Whether a creditor is entitled to recover prejudgment interest under C.P.L.R. § 5001(a) where a breached promissory note required payment of monthly interest and principal installments on the debt owed.

Yes. A creditor is entitled to prejudgment interest on both the unpaid interest and the principal payments from the date of the accrual of the cause of action until the date of the determination of liability.

In April 1980, Defendant debtor executed a promissory note to pay Plaintiff creditor a certain principal sum, with interest to accrue at 8% per year, payable monthly. The note provided for payments of interest only during the first five years. Thereafter, the monthly payments were to cover both interest due and installments on the principal, until the remainder came due at the end of the year 2000. Defendant made no payments from 1980 to 1997. Plaintiff instituted this action to recover the principal and interest due between 1991 and 1997. The Supreme Court awarded Plaintiff the monthly interest and principal owed under the promissory note for the relevant time period but denied prejudgment interest. The Appellate Division reversed as to the exclusion of prejudgment interest. The Court of Appeals affirmed.

Based on the plain language of the statute commanding payment of interest, and on the Court's history of awarding interest in order to make an aggrieved party whole, the Court held that C.P.L.R. § 5001(a) provides for statutorily-assessed prejudgment interest. This statutory prejudgment interest does not merge with the principal or interest awarded as damages for a breach of contract claim and does not serve as part of the basis for the computation of future interest. The prejudgment interest is therefore simple interest, not compound interest. Under N.Y. C.P.L.R. § 5001(a), a creditor can recover the simple prejudgment interest accruing from the time payments became due to the determination of liability, on both the unpaid interest and the principal payments due under a promissory note. The payment of this prejudgment interest does not penalize the debtor for contesting the debt in litigation because presumably he profited from the money while in his possession, and therefore no inequity results from requiring him to pay over this profit once liability is determined.