The state of Transas has set a maximum interest rate of 12 percent on loans.Matt borrows $10,000 from Tony to pay off a gambling debt.Both are residents of Transas.They sign a contract which states that Matt would have to pay $15,000 as interest in one year to pay off the loan.Later Matt finds out the state usury limit and sues Tony.What is the nature of the contract between Matt and Tony?
A) It is illegal as it violates gambling statutes.
B) It is legal as both parties were competent when the contract was signed.
C) The contract is void as it violates usury laws.
D) The contract is void as it is a contract to commit a crime.

Question

Quizplus · Accepted Answer

The contract between Matt and Tony is void as it violates the usury law of the state of Transas, which sets a maximum interest rate of 12 percent on loans. Tony charged a 50% interest rate, which is much higher than the legal limit. Therefore, the contract is void and unenforceable.

The State of Transas Has Set a Maximum Interest Rate