## Facts

- Defendants executed a $3,145,000 commercial promissory note to the lender at 8% interest, requiring equal monthly payments for five years with a balloon payment at maturity.
- The loan was secured by mortgages on three New Jersey commercial properties.
- The note imposed (1) a 6% late charge on overdue monthly installments and (2) a 2% default-rate increase (8% to 10%) upon nonpayment at maturity or acceleration.
- Defendants fell behind on payments within a year; the lender assessed both late charges and default interest and filed a foreclosure action.
- Defendants admitted delinquency but challenged the late charge and default-rate increase as unreasonable and an unenforceable penalty.

## Issues

1. Whether a 6% late charge on overdue monthly installments in a commercial mortgage loan is an unenforceable penalty or a valid liquidated damages provision.
2. Whether increasing the interest rate from 8% to 10% after default is unconscionable or otherwise subject to equitable reduction in foreclosure.
3. Whether a court sitting in equity in a commercial foreclosure should refuse to enforce, or modify, negotiated late-fee and default-interest provisions absent fraud or overreaching.

## Decision

- The trial court granted partial summary judgment on foreclosure liability and later, after an evidentiary hearing on amounts due, entered final judgment enforcing the contested charges.
- The Appellate Division affirmed the final judgment of foreclosure.
- The court held the 6% late charge and the 2% default-rate interest increase were reasonable and enforceable in this arm’s-length commercial transaction.
- The matter was remanded only for entry of a corrected judgment to fix a minor, non-substantive error.

## Legal Principles

- In commercial contracts, courts generally enforce negotiated risk-allocation terms absent evidence of fraud, overreaching, or terms so extreme as to be unconscionable.
- A late charge is enforceable as liquidated damages when it is a reasonable forecast of compensation for harms from late payment that are difficult to quantify, rather than a punitive exaction.
- Default interest provisions in commercial mortgage notes are generally enforceable when the premium is reasonable in light of increased risk and servicing burdens associated with default.
- Although foreclosure is an equitable remedy, equity does not permit courts to rewrite commercial loan terms merely because a borrower later views the bargain as unfavorable; equitable intervention requires a showing of oppression or unconscionability supported by the record.
- Appellate review gives deference to trial-court factual findings on reasonableness when supported by credible evidence.

## Conclusion

The court enforced both a 6% late fee on delinquent installments and a 2% default-rate interest increase in a commercial mortgage foreclosure, concluding the provisions functioned as reasonable compensation rather than penalties, and affirmed the foreclosure judgment subject only to a non-substantive correction on remand.


Westmark Commercial Mortgage Fund IV v. Teenform Assocs., L.P., 362 N.J. Super. 336, 827 A.2d 1154 (App. Div. 2003)