject note provided that all principle and interest were due by a date certain and the lender had the right to declare the full amount of the loan due and payable upon default. It would then be entitled to interest accruing at the highest rate permitted under applicable state law. The borrower made all the monthly payments but did not pay off the balance of the note by the maturity date. After the parties’ efforts to resolve the matter failed, the lender sent a pay-off demand for the outstanding principle and interest under the highest legal rate permitted, beginning on the day after the loan matured. The borrower paid under protest and then sued the lender claiming the lender had overcharged interest. The matter was tried and the court found for the lender. The reviewing court, overturning the decision, held that after the note – which it found was unambiguous – matured and was deemed fully due and payable, there was nothing to accelerate. The right to default interest was triggered only when the note was accelerated. When it matured there was no acceleration. The court observed that the lender, who drafted the note, could have included language providing that the default interest rate applied after the note matured, but did not do so. Accordingly, the Court held that the application of the default interest rate was improper, and remanded the matter to the trial court to determine the appropriate amount owed by the corporation.

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