Lenders: Prove All Material Loan Terms, Even In The Absence Of Opposition

The New Jersey Appellate Division has again emphasized how important it is for lenders attempting to collect a loan to be thorough at trial, even where there is little opposition from the borrower.

In New Jersey Higher Educ. Student Assistance Auth. v. Siaw, Docket No. A-3929-16T2 (App. Div. Jan. 15, 2019), the defendant obtained student loans from the plaintiff. The Defendant defaulted on the promissory notes, and the plaintiff sued to recover all principal, interest and collection costs due under the loan documents. The notes did not contain a provision for an interest rate, but rather provided that the interest was as set forth in the plaintiff’s “Loan Terms, Conditions, and Definitions.” The Loan Terms, Conditions, and Definitions, however, also did not provide for an interest rate, and instead provided that the “borrower(s) and cosigner(s) will be provided a copy of the Disclosure Statement revealing the interest rate for this Note.”

At trial, the plaintiff introduced into evidence the promissory notes and the Loan Terms, Conditions, and Definitions, but did not offer the “Disclosure Statement” that was to provide the loans’ interest rates. Instead, the plaintiff introduced print outs from its “Direct Loan System,” which purported to set forth the loans’ interest rates. Although the print outs contained a line that provided “Date Disclosure: 08 19 2009”, the print outs themselves were dated less than a week before the trial, and contained various interest-rate adjustments after August 19, 2009. The plaintiff introduced no evidence demonstrating either that the plaintiff disclosed an interest rate to defendant at the time the loans were disbursed or that the defendant ever received the Disclosure Statements providing the interest rates. The trial court found that the plaintiff failed to carry its burden of establishing its entitlement to any interest on the loans and converted all of defendants’ loan payments to reductions of principal. The trial court entered judgment in the plaintiff’s favor in the remaining amount of principal and collection costs.

On appeal, the plaintiff argued that its evidence (the print outs) proved the interest rates and contended that the trial court erred by retroactively reallocating the defendant’s payments toward principal. The Appellate Division rejected the plaintiff’s arguments and affirmed the trial court’s judgment. The appellate court held that the plaintiff bore the burden to prove the interest rates due on the notes, and that the rates were an essential term of the parties’ agreement. The court further ruled that the plaintiff’s print outs failed to satisfy the “Best Evidence Rule,” which requires an original writing to prove the document’s contents when the contents are material to the dispute, because the plaintiff failed to produce the original Disclosure Statements provided to the defendant and also failed to prove that the original documents were lost, destroyed, or in the defendant’s possession. The appellate court also noted that, even if the print outs were admissible, they would not have been sufficient to establish that the interest rates contained in the print outs were the rates disclosed to the defendant. The court therefore ruled that the plaintiff had only established the loans’ principal amounts and that the trial court’s judgment was correct.

Interestingly, the Appellate Division suggested that the plaintiff may have been able to recover some amount of interest in “quantum meruit” (the reasonable value as determined by proofs), but the plaintiff failed to ask for quantum meruit relief and failed to present proof of what a reasonable interest rate would have been.

Also of interest in this case was that the defendant represented herself at trial and neither challenged the plaintiff’s loan documentation nor testified in her own defense, other than some apparent brief questioning from the trial judge relating to when the defendant completed her studies and graduated. On appeal, the defendant submitted a non-conforming brief that was rejected and not considered by the Appellate Division. In short, both the trial and appellate courts reached their respective decisions with no defense being submitted by the defendant.

The takeaway from New Jersey Higher Educ. Student Assistance Auth. v. Siaw for lenders is to be adequately prepared to establish all material loan terms at trial, with all available evidence, and also preserving the right, early and often, to establish amounts owed on a quantum meruit basis. The fact that a defendant does not vigorously oppose a lender’s proofs may not be sufficient to establish appropriate amounts owed.

The Siaw decision is available at:

To discuss creditors’ rights matters with this article’s author, please contact:

Jonathan P. Vuotto, Esq.
McAndrew Vuotto, LLC

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