In Merchant Advance, LLC v. Conceptos Cuisine, LLC (2026 TSPR 15), the Supreme Court of Puerto Rico reviewed whether a purchase and sale of future receivables should be treated as the sale of a payment intangible governed by Puerto Rico’s Commercial Transactions Act (the “Act”), which largely adopts Article 9 of the Uniform Commercial Code (“UCC”), or construed as a loan subject to Puerto Rico’s usury restrictions. The Court was also asked to decide whether enforcing a New York (“NY”) choice of law clause in this context would contravene Puerto Rican public policy considerations.
On July 25, 2019, Merchant Advance, LLC (“Merchant”), a Wyoming limited liability company with a New York address, executed an Agreement for the Purchase and Sale of Future Receipts (the “Agreement”) with Conceptos Cuisine, LLC (“Conceptos”), a Puerto Rico limited liability company doing business as Pitipuá. By virtue of the Agreement, Merchant paid Conceptos $25,000 in exchange for the purchase of $34,750 of Conceptos’s future receivables. Conceptos agreed to remit a daily fixed amount to a designated bank account until the purchase price was satisfied. The Agreement was secured by a security interest and a personal guaranty from Conceptos’s president, Ángel D. Marrero Marrero (“Marrero”). Upon Conceptos’s cancellation of the bank account from which the payments were drawn, Merchant viewed the action as interference with its contractual right to receive the purchased receivables. In December 2019, Merchant filed a collections action before the Puerto Rico Court of First Instance, where it sought recovery of unpaid amounts, penalties, filing costs, and attorneys fees.
The Court of First Instance found that the Agreement was actually a simulated loan subject to Puerto Rico usury limits. As such, it held that Merchant was only entitled to recover 75% of the amount loaned, without interest, and that the 25% had to be paid to the Government of Puerto Rico. Merchant timely appealed, arguing that the Court of First Instance erred in determining (1) that the Agreement was not an agreement for the sale of future receivables, but rather a loan, and (2) that the Agreement imposed usurious interest and it was appropriate to limit the recovery of the amount owed to 75%, with no interest included, and to grant the remaining twentyfive percent 25% to the Government of Puerto Rico.
The Court of Appeals affirmed the lower court’s decision. Merchant then sought certiorari before the Supreme Court of Puerto Rico, who vacated the judgment and ordered the Court of Appeals to address the merits of the second alleged error. After revisiting the case, the Court of Appeals reiterated its original ruling as to the first error, but reasoned that corporate parties could agree to any interest rate and were barred from raising the defense of usury. This bar extended to the corporation’s guarantors, such as Marrero. On that basis, the Court of Appeals held that the 39% interest rate was lawful and the usury prohibition should not apply. Merchant sought review once again through a second certiorari before the Supreme Court of Puerto Rico. On this occasion, Merchant raised the following errors by the Court of Appeals: (1) reiterating the reasoning set forth in the first judgment that had been wholly reversed by the Supreme Court; (2) failing to recognize that the Agreement was valid under Puerto Rico’s legal system and is not a simulated loan agreement; and (3) declining to reconsider its prior ruling.
Through the voice of Justice Pabón Charneco, the Supreme Court of Puerto Rico held that the Agreement was indeed a sale of future receivables rather than a loan, that the transaction falls within the scope of Puerto Rico law governing sales of accounts and payment intangibles, and that the New York choice of law clause was enforceable because it does not conflict with Puerto Rican public order due to the substantial contacts between both jurisdictions. As such, the Court reversed the portions of the rulings that treated the agreement as a usurious loan and remanded the case for further proceedings consistent with the decision.
The Agreement at issue met the criteria for a purchase of future receivables under New York law. Namely, the payments could be adjusted according to Conceptos’s revenue, the Agreement did not have a set duration, and Merchant would not have a remedy if Conceptos became insolvent. The Court stated that the Agreement was generally structured like a purchase and sale agreement. The Court based its decision on freedom of contract principles, which are subject to limits of law, morality, and public order, including the statutory framework of the Act.
The Act incorporates concepts from UCC Article 9, its interpretive guidance, and its official comments as applied in other US jurisdictions. Its statutory provisions allow parties to select governing law when the selected jurisdiction has substantial contacts with the parties and the choice of law does not offend fundamental public policy. Per the opinion, the object of an agreement for the purchase of future receivables is not the money itself, but rather the contractual right to receive a certain sum sometime in the future. This puts it squarely within the definition of a “payment intangible”, defined by the UCC as “a general intangible under which the account debtor’s principal obligation is a monetary obligation”.
With regards to the corporate exception to usury, the opinion explained how the provisions allowing for jurisdiction selection interact with the analysis regarding the characterization of the Agreement. They noted that statutory defenses against usury may be limited in certain corporate contexts, like the case at bar.
In sum, the Supreme Court of Puerto Rico ultimately found that merchant cash advance agreements that are structured and documented with the characteristics of a sale of future receivables and that include a choice of law clause pointing to a jurisdiction with substantial contacts may be enforced in Puerto Rico and are not per se void as contrary to public order. The decision requires courts to analyze the economic substance of such transactions under UCC Article 9 principles and the Act rather than rely solely on labels.
Author: Zulinnette Pinzón Rosario
