Legal Question in Civil Litigation in California
Promissory Notes-Penalties and Interest
I am the holder of a signed promissory note where the borrower has defaulted. In the note's wording, I have specified that a penalty of 30% shall apply upon default and interest at a rate of 12% per annum shall accrue from the origination date. Is the 30% default fee legally enforceable or is it considered excessive under the principle of usury?
Thank you.
5 Answers from Attorneys
Re: Promissory Notes-Penalties and Interest
You will find the answer when you try to enforce it in court. I would bet the judge will think is 'way' excessive. That doesn't mean you will lose the principle and legal interest though. If you need legal help with the suit, contact me to discuss.
Re: Promissory Notes-Penalties and Interest
If the penalty approximates what you would have lost because of default, I don't think it's excessive. It's not interest, after all. However, the more than 12% interest, though, might be considered excessive if not usurious.
Re: Promissory Notes-Penalties and Interest
Unless the note contains language explaining what the 30% is supposed to pay for and why the parties were unable to determine a fixed dollar amount instead of the percentage, it will likely be unenforceable -- especially if the amount of the note is substantial.
Re: Promissory Notes-Penalties and Interest
Generally, that would usury. However, there are numerous exceptions to the usury law. I am very familiar with this area and you may contact me.
Re: Promissory Notes-Penalties and Interest
It sounds like usuary. Usuary means over 10 % interest, unless there is a statutory exception i.e. condominum association's assessments - 12%, banks, etc. You are still allowed to recover the amount due. If you need assistance in collecting the note, please contact us.