California Civil Code Section 3289 does two things after a contract is breached: it keeps any interest rate written into the contract running until the debt is paid or replaced by a judgment, and if the contract says nothing about interest, it imposes a default rate of 10% per year. The default rate applies automatically, without a court order, from the moment of breach. One important exclusion: the 10% default does not apply to a note secured by a deed of trust on real property.1California Legislative Information. California Civil Code 3289
The Two Subdivisions
Subdivision (a) preserves the contract’s own rate. Whatever interest rate the parties agreed to keeps running after a breach, all the way until a verdict or a new agreement replaces the original obligation. If the contract says 8%, the creditor keeps earning 8% after default. The rate does not reset at breach.1California Legislative Information. California Civil Code 3289
Subdivision (b) handles the more common case: a contract that never addressed interest. For any contract entered into on or after January 1, 1986, the obligation bears interest at 10% per year once a breach occurs. No court order is needed to trigger it. Accrual begins at breach and continues until payment or judgment.1California Legislative Information. California Civil Code 3289
The Real Property Exclusion
Subdivision (b) explicitly excludes any note secured by a deed of trust on real property.1California Legislative Information. California Civil Code 3289 If you hold a promissory note backed by a mortgage or deed of trust and the note is silent on interest, you do not get the automatic 10% under this section.
For real property notes without a stated rate, the fallback is 7% per year under Article XV of the California Constitution, which sets a baseline rate for any loan or forbearance of money when the parties have not agreed otherwise.2California Office of the Attorney General. California Constitution Article XV Section 1 – Usury The practical takeaway for anyone lending against real property: if you want a specific post-default rate, write it into the note.
Contractual Rates and the Usury Cap
Section 3289(a) honors whatever rate the contract sets, but the contract itself has to survive California’s usury limits. Article XV caps interest on personal, family, or household loans at 10% per year. For commercial and other non-personal loans, the cap is the higher of 10% or 5% plus the Federal Reserve Bank of San Francisco’s discount rate.2California Office of the Attorney General. California Constitution Article XV Section 1 – Usury
Broad exemptions swallow much of the ceiling. Banks, credit unions, industrial loan companies, licensed finance lenders, licensed real estate brokers arranging loans secured by real property, and pawnbrokers are all exempt.2California Office of the Attorney General. California Constitution Article XV Section 1 – Usury The usury limits mostly bind private lenders and individuals operating outside the exempt categories. If you draft a private loan agreement, the contractual rate under Section 3289(a), the usury cap, and any exemption you plan to rely on all need to be checked together.
When 10% Stops and Post-Judgment Interest Starts
Section 3289 runs until judgment. Once a court enters a money judgment, Code of Civil Procedure Section 685.010 takes over, and interest accrues at 10% per year on the unpaid principal balance of the judgment.3California Legislative Information. California Code of Civil Procedure 685.010 The post-judgment rate applies regardless of what the contract said. Even a contract set at 6% converts to 10% once the judgment is entered.
Where 3289 Does Not Reach
Section 3289 covers contract breaches. Other California interest statutes cover the rest, and knowing which one applies determines both the rate and the start date.
Section 3287: Prejudgment Interest on Liquidated Damages
Section 3287(a) gives a creditor the right to prejudgment interest when damages are certain or calculable and became due on a specific date. If someone owes $50,000 under a contract and the amount is not in dispute, interest runs from the day the money was due. This right is mandatory; courts must award it when the certainty threshold is met.4California Legislative Information. California Civil Code 3287
Section 3287(b) covers unliquidated contract damages, where the exact amount was not clear until trial. There, the court has discretion to award interest from a date before judgment, but no earlier than the day the lawsuit was filed.4California Legislative Information. California Civil Code 3287 On a large claim, the gap between “date of breach” and “date of filing” can mean months or years of additional interest.
Section 3288: Tort and Non-Contract Claims
When the obligation does not arise from a contract, Section 3288 lets the jury award interest in cases involving oppression, fraud, or malice.5California Legislative Information. California Civil Code 3288 Section 3289 does not apply to tort claims. Section 3288 interest is never automatic; the jury decides whether to award it and how much.
Bankruptcy Freezes Accrual on Unsecured Claims
If the debtor files for bankruptcy, Section 3289 interest effectively stops on most unsecured claims. The federal Bankruptcy Code disallows claims for “unmatured interest” as of the petition date.6Office of the Law Revision Counsel. 11 U.S. Code 502 – Allowance of Claims or Interests The claim is fixed at principal plus whatever interest had already accrued before filing. No further statutory interest runs on unsecured debts during the case. For creditors holding large receivables, the timing of a debtor’s filing directly affects the total recovery.