New York Supreme Court Dismisses Defendant’s Usury Defense for Merchant Agreement

The Supreme Court of New York, Westchester County, recently granted a plaintiff’s motion to dismiss defendant’s affirmative defenses and counterclaims and held that the parties’ merchant agreement whereby plaintiff purchased defendant’s future receivables was a valid contract, and not a usurious loan, as defendant alleged.  See Rapid Capital Fin., LLC v. Natures Mkt. Corp., 2017 WL 4764559 (N.Y. Sup. Ct. Oct. 11, 2017).  In the case, plaintiff paid defendant $30,000 and, in exchange, was to receive $38,100 in defendant’s future receivables through daily debits of $152.00 per day, which was 9.1% of defendant’s average daily sales.  When defendant blocked plaintiff from debiting the money, plaintiff filed a breach of contract action.  Defendant asserted affirmative defenses and counterclaims in which it argued that the contract was invalid because it was actually a loan agreement with a usurious interest rate of 127%.  Plaintiff filed a motion to dismiss these usury claims, and the Court granted the motion.

Although the Court acknowledged that a party cannot shield itself from a usurious loan contract simply by calling it a merchant agreement, it held that the contract at issue here was not a loan. The Court focused its analysis on the fact that the contract had a reconciliation provision, which required plaintiff to either credit or debit defendant’s account if the daily debits did not equal 9.1% of defendant’s sales.  Thus, the payment amounts were contingent on defendant’s sales and, unlike with a loan, not absolute.  The fact that plaintiff added additional protections, such as the ability to investigate defendant’s finances if the monthly receipts are low, did not change this analysis.  As such, the Court dismissed defendant’s usury defenses and claims.

For a copy of the decision, please contact Michael O’Donnell at, Michael Crowley at or Clarissa Gomez at