New York Court Upholds Bar on Use of Usury Defense by Corporate Entity

A computer consultant asked a client for a loan. The client obliged but required a confession of judgment be included in the loan contract along with an increased interest rate in the event of default. The consultant agreed. The loan, which was made jointly to the consultant and his corporation, carried a 9% interest rate that would increase to 16% if the loan became overdue.

When the consultant failed to repay, the client initiated suit in New York state court to recover. As a defense, the consultant argued that the loan was unconscionable and civilly usurious because the interest rate increased from 9% to 16% upon default.

Upon review, the court rejected the consultant’s argument. It found that the defense of usury was unavailable as to the corporation. Further, the court held that the mere fact that the loan required a higher rate of interest after the original maturity date did not render it usurious. It also noted that a 16% interest rate in New York would not be usurious.

Therefore, the court granted the client’s motion for summary judgment.

Sternlicht v JMJ Films, Inc., 2016 N.Y. Misc. LEXIS 1052

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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