Legal Memorandum: Elements of a Loan in OH

Issue: Whether contracts are considered loans if the amounts advanced were not ‘repayable absolutely’ as required by Ohio law.

  Ohio law states that for a transaction to constitute a loan, it must be “‘repayable absolutely,'” and that repayment is absolute if nonpayment is so improbable as to constitute “‘no real hazard.'”  61 Ohio Jur. 3d Interest and Usury § 58.  Ohio Jurisprudence 3d reveals reasoned and settled principles of Ohio usury law.  “To constitute usury it is essential that the principal sum loaned shall be repayable absolutely.”  61 Ohio Jur. 3d Interest and Usury § 58 (1985).  If repayment is subject to a contingency, there is no loan. See, e.g., Boone v. Andrews, 20 Ohio Cir. Dec. 166 (1907).

The Boone case was a dispute regarding the nature of the relationship between the defendant and the plaintiff, who had advanced the defendant a sum of money thereafter used to make loans to third parties.  The relationship was that the parties would share in both profits and losses;  if the third party loans were lost, or were not repayed for a two-month period, the defendant was required to give the plaintiff only one-half of the amount advanced.  Id.  The defendant, seeking to avoid its obligations to the plaintiff, sought to have the transactions declared mere usurious loans.  The court disagreed.  “We think that the evidence does not support the claim of the defendant that the parties to this instrument intended it to amount only to a loan.”  Id.Dispositive in Boone was the fact that the money advanced by the plaintiff was not repayable absolutely; in the event of the […]