Attorneys who often draft or review loan documents become accustomed to standard language for certain provisions, and occasionally might not notice small variations which might contain a fatal flaw. We recently came upon a 2012 California state appellate court decision that illustrates this very well and provides a cautionary tale for lawyers.

The case of JCC Development Corp. v. Levy, 146 Cal. Rptr.3d 635 (2012) involved the provision in a promissory note that imposes default interest. Here, the court held that the lender could not collect interest at the default rate under the promissory note when the note matured, even though the borrower failed to pay principal and interest when due, because, in the court’s view, the default interest provision was tied to acceleration of the debt. In simple terms, once the note matured the acceleration clause could not be triggered as there was nothing to accelerate.

Background