Contractual Interest Rate Trumps Statutory Pre-Judgment Interest Rate

On March 2, 2022, Justice Andrea Masley of the New York County Commercial Division issued a decision in BNP Paribas, Singapore Branch v. Natixis, N.Y. Branch, 2022 N.Y. Slip Op. 30679(U), holding that a contractual agreement concerning the rate of interest to be paid by the defendant will control over New York statutory rate of 9% for prejudgment interest, explaining:

"New York courts have long held that when an agreement involving an indebtedness 'provides that the interest shall be at a specified rate until the principal shall be paid, then the contract rate governs until payment of the principal, or until the contract is merged in a judgment.' Said another way, when the principal on a loan is due on a date certain and the debtor fails to make payment, the interest rate in the contract will be used to calculate interest on unpaid principal from the date of maturity of the loan to the entry of judgment. Thus, inclusion of a clause directing that interest accrues at a particular [*4] rate 'until the principal is paid' (or words to that effect) alters the general rule that interest on principal is calculated pursuant to New York's statutory interest rate after the loan matures or the debtor defaults."

(NML Capital v Republic of Argentina, 17 NY3d 250, 258-259, 952 N.E.2d 482, 928 N.Y.S.2d 666 [2011] [citations omitted].) The interest referred to in the SBLC was due from February 20, 2020 through the date when defendant made payment, which was to occur within three business days of plaintiff's request. Defendant did not pay the full amount owed. Thus, the interest continued to run at the rate prescribed by the SBLC. All remaining arguments have been considered and are without merit.

New York courts impose a statutory pre-judgment interest rate of 9%. But as this case shows, if the parties agree on a different number (lower or, subject to usury laws, higher), that rate will control over the statutory rate. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning pre-judgment interest.