Sale of Membership Interest Not a Loan

Rahmani v. Banet, 2015 Tex. App. LEXIS 4676 (Tex. App. Fort Worth May 7, 2015)

A business ownership transfer gone bad.  The plaintiff seller alleged that he had agreed to sell his 50% membership interest in the business to the defendant purchaser for $200,000.  The purchaser claimed that the transfer documents did not require any monetary payment for the transferred membership interest.  A jury trial was held and the seller prevailed.  On appeal to the Texas Court of Appeals, the purchaser argued that the “great weight and preponderance of the credible evidence established that the alleged contract was usurious…”  As such, the statutory usury penalty would completely offset the jury’s award.

In its opinion, the appellate court stated that the matter turned on whether the seller was a “creditor” under title 4 of the Texas finance code.  A creditor is defined by the code as a “person who loans money or otherwise extends credit…”  To be usurious, a contract must entitle a creditor to interest in excess of the statutory maximum upon the occurrence of some contingency.  However, the usury statutes do not apply to transactions that do not involve the provision of money or credit.

Besides conclusory statements, the court noted that the purchaser had failed to demonstrate in any way how the transaction at issue was a loan.  The court highlighted the fact the agreement was not a negotiable instrument and that no money had been lent to the purchaser.  As such, the seller was not a creditor under the finance code and the transaction was not usurious.

About Patrick Siegfried

Patrick Siegfried is the author of the Usury Law Blog. Patrick is a practicing attorney in Bethesda, Maryland. Patrick’s work focuses on issues regarding alternative small business financing. He can be reached at psiegfried@usurylawblog.com
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