Date: April 26, 2012 E.C.

Legal Rule:

• Usury ("Arata"): To establish usury under Article 712 of the Criminal Code, it must be shown that the lender exploited the borrower's vulnerable situation. A high interest rate alone does not automatically constitute usury.
• Proof of Loan Agreements: A check is a payment instrument and does not, by itself, prove the existence of a loan agreement. (Following precedent from Cassation Case No. 123984 and Commercial Code Articles 827(a) and 854). While a written loan agreement is not strictly required, its absence makes proving the terms of the loan more difficult.
• Interest Rates: While Civil Code Article 2479(1) limits annual interest rates to 12%, a loan agreement stipulating a higher rate is not automatically invalid. Article 2479(3) provides that even if a higher rate is agreed upon in writing, the borrower is only obligated to pay 9% per year.

Summary of Facts:

The Applicants claimed the Respondent borrowed money for a car purchase and gave them checks that bounced. The Respondent claimed it was a loan with a usurious interest rate, some of which he had already paid. The lower courts ruled the agreement was an illegal "arata" loan and unenforceable.

The Supreme Court reversed the lower courts' decisions. The Court held that the lower courts erred in finding an "arata" agreement, as there was no evidence of the Applicants exploiting the Respondent's vulnerability. The Court reiterated that a check is a payment instrument and does not necessarily prove a loan agreement. While acknowledging the interest rate limitations, the Court noted that a loan agreement with a higher rate is not invalid, but the borrower is only obligated to pay 9% interest. The Respondent was ordered to repay the principal amount (less a small acknowledged payment) plus 9% interest.

Decision of the Supreme Court: