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Breach of Merchant Cash Advance Contract in New York State

The vast majority of Merchant Cash Advance Lawsuits filed by an MCA lender or their attorneys, claim “Breach of Contract.” Accordingly, it is important for any merchant currently holding merchant cash advances or considering originating an MCA, to understand a little more about contract law, breach of contract and specifically as they relate to New York Law.

In order to understand what a breach of contract is, we will first establish what forms a binding contract or agreement in New York.

What exactly is a Contract under New York State Law?

In its raw form a NY contract is essentially a promise. It is a promise from one party to another party to perform or refrain from certain acts. The promise most often pertains to payment or the repayment of money. In the case of a Merchant Cash Advance, the merchant promises to repay the MCA funder for the lump sum of money it receives.

Thus, any act or lack of acting by a merchant that impedes, directly or indirectly, the ability of the MCA funder to collect on its daily or weely ACH payments, is considered a breach of the Merchant Cash Advance Agreement. Also, it is worth noting that most Merchant Cash Advance Agreements contain a section that delineates examples of certain actions that would impede or halt payment. For example; shutting the bank account the MCA funder is pulling from,

or blocking such an account, these are two examples of what would be considered a breach of the MCA contract.

A Personal Guarantee is another form of promise made by an individual.

Contained within every Merchant Cash Advance Agreement is a section whereby the Merchant is required to sign a Personal Guarantee. This is an individual promise to repay the MCA funder together with all interest and fees.

The guarantee is a personal one and that means in the event of a breach, personal assets, including real estate and bank accounts, are potentially within the scope of the MCA funder and entitle it, if appropriate, to place liens on personal assets in the event of a breach of a merchant cash advance.

Additional Promises to Repay the Merchant Cash Advance

Security Agreements

In addition to the binding contract and a personal guarantee, there are additional promises made by the merchant in originating an MCA position.

As if the agreement and personal guarantee were not enough, the majority of Merchant Cash Advances also require the merchant sign a binding Security Agreement. This is a legally binding document that ties the merchant to the Merchant Cash Advance Agreement.

The Security Agreement provides a lender with a security interest in specific assets or property pledged as collateral. Security agreements most often contain covenants (legally binding promises to repay) that outline procedure and timelines for originating the MCA and for its repayment.

Now that we have established the existence of promises in a Merchant Cash Advance Agreement, let us examine the most basic but essential elements required to form a legally binding agreement or contract in New York State.

What are the crucial elements required to create a legally binding contract in NY?

In its most simple form, a contract is a legally binding promise contained in a written document and to be binding and legal, the contract must encompass and incorporate the following:

An offer – here, the MCA funders offer of a lump sum payable to the merchant in return for a portion of its future generated
An acceptance of the offer – here the signing of the MCA Agreement and receipt of the
Consideration (both parties must give and receive something of benefit) – here the Merchant receives a lump sum and the MCA funder receives the right to receive a percentage of the future generated account

Poorly drafted Agreements can be legally attacked.

Many Merchant Cash Advance Agreements are poorly-drafted and frequently lead to disputes. Even a poorly drafted document can have massive repercussions and thus, it is in a merchant’s best interest to have a competent and experienced Merchant Cash Advance attorney review the agreement prior to the merchant signing. Additionally, many clauses within a Merchant Cash Advance are more akin to a traditional loan and can be challenged as such by your MCA attorney.

What elements are needed for an MCA funder to claim Breach of Contract

In New York State, “The elements for breach of contract claim are:

Formation of a contract between plaintiff and defendant,

Performance of its duties and obligations by plaintiff,

Defendant’s failure to perform, and

Resulting ”

See; New York Pattern Jury Instructions – Civil §4.1, at 594 (2d ed. 2006); also see; JP Morgan Chase v. J.H. Elec. of N.Y., Inc., 69 A.D.3d 802, 803, 893 N.Y.S.2d 237 (2d Dep’t 2010) and Furia v. Furia, 116 A.D.2d 694, 498 N.Y.S.2d 12, 13 (2d

Dep’t 1986).

Common Forms of Breach by Defendants

As previously explained above, a Breach of Contract occurs when a party does not perform its contractual obligations and promises. Some examples include:

Failure to provide goods or services as agreed to in the
Failure from one party to issue prompt payments to another
Not meeting specified deadlines or missing other key dates and
Counters and does the opposite of what was promised in the

Please take note that one cannot recover damages unless the breach is “material.” A material breach is so severe that it defeats the very purpose, clauses and conditions of the contract.

Thus an MCA funder or their attorneys must demonstrate a material breach in order to recover its so-called damages. Any MCA lawyer with experience will be qualified to make the appropriate arguments in the event the Contract is drafted poorly, lacks essential elements pursuant to New York State Law and or claims a breach of contract.



If your business has suffered because of a claimed merchant cash advance breach of contract, contact a New York Merchant Cash Advance Attorney breach of contact lawyer immediately. A lawyer will evaluate your claim and review your contract, as well as ensure that your interests are protected.

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