California Supreme Court Denies Review Of Default Interest Decision

California Civil Code Section 1671 provides that a liquidated damages provision is either presumptively valid or invalid depending upon the subject matter of the contract. If the contract involves “the retail purchase, or rental . . . of personal property or services, primarily for . . . personal, family, or household purposes,” (§ 1671(c)(1)), or involves “a lease of real property for use as a dwelling,” (§ 1671(c)(2)), then a liquidated damages provision in that contract is presumptively void. (§ 1671(d).) For all other contracts (i.e., non-consumer contracts), “a provision in a contract liquidating the damages for the breach of the contract is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made.” (§ 1671(b).) Last fall, a California Court of Appeal held thatliquidated damages in the form of a penalty assessed during the lifetime of a partially matured note against the entire outstanding loan amount are unlawful penalties. Honchariw v. FJM Priv. Mortg. Fund, LLC, 83 Cal. App. 5th 893, 905, 299 Cal. Rptr. 3d 819, 828 (2022). Late last month, the California Supreme Court denied the lender's petition for review and depublication of the Court of Appeal's decision. Cal. Supreme Court Case No. S277159.

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