## Facts

- NV One, LLC obtained a commercial loan from Potomac Realty Capital, LLC (PRC) in 2007 to rehabilitate a former post office building in West Warwick, Rhode Island.
- NV One executed a promissory note for $1,800,000, secured by a mortgage and related collateral documents; two principals personally guaranteed the debt.
- The loan structure included an interest reserve and a renovation reserve; the note required monthly interest-only payments with a maturity date in 2008 and a stated default rate of 24%.
- PRC advanced only about $1,007,390.52 to NV One but charged interest as if the full $1.8 million principal had been disbursed.
- The loan documents included a “maximum-interest” (usury savings) clause stating that any interest collected above the legal maximum would be applied to future payments or refunded.
- In 2009, PRC declared a default and began foreclosure activity; NV One sued, alleging the loan violated Rhode Island’s usury statute, which caps interest at 21% per annum.

## Issues

1. Whether charging interest on undisbursed principal resulted in an effective interest rate exceeding Rhode Island’s 21% usury cap.
2. Whether a contractual usury savings clause can validate an otherwise usurious loan and prevent the statutory consequence that the contract is void.

## Decision

- The Supreme Court of Rhode Island affirmed partial summary judgment for NV One on the usury claim.
- The court held the loan was usurious because PRC’s method of charging interest, given the amount actually advanced, produced an effective rate above the statutory maximum.
- The court held the usury savings clause unenforceable as contrary to public policy and ineffective to cure usury.
- The promissory note was void as a matter of law, and the mortgage securing it was likewise void.
- Summary judgment was proper because the disbursement amounts and interest-charging practice were undisputed, leaving a legal question about the clause’s effect.

## Legal Principles

- Under Rhode Island’s usury statute, a lender that directly or indirectly takes or receives interest above the statutory maximum renders the loan contract void.
- Usury is determined from the transaction’s economic reality, including how interest is actually computed and collected, not solely from the nominal rates stated in the documents.
- A contractual usury savings clause cannot override the statute’s voidness remedy or permit parties to contract around legislatively imposed limits.
- A promise to refund or reallocate excess interest later does not prevent a loan from being usurious when the lender’s conduct results in unlawful interest charges.

## Conclusion

Rhode Island’s high court held that PRC’s practice of charging interest on amounts not actually advanced made the loan usurious under the 21% cap, and it refused to enforce a usury savings clause to rescue the transaction, leaving the note and mortgage void.


NV One, LLC v. Potomac Realty Capital, LLC, 84 A.3d 800 (R.I. 2014)