Friday, April 1, 2016

In response to a 50% rate of interest, Dallas Court of Appeals says, “are usurious?”

Originally published by John Guild.

Interest Rates

“How many legs does a dog have if you call his tail a leg? Four. Saying that a tail is a leg doesn’t make it a leg.” — Abraham Lincoln.  The same can be said for usurious loans.

In Koch v. Boxicon, LLC, the Dallas Court of Appeals considered the appeal of Koch, a chiropractor, who was sued by Boxicon for breaching an agreement for the “purchase of future business income.”  Boxicon had financed Koch’s business by paying Koch $96,000 over six months. In exchange, Koch was required to make “pay back payments” to Boxicon totaling $192,000 over two years. The defendant claimed agreement was a usurious loan while the defendant claimed the agreement wasn’t a loan at all because the recitals expressly stated the agreement “is NOT a loan.”  The trial court allowed the jury to decide and entered a judgment in favor of the plaintiff. The Dallas Court of Appeals reversed and held that the agreement was usurious as a matter of law. Noting that courts look to the substance rather than the form of a transaction, the court held that agreement met the statutory definition of a loan and provided for an absolute obligation to repay the principal. Though the agreement stated it was a “purchase of a portion of the future cash stream generated by the business” and “is NOT a loan,” the agreement went on to state that “This is NOT an agreement to buy a percentage of the business, but for a fixed return upon capital invested by Buyer as per this agreement.” So, what is a loan agreement if you agree it isn’t a loan?  A loan.  Saying that it isn’t a loan doesn’t make it not a loan (regardless of your use of all caps).

Koch v. Boxicon


Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

from Texas Bar Today
via Abogado Aly Website

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