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 $1, 500 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 is void as it violates the usury law set by the state of Transas, which states that the maximum interest rate on loans cannot exceed 12 percent. Therefore, the contract is not enforceable, and Matt can sue Tony to recover any interest paid beyond 12 percent. The legality of gambling is not relevant to this situation.

The State of Transas Has Set a Maximum Interest Rate