On October 5, 2023, Justice Crane of the New York County Commercial Division issued a decision in TH Holdco LLC v. Rubin, 2023 NY Slip Op. 33517(U), holding that a waiver in a loan guaranty waived a defense that the guaranty was unenforceable as against public policy, explaining:
The court also rejects Defendant’s argument that liability under the Guaranty would amount to a penalty in violation of public policy. A liquidated damages provision is an unenforceable penalty where it is grossly disproportionate to the probable loss.
Default interest is not the same as liquidated damages. While the amount of damages that the Plaintiff claims under the Guaranty may be large, it does not constitute an unenforceable penalty. Liability under the Guaranty is directly related to the borrower’s failure to pay. Thus, the amount is not speculative or incalculable, but is simply based on what remains of the loan along with the accumulated default interest at the 24% rate. Further, it is well settled that an agreement to pay interest at a higher rate in the event of default or maturity is an agreement to pay interest and not a penalty. Additionally, the default
rate is not unenforceable because the interest is compounded.Further, contrary to Defendant’s argument, this does not amount to a double recovery because the $94 million credit bid specifically reduced the amount of outstanding debt by the value of the property. That there is so much debt remaining after that reduction is merely the result of borrower’s and guarantor’s failure to pay the debt for so many years. Moreover, the borrower and the defendant explicitly agreed to pay this default rate of interest under the Note and the accompanying Guaranty.
In addition, the Guaranty specifically contains a waiver of defenses, stating that the Guarantor hereby waives and agrees not to assert or take advantage of (as a defense or otherwise) any principle or provision of law, statutory or otherwise, which is or might be in conflict with the terms and provisions of this Guaranty. Therefore, Defendant waived any argument that recovery under the unambiguous terms of the Guaranty would violate public policy.
(Internal quotations and citations omitted).