TC CAPITAL GROUP, LLC VS. AMER JADALLAH (L-0003-18, MIDDLESEX COUNTY AND STATEWIDE)
A-2387-19
| N.J. Super. Ct. App. Div. | Jul 1, 2021Background
- Defendant Amer Jadallah signed a $25,000 promissory note (April 21, 2013) payable in full by May 21, 2014, with monthly interest payments and a clause imposing 25% per annum on any unpaid principal after May 21, 2014; late charges and counsel fees were also provided for.
- The note was assigned to plaintiff TC Capital Group, LLC (owned by the assignor’s wife).
- Jadallah defaulted; TC Capital obtained summary judgment on liability but the trial court reserved damages for a bench trial.
- At the damages trial the court credited Jadallah with payments totaling $12,499.92, applied N.J.S.A. 31:1-3 to those payments, and declined to award the 25% enhanced post-default interest.
- The court ruled the 25% rate violated the usury statute and, alternatively, was an unconscionable, punitive default penalty unsupported by proof of actual damages from breach.
- Final judgment awarded TC Capital $15,094.29. TC Capital appealed solely arguing the court erred in denying enforcement of the 25% post-default rate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 25% post-default interest rate is permissible under the usury statute (N.J.S.A. 31:1-1(a)) | TC Capital: Stuchin and Ramsey permit enforcing an excessive rate after borrower defaults; default makes higher rate non-usurious | Jadallah: The agreed rate violates the usury statute and cannot be applied | Court: The statutory usury analysis does not end the inquiry; the 25% rate was treated as unlawful when assessed against the record and evidence of damages was lacking |
| Whether the 25% post-default rate is an unenforceable penalty (unconscionable) | TC Capital: Default-triggered higher rate is a contractual remedy and incentivizes punctual payment; enforceable post-default | Jadallah: The rate is punitive, unconscionable, and not reasonably related to actual damages from default | Court: The 25% rate was unconscionable and unenforceable as a penalty; no proof tied the rate to anticipated or actual losses, so it was invalidated |
Key Cases Cited
- Stuchin v. Kasirer, 237 N.J. Super. 604 (App. Div. 1990) (addresses enforceability of enhanced post-default rates and directs courts to examine whether such increases are penalties)
- MetLife Cap. Fin. Corp. v. Wash. Ave. Assocs. L.P., 159 N.J. 484 (1999) (approved a modest post-default rate increase as reasonably related to damages and not a penalty)
- Feller v. Architects Display Bldgs., Inc., 54 N.J. Super. 205 (App. Div. 1959) (held a very large post-default rate unconscionable and unenforceable as a penalty)
- Spiotta v. William H. Wilson, Inc., 72 N.J. Super. 572 (App. Div. 1962) (invalidated a substantial post-default rate increase as unconscionable)
- Ramsey v. Morrison, 39 N.J.L. 591 (Sup. Ct. 1877) (early authority cited for the proposition that a borrower’s ability to avoid a higher rate by punctual payment can affect whether a rate is usurious)