J & B Investments, LLC v. Tarun N. Surti, et al

Three guarantors of a promissory note appeal the Chancery Court’s decision to hold them liable for the deficiency owing on the note, including interest at the default rate of 24%, following the discharge in bankruptcy of the original debtor. After the debtor defaulted on the $1,500,000 promissory note, the debtor filed for Petition for Relief under Chapter 11 in Bankruptcy Court. The Bankruptcy Court approved the debtor’s plan of reorganization after declaring that the Allowed Claim Amount would be based upon the original interest rate of 8.5%, not the default rate of 24%. In the interim, the holder of the promissory note filed this action to collect a deficiency on the indebtedness, specifically the difference between the default rate of 24% and the original interest rate of 8.5%. The Chancellor ruled by summary judgment that the plaintiff was entitled to collect the deficiency on the indebtedness against the Guarantors, the deficiency being the difference in the interest rates. Following the debtor’s discharge in bankruptcy, the guarantors filed a Tenn. R. Civ. P. 60.02(4) motion contending the indebtedness owing to the plaintiff was satisfied pursuant to the Plan of Reorganization. The Chancellor denied the motion and awarded the holder of the note prejudgment and post-judgment interest at the default rate of 24%, and attorney fees incurred in this and a separate action. The guarantors appealed contending the Chancellor erred in denying their Rule 60 motion, finding the default rate of 24% to be legal, and awarding interest at the default rate prior to notice of default. The guarantors also contended it was error to award the plaintiff attorney fees for services rendered in a separate action. We have determined the debtor’s bankruptcy does not affect the liability of the guarantors and thus does not impair the plaintiff’s right to recover the deficiency. We have also determined the default rate of 24% was not usurious, and the holder of the note was not required to give notice of default to invoke the default rate. Further, we have determined the holder of the note was only entitled to recover attorney fees incurred to enforce the Guaranty Agreements, not to defend related actions that do not pertain to the Guaranty Agreements.