The New York Appellate Division recently issued a ruling in the case of EBF Holdings, LLC v. Defiant Arms, L.L.C., which has significant implications for businesses engaged in revenue purchase agreements. The court's decision affects EBF Holdings, a funding company, and Defiant Arms, a firearms manufacturer, by addressing the legality of their financial agreement and the responsibilities of the parties involved.
This case began when EBF Holdings, doing business as Everest Business Funding, filed a lawsuit against Defiant Arms and its owner, Dwayne Edmond Favors, claiming that they breached a revenue purchase agreement. Under this agreement, EBF Holdings advanced funds to Defiant Arms in exchange for a percentage of the company's weekly receivables. The dispute arose when EBF Holdings alleged that Defiant Arms stopped making payments and hindered access to the funds that were supposed to be withdrawn through automated transactions.
The legal battle reached the Appellate Division after the Supreme Court of Ontario County ruled in favor of EBF Holdings, awarding them over $25,000 in damages. Defiant Arms appealed this decision, arguing that the agreement was not a legitimate revenue purchase but rather a usurious loan, which would render it illegal. The case was assigned docket number 36 CA 25-00052 and was decided on July 24, 2026.
The court ruled that the original judgment against Defiant Arms was vacated, meaning it was nullified. The judges modified the lower court's order regarding the second cause of action against Favors, stating that EBF Holdings did not provide sufficient evidence to hold him liable as a guarantor. The court noted, "the agreement limits Favors's obligations only to those identified as Guaranteed Obligations, i.e., not all performance obligations of Defiant Arms." This indicates that the court found a lack of clarity in the agreement regarding Favors's responsibilities.
In its decision, the court emphasized the need to determine whether the transaction between EBF Holdings and Defiant Arms constituted a loan or a legitimate revenue purchase agreement. The judges stated, "In determining whether a transaction constitutes a loan, courts must determine whether the plaintiff is absolutely entitled to repayment under all circumstances." They highlighted that the agreement included a reconciliation provision and lacked a definite term for repayment, which supported the argument that it was not a loan.
Furthermore, the court found that EBF Holdings had established a breach of contract claim against Defiant Arms. The judges noted that EBF Holdings demonstrated that they were denied access to the account from which they were supposed to collect payments. The court stated, "Plaintiff's manager specifically alleged that a couple of months after executing the agreement, plaintiff was denied access to the account by Defiant Arms and was, consequently, deprived of the weekly receivables." This finding reinforced the court's decision to uphold the breach of contract claim.
The ruling has important implications for businesses that engage in similar revenue purchase agreements. It clarifies the legal distinctions between loans and revenue purchases, which can affect how companies structure their financial agreements. In this case, the court's decision indicates that agreements must clearly define the obligations of all parties involved, especially when it comes to guarantees.
Going forward, this ruling may influence how businesses draft their contracts and how they approach financing arrangements. Companies may need to ensure that their agreements include specific terms and conditions to avoid disputes over their legality. The decision also highlights the importance of providing adequate documentation to support claims in court, as seen in the dissenting opinion, which raised concerns about the lack of evidence presented by EBF Holdings.
As for the next steps, Defiant Arms may seek to further appeal the ruling, particularly regarding the issues raised by the dissenting judges. The dissenting opinion suggested that there were unresolved questions about whether the agreement was indeed a usurious loan, which could lead to further legal challenges. Details were not available in the court filing regarding any potential appeal or related cases pending.