Another New York Court Upholds Bar on Corporate Usury Defense

A welding company sold a portion of its future business receivables to an MCA provider for a lump sum purchase price. When the welding company failed to remit the purchased sale proceeds as required by the parties’ agreement, the MCA provider filed suit against the company and its owner that had signed as a personal guarantor.

As a defense, the defendants argued that the transaction was not a true purchase and sale of future receivables but rather a disguised loan with a usurious interest rate. In response, the MCA provider filed a motion to dismiss the defendants’ usury defense and argued that because the transaction was not a loan or forbearance the defense was meritless. In opposition to the motion to dismiss, the welding company urged that the motion was premature as discovery had not yet been completed and that an affirmative usury defense could not be dismissed until discovery is completed. The court disagreed.

In its order dismissing the defendant’s usury defense, the court held that a plaintiff may move at any time to dismiss an affirmative defense if the defense is without merit. Reviewing the facts before it, the court held that the company, as a corporation, could not interpose the defense because under New York law corporations are barred from asserting the defense of civil usury. Further, the court found that an individual guarantor is also precluded from raising the defense. As such, the court held that the defendants’ argument that the agreement was usurious was meritless and dismissed their defense.

Merchant Cash and Capital, LLC, Plaintiff, v. Hobby Horse Welding, Inc., and Robbie Jo Carpenter, Defendants., 2016 N.Y. Misc. LEXIS 4894 (N.Y. Sup. Ct. Dec. 21, 2016).

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
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