Mr. Castro’s Law Firm, Castro CLAN, is prepared to assist you in vacating that Confession of Judgment and negotiating a fair settlement or we may even be able to avoid you having to pay anything to the creditor.
It may sound too good to be true, but some courts have ruled that these Revenue Purchase Agreements are criminal. Penal Law § 190.40 provides that no more than 25% interest may be charged to businesses for a loan. Many of these agreements are sold as securities type exchanges where the Lender/Creditor is agreeing to buy 15% of your future revenue and you agree to a payment plan that requires you to pay back 30%+ over the money you received in return (the return percentage could even go as high as 200%). While this type of arrangement may work in some deals, because of risk factors, that is not the case with Revenue Purchase Agreements. Merchants usually have to prove they have consistent revenue and also personally guarantee payment, so there is very little risk to the Lender/Creditor in these Revenue Purchase Agreements. Thus, when you review these contracts in detail, it is clear on its face that these are not Revenue Purchase Agreements being offered to companies, they are essentially payday loans to businesses instead of individuals.
In New York, while the defense of civil usury is not available to Merchants or Businesses operating under corporate entities, the defense of criminal is available in situations where a lender/creditor knowingly charges a Merchant/Business an annual interest in excess of 25% on a loan. Penal Law § 190.40 states that: "[a] person is guilty of criminal usury in the second degree when, not being authorized or permitted by law to do so, he knowingly charges, takes or receives any money or other property as interest on the loan or forbearance of any money or other property, at a rate exceeding twenty-five per centum per annum or the equivalent rate for a longer or shorter period."
A finding of criminal usury requires: "proof that the lender (1) knowingly charged, took or received (2) annual interest exceeding 25% (3) on a loan or forbearance. The first element requires proof of the general intent to charge a rate in excess of the legal rate rather than the specific intent to violate the usury statute. Accordingly, the borrower satisfies his prima facie burden of proving usury by showing that the note [or REVENUE PURCHASE AGREEMENT] given to the lender evidences a loan and reserves an illegal, rate of interest. If usury is proved, the loan is deemed void, and the lender sacrifices his principal and interest" (In re David Schick, Venture Mtge. Corp., and A&D Trading Group, IIC, Debtors, 245 BR 460, 473-474 [Bankr. SDNY]  [internal citations omitted]; General Obligations Law § 5-522 ).
"In order for a transaction to constitute a loan, there must be a borrower and a lender; and it must appear that the real purpose of the transaction was, on the one side, to lend money at usurious interest reserved in some form by the contract and, on the other side, to borrow upon the usurious terms dictated by the lender" (Donatelli v Siskind, 170 Ad2d 433, [2d Dept 1991] [internal citations omitted]). "Further, there can be no usury unless the principal sum is repayable absolutely" (Transmedia Rest. Co. v 33 E.6r Rest. Corp., 184 Misc.2d 706,711 [Sup Ct, NY County 2000]). The question here is whether the particular transaction under scrutiny "was made in good faith and not as a cover for a loan" (72 Am Jur.2d, Interest and Usury, § 85), and what effect to give to the Merchant/Business Debtors. Often times the Merchant/Business guarantees payment on these Revenue Purchase Agreements, the giving of a guaranty is one of the factors" to be considered in determining whether the transaction is in fact a loan or purchase and sale" (id.).
"There can be no usury unless the principal sum advanced is repayable absolutely. If it is payable upon some contingency that may not happen, and that really exposes the lender to a hazard of losing the sum advanced, then the reservation of more than legal interest will not render the transaction usurious, in the absence of a showing that the risk assumed was so unsubstantial as to bear no reasonable relation to the amount charged. This risk of loss is to be distinguished from the risk of nonpayment that is inherent in every loan and that may only be compensated for by statutory interest; the risk of loss by the death or insolvency of the borrower is the ordinary risk that every person runs who lends money on personal security only" (72 NY Jur 2d Interest and Usury, § 87).
As of now, the above legal arguments and the illegality of these Revenue Purchase Agreements is still being debated in the Appellate Courts of the State of New York. Some of the downstate courts have ruled that these Revenue Purchase Agreements are usurious and cannot be collected on despite there being an executed confession of judgment. Not all the courts in New York State know about these issues and if no one defends against the Confession of Judgment, then sometimes these matters are not even reviewed by judges.
If you find yourself dealing with a similar situation, the Castro CLAN is ready to represent your company or act as local counsel for the lawyers you use in your home state.
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