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Four Aces Pub, Inc. v. Commerce Bank

A-4493-02T2 (N.J. Super. App. Div. 2004) (Unpublished)

LOANS—Where loan documents have an appropriate waiver clause, a lender is not precluded from charging the authorized default interest rate by reason of late payments that trigger an acceleration even though the lender had not done so by reason of many prior late payments over the course of the loan.

A construction company obtained a loan from a bank to renovate a property. The loan required the company to make monthly payments on the first of the month. The company consistently made late payments. The loan agreement provided that a late loan payment constituted a default entitling the bank to several remedies. One such remedy was the imposition of a default interest rate. The bank notified the company of its default and elected to impose the default interest rate. As a result, the company sued the bank asserting that the bank had no authority to charge the default interest rate. The bank moved for summary judgment contending that it was entitled to impose the default rate pursuant to the loan agreement which expressly granted the bank this authority in the event of a default by the company. The lower court ruled that the plain language of the loan agreement entitled the bank to impose the default interest rate and granted summary judgment in favor of the bank. The company appealed.

The Appellate Division affirmed the lower court’s ruling. It reviewed the express terms of the loan agreement to determine whether the bank had the authority to charge the default interest rate. The Court examined the portion of the agreement governing defaults. The provision provided several events, the occurrence of which constituted a default. One event was a late loan payment. The Court then concluded that the company defaulted under the agreement by failing to tender its loan payments in a timely fashion. It further held that the language of the agreement granted the bank the authority to impose the default interest rate as a remedy for the company’s default.

In this case, both courts looked to the express terms of the loan agreement to determine the lawfulness of the bank’s actions emphasizing the importance of the language of an agreement.

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