A Creditor is Only Entitled to Recover Past Due Installments on Defaulted Note Absent an Acceleration Clause

On July 9, 2021, the Fourth Department issued a decision in Estate of Kathryn Essig v. Essig, 2021 NY Slip Op. 04301, holding that absent an acceleration clause providing for the entire amount of a note due upon default, in general a creditor is only entitled to recover the past due installments, explaining:

We agree with defendant, however, that the court erred in determining that plaintiff was entitled to recover for the entire amount of the note. "As a general rule, in the absence of an acceleration clause providing for the entire amount of a note to be due upon the default of any one installment, [a plaintiff is] only entitled to recover past due installments and [can]not unilaterally declare the note[] accelerated" (Libeson v. Copy Realty Corp., 167 AD2d 376, 377 [2d Dept 1990]; see generally Barr v Country Motor Car Group, Inc., 15 AD3d 985, 986 [4th Dept 2005], lv denied 6 NY3d 704 [2006]). "Rather, each default on each installment gives rise to a separate cause of action" (Libeson, 167 AD2d at 377; see U.S. Bank N.A. v. Brown, 186 AD3d 1038, 1039 [4th Dept 2020]). Here, the record is devoid of any evidence of an acceleration clause and, thus, plaintiff was entitled to recover "only the amount of the installments past due at the time of trial" (Admae Enters. v. Smith, 222 AD2d 471, 472 [2d Dept 1995]; see Libeson, 167 AD2d at 377).

The attorneys at Schlam Stone & Dolan frequently litigate disputes between creditors and debtors.

Contact our attorneys at commercialdivisionblog@schlamstone.com if you or a client have questions regarding a dispute dealing with a loan default.