Reichwein v. Kirshenbaum

Decision Date25 June 1964
Docket NumberNo. 10608-B,10608-B
Citation201 A.2d 918,98 R.I. 340
PartiesC. Fred REICHWEIN, Jr., et ux. v. Frances KIRSHENBAUM et al. Ex.
CourtRhode Island Supreme Court

Factor, Chernick & Hillman, William C. Hillman, Pawtucket, Gunning & LaFazia, V. James Santaniello, Jr., Providence, for plaintiffs.

Kirshenbaum & Kirshenbaum, Alfred Factor, Providence, for defendants.

JOSLIN, Justice.

This is an action of the case to recover money paid to the defendants under an alleged usurious loan agreement in violation of G.L.1956, chap. 26 of title 6. The case is here on the single exception of the plaintiffs to the decision of a justice of the superior court sustaining a demurrer to the second amended declaration on three of its ten grounds.

The declaration alleges in detail the financial transaction between the parties and incorporates by reference the promissory note which formed the basis of the loan made by defendants to plaintiffs. That note which was in the amount of $15,390 was payable in equal installments commencing one month after date and continuing monthly thereafter until paid in full. It contained no provision entitling or otherwise granting the makers a privilege of prepayment. Of the face amount, $10,700 was actually received by plaintiffs, the borrowers, and of the balance $4,590 constituted an 'add-on charge' or interest computed in advance over the term of the loan and $100 was for defendants' legal and other fees which were charged to plaintiffs. The plaintiffs paid three regular monthly installments and in the fourth month discharged their obligation by a final payment of $11,300. The total of $12,074.05 thus paid included an interest charge which, although computed at a rate not in excess of the permitted maximum for the period dating from the advancement of the funds until the time stipulated for the final installment payment, concededly exceeded the amount defendants were entitled to charge for the interval between that advance and the satisfaction of the loan. This excess, plaintiffs claim, makes the agreement, although apparently not usurious on its face, actually an usurious transaction which entitled them under G.L.1956, § 6-26-4, to recover all the payments made to defendants.

Initially we inquire whether the final payment on the note should be considered as having been voluntarily made by plaintiffs, or whether it should be construed as having been induced by action of defendants and therefore involuntary.

The declaration contains no allegation indicating whether the prepayment was made by plaintiffs at the insistence of defendants because of a breach of the conditions of the loan, or whether it was made by plaintiffs of their own volition and without compulsion from defendants. Their failure to set forth the facts material to their case on this issue makes it necessary for us to determine the nature of the omissions. In such circumstances when passing on a demurrer we take the intendments of a declaration most strongly against the pleader and assume that unstated essential facts are adverse to him. This is so because it is presumed that a party will set forth all the facts upon which he bases his case as favorably to himself as in good conscience he can. Cushman v. Cloverland Coal & Mining Co., 170 Ind. 402, 84 N.E. 759, 16 L.R.A., N.S., 1078; Schwartz v. Manufacturers' Casualty Ins. Co., 335 Pa. 130, 6 A.2d 299, 122 A.L.R. 1045; 41 Am.Jur., Pleading, § 66, p. 335.

It necessarily follows, therefore, that in determining the sufficiency of this declaration we must presume that the prepayment by plaintiffs in discharge of their obligation was not made under coercion or duress, but was voluntary. To presume otherwise would be to indulge plaintiffs and construe their declaration most favorably to them, for if the prepayment were involuntary defendants concede that the declaration would state a good cause of action.

This brings us to the substantial question of whether a loan contract otherwise free from usury and containing no option in the borrowers to anticipate payment is rendered usurious if as a result of a voluntary prepayment the lender receives for interest a sum greater than the maximum allowed by statute.

The plaintiffs have called no authorities to our attention nor have we been able to find any as a result of our own research where that question has been answered affirmatively. Indeed, if not universally, at least by the great weight of authority it is held that a debtor by his voluntary act cannot render usurious that which but for such act would be free from usury. See Anno., 130 A.L.R. 73; 75 A.L.R.2d 1265. 55 Am.Jur., Usury, § 47, p. 359.

The rationale upon which this conclusion is reached is cogent and should not without compelling reason therefor be disregarded. It is premised upon the right of a lender who has bargained to let his money out over an agreed period of time to be compensated by a borrower who for his own advantage seeks and is granted the privilege of prepayment, a privilege not otherwise his. Such a prepayment the authorities treat as a charge made for a new and separate agreement in termination of an indebtedness and not as consideration for the...

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12 cases
  • In re Rothenberg
    • United States
    • United States Bankruptcy Courts – District of Columbia Circuit
    • September 3, 1996
    ...the highest rate of interest permitted after maturity is the rate of interest which is charged before maturity); Reichwein v. Kirshenbaum, 98 R.I. 340, 201 A.2d 918 (1964) (Rhode Island usury statute is unique in that it expressly provides that its limit on allowable interest rate applies b......
  • Commerce Park Realty, LLC v. HR2-A Corp.
    • United States
    • Rhode Island Superior Court
    • June 19, 2019
    ...that a pro forma methods analysis was performed and that the RFP Defendants relied on that representation. The RFP Defendants argue that Reichwein applies. Reichwein v. Kirshenbaum, 98 R.I. 340, 201 A.2d 918 (1964). There, a borrower alleged a loan was usurious after he voluntarily made pre......
  • NV One, LLC v. Potomac Realty Capital, LLC
    • United States
    • Rhode Island Superior Court
    • December 16, 2011
    ... ... Consolidated ... Mortgage Co. , 102 R.I. 200, 207, 229 A.2d 608, 612 ... (1967); see Reichwein v. Kirshenbaum , 98 R.I. 340, ... 345, 201 A.2d 918, 921 (1964) ("the legislature clearly ... evinced an intention to protect a borrower ... ...
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