States Principal of Vendor’s Lien Note Is True Principal In Test For Usury, And Prepaid Interest Is To Be Spread Over Entire Period Of Loan

Analyses the Texas Supreme Court’s case Tanner Development Co. v. Ferguson. In Tanner, the Court held that “in a test for usury (1) the true principal is the stated principal of a vendor's lien note and (2) prepaid interest is to be spread over the entire term of indebtedness.” The decision also created two classifications of loans: sales agreements and cash loans. The author believes that this is an arbitrary distinction that creates uncertainty and serves no public policy.