New York Law Review

Tag: Present Value

  • Fareri v. Ventresca, 49 N.Y.2d 464 (1980): Traditional vs. Present Value Method in Usury Calculations

    Fareri v. Ventresca, 49 N.Y.2d 464 (1980)

    In determining whether a loan is usurious, courts should apply the traditional method of calculating interest rather than the present value method, even if the latter is arithmetically more precise.

    Summary

    Fareri v. Ventresca addresses the method of calculating interest to determine usury. The lender used the traditional method, while the borrower argued for the “present value” method, which accounts for the time value of money. The New York Court of Appeals held that the traditional method should be used, emphasizing that the legislature set the usury rate with the understanding that the traditional method would be employed. Changing the calculation method would effectively alter the usury rate, a task best left to the legislature.

    Facts

    A corporation (Ventresca) borrowed $300,000 from another corporation (Fareri). The loan agreement stipulated a 13% discount ($39,000) retained by the lender and an 8% annual interest rate on the face amount of the mortgage. The borrower was to make twelve monthly installments of $2,000 each, with the principal due at the end of one year. The borrower failed to make the principal payment, and the lender initiated foreclosure proceedings. The borrower defended against the foreclosure by alleging usury, arguing that the effective interest rate exceeded the 25% statutory limit for corporate borrowers.

    Procedural History

    The trial court (Special Term) granted summary judgment in favor of the lender (Fareri). The Appellate Division affirmed the trial court’s decision, upholding the determination that the loan was not usurious. The borrower (Ventresca) appealed to the New York Court of Appeals.

    Issue(s)

    Whether, in determining if a loan is usurious, courts should use the traditional method of calculating interest or the more arithmetically precise “present value” method.

    Holding

    No, because the legislature set the usury rate of 25% with the understanding that the traditional method of interest calculation would be used. Adopting a new method of calculation would effectively change the usury rate, which is a legislative function.

    Court’s Reasoning

    The court acknowledged that the “present value” method is arithmetically sound and more accurately reflects the realized return for the lender. However, the court emphasized that the issue is not about determining the most precise rate of return but whether the lender received a return proscribed as usurious by the legislature. The court stated: “Modification of either would produce a different point of proscription. In our opinion, the Legislature must be deemed to have set the figure of 25% with full awareness of the traditional method of computing interest and in an expectation that it would continue to be used.” The court cited precedent, including Marvine v. Hymers and International Bank v. Bradley, supporting the traditional method. The court also quoted Feldman v. Kings Highway Sav. Bank, stating, “[S]o long as all payments on account of interest did not aggregate a sum greater than the aggregate of interest that could lawfully have been earned had the debt continued to the earliest maturity date, there would be no usury.” The court concluded that changing the computational method would effectively set a new usury level, a function belonging to the legislature.

  • Barash v. Pennsylvania Terminal Real Estate Corp., 26 N.Y.2d 77 (1970): Measure of Damages for Partial Eviction

    Barash v. Pennsylvania Terminal Real Estate Corp., 26 N.Y.2d 77 (1970)

    In a partial actual eviction, the measure of damages is the difference between the actual rental value of the premises and the rent reserved under the lease, and the award should be reduced to its present value.

    Summary

    Barash, a commercial tenant, sued Pennsylvania Terminal after being forcibly evicted from a portion of its leased premises to accommodate elevator construction for a new tenant. The lower courts awarded treble damages based on the difference between the market rental value and the rent paid under the lease. The New York Court of Appeals reversed, holding that the correct measure of damages for a partial actual eviction is the difference between the market rental value and the rent reserved in the lease, discounted to its present value. Additionally, the court clarified the calculation of lost profits and distinguished between a “nominal” award in the legal sense versus a conservative estimate of damages.

    Facts

    Barash leased the entire eighth floor of a building for commercial art and subleasing purposes under a 10-year lease with escalating rent. Pennsylvania Terminal, the lessor, forcibly ejected Barash from 269 square feet of valuable office space to construct elevators for a new tenant leasing floors below. Barash paid $1.90 per square foot under the lease but the space had an actual value of $5 per square foot.

    Procedural History

    Barash sued Pennsylvania Terminal for forcible ejectment, seeking treble damages. The trial court awarded treble damages, calculating the loss based on the difference between the market rental value ($5/sq ft) and the lease rate ($1.90/sq ft). The Appellate Division modified the judgment by eliminating legal expenses but otherwise affirmed. Pennsylvania Terminal appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether the proper measure of damages for a partial actual eviction is the difference between the market rental value and the rent reserved under the lease, and whether that award should be reduced to its present value.
    2. Whether the award for lost profits was speculative and conjectural.
    3. Whether the trial court’s designation of a $1,000 award as “nominal” was an error.

    Holding

    1. Yes, because the measure of damages is the difference between the actual rental value and the agreed-upon but unpaid rent, and the award should be reduced to its present value to avoid overcompensating the plaintiff.
    2. No, because there was sufficient evidence to support the award for lost profits based on the loss of the employee’s contribution to the company’s income.
    3. No, because the court used the term “nominal” to indicate a conservative estimate of damages, not in its strict legal sense.

    Court’s Reasoning

    The court held that the correct measure of damages for partial eviction is the difference between the market rental value of the space and the rent reserved under the lease. It cited numerous cases, including Peerless Candy Co. v. Halbreich, to support this rule. The court noted that the award should be reduced to its present value, stating, “We think that due regard for an award which neither overcompensates the plaintiff nor unduly penalizes the defendants warrants reduction of the award to its present value.”

    The court rejected the argument that the lost profit award was speculative, finding sufficient evidence to support the award based on the lost employee’s contribution. Citing Wakeman v. Wheeler & Wilson Mfg. Co., the court stated, “When it is certain that damages have been caused by a breach of contract, and the only uncertainty is as to their amount, there can rarely be good reason for refusing, on account of such uncertainty, any damages whatever for the breach.”

    Regarding the $1,000 “nominal” award, the court clarified that the term was used to indicate a conservative estimate of damages, not a nominal award in the strict legal sense (e.g., 6 cents or $1). The court agreed with the Appellate Division that there was sufficient evidence to predicate a finding of loss of profits in the sum of $1,000.

    The court emphasized the importance of correctly calculating damages to avoid unjust enrichment or undue penalty, specifying that “the rent which the tenant would have been liable to pay if he had enjoyed the possession is to be deducted from the value of the use and occupation during the period of the withholding of the possession.”