Question. Where a Note does not manifest an agreement between the parties that the contractual interest rate of 5% would continue beyond the Note's maturity date until Debtor repaid the Note does the [currently] higher judgment rate apply?
answer. YES, in the absence of such a provision, New York's current prejudgment statutory rate of 9% should apply for the period from maturity through the date of the judgment's entry. Creditor sold building materials to Debtor for which Debtor did not make timely payment. In exchange, in part, for delaying the commencement of collection proceedings the Debtor provided the Creditor with a promissory note (the “Note”). The Note contained an interest rate of 5% and a maturity date 90 days in the future. The Note contains a choice of law provision, stating that New York law governs its construction. Debtor failed to make payment due under the Note on its maturity date, leading Creditor to file suit.
Creditor argues that interest should be calculated on the judgment in the amount of 9% per annum (the judgment rate pursuant to N.Y. C.P.L.R. 5004), from the day following the Note's undisputed maturity date. Debtor objects to Creditor's interest rate calculation. Debtor argues that the Note's interest rate of 5% should apply to the period between maturity and the entry of judgment. Debtor cites New York case law that holds when a contract provides for interest to be paid a specified rate until the principal is paid, the contract's rate of interest, rather than the legal rate governs until the contract is merged in a judgment.
New York law provides that interest shall be recovered upon a sum awarded because of a breach of performance of a contract.” N.Y. C.P.L.R. § 5001. In an action for breach of contract prejudgment interest is recoverable as of right.
Creditor argues that the Note's provision that it shall bear 5% interest “to the date this Note shall have been repaid in full” shows that the parties intended for Debtor to pay the balance by the maturity date and the 5% interest rate should be extinguished on that date. Creditor argues that the statutory date should apply in the absence of a specific provision that identifies the rate of interest to be charged post-maturity.
Contrary to Debtor's assertions, the Note does not state that the 5% rate shall apply until the principal is paid. Rather, the Note provides in part “[t]he aggregate outstanding principal balance of this Note shall bear interest accruing from the date hereof to the date this Note shall have been repaid in full at the rate of five percent (5%) per annum.” (Emphasis added). The Note is silent as to what rate would apply if Debtor did not pay the principal by the maturity date. In other words, there is no default interest rate.
This conclusion is consistent with the contractual interpretation doctrine of “plain meaning. In New York, it is well-settled that a “written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms. Here, the parties' unambiguous language shows that the interest rate of 5% was to continue until the Note's maturity date.