Loan Agreement in Rhode Island – What Makes Unenforceable Contracts

A loan agreement is a legally binding instrument, a document that must be completed and signed by both parties to the agreement to be enforceable. A loan agreement in Rhode Island is also called a legal loan agreement, a loan contract, or a personal/ business loan agreement.

And if the simplified version of this agreement is used to enforce a loan between friends or family, or where small amounts of money are transacted, the document used is called a promissory note. Unlike the loan agreement, the promissory notes in Rhode Island and in all other states are enforceable with only one signature, the borrower’s. Think of the promissory note as the document used by a borrower to pledge that they will repay the loan borrowed within the time specified in the agreement. The loan formalized by the promissory note might be collateralized or not, meaning that you could have a secured promissory note or an unsecured promissory note. With the secured promissory note, the borrower pledges that the specified asset could be repossessed by the lender if they are unable to make the loan payment on time.

The loan agreement, on the other hand, is rather comprehensive, and it has a number of important sections that must be reviewed. It’s often negotiable to an extent, and the loan contract must be signed by both the lender and the borrower. If you are getting ready to hold discussions over the loan offer given, it would be a great idea for you to first download a free Rhode Island loan agreement form. This loan agreement template gives you an insightful look into the elements of loan agreements, most importantly, the terms that can be negotiated. You will also be very much aware of some of the boilerplate terms used in these agreements, and how to handle unreasonable or inflexible terms in the agreement.

Before we look at some of the factors and conditions that would make a loan agreement unenforceable in the state of Rhode Island, let’s first take a look at what the state has to say about the interest rate the lenders can charge, and also the repercussions of charging usurious laws.

Usury Laws

The statutes provide that in the absence of a written loan agreement, the lenders can charge a maximum interest rate on loans at 12%, and if a loan contract is drawn up, the maximum allowable rate of interest is 21%. Legal judgments have the rate of interest also capped at 12% unless otherwise specified in a loan agreement.

If a lender flouts these legal requirements, their contract would be deemed null and void, with the violation of usury laws regarded a criminal injustice that attracts imprisonment of up to 5 years. The borrower might get lucky, recovering up to two times the amount of the usurious interest already paid.

These limitations do not, however, apply to finance charges for any retail sales, pawnbrokers, or even licensed persons, or people with on open-end or revolving credit plans.

Things that Make Unenforceable Contracts

• • Contract Signed Under Duress

    If it’s later found out that the loan contract was signed under duress or if the person signing the contract was coerced, then the agreement would be deemed unenforceable by the courts, and the actions previously taken following the direction of this agreement revoked.

  • Contract Signed By Person Who Lacks Capacity

    While it’s generally expected that both parties to the contract would have the full capacity to understand what they are signing up for/ agreeing to, there are cases where this doesn’t happen. So, if a contract is signed and it appears that one party lacks the reasoning capacity to understand or review the terms of the agreement, the agreement would be deemed an unenforceable contract. The party to the agreement is often deemed as one lacking the capacity to agree to the terms and sign the agreement if they are too young or if it’s medically determined that they lack the mental capacity to make said decision and to understand the implications of the decisions made. Such contracts are deemed to take advantage of people lacking the capacity to make well-reasoned out decisions and are unenforceable.

  • Agreement Signed Under the Influence

    If it’s determined signed a contract that has severe personal/ financial implications, and it’s determined that the person signed that contract under the influence, this would be used as grounds to determine the unenforceability of the contract.

  • Misinterpretation

    A legal contract will be unenforceable if there is misinterpretation or fraud reported to have occurred in the course of the loan’s negotiations. At the end of the day, loan contracts are expected to encourage good faith and honesty in the bargaining process and the transactions.

  • Nondisclosure

    The nondisclosure of important information/ material facts would result in an unenforceable contract.

Whether you are in Warwick, Providence, Newport, Westerly, Cranston, Pawtucket, or any other city in Rhode Island, you can access our free loan agreement form here to get started with the loan terms’ review and negotiation processes.