A loan is a contract between two parties (each an individual or
incorporated entity) in which one or more items or entitlements
are transferred from a lending party to a borrowing party, and
the borrowing party is bound to minimum settlement terms of future
action specified in the contract. Any number of non-monetary minimum
settlement methods can be specified, in addition to the required
A sale or trade, in which two parties exchange items as a single
transaction creating no post-transaction obligations between them,
cannot be construed to be a loan, even if a contract of trade or sale
is entered in advance of the transaction. The single transaction
constituting the sale or trade can involve a period during which one
party has custody of items he has received from the other party and of
items to be transferred to the other party. This period is ended when
custody of those items destined for the other party is relinquished,
and until this period is ended, none of the items can be put to any
use not implicated in the aforementioned relinquishment of custody.
No loan can specify obligations for either party which apply after the
performance of a settlement method. No loan can forbid, or specify
penalties for, early settlement.
A simple loan is a loan that does not make the borrower the
beneficiary of some contract, and in which the borrower can settle the
loan by returning the loaned item(s) to the lender provided he has
otherwise adhered to the terms of the contract. Simple loans can
obligate the borrower to initial and periodic payment or other
performance, monetary or otherwise. Legislation cannot affect the
terms of simple loans.
No loan contract can specify restrictions or requirements regarding
employment of item(s) loaned, provided that damage to or loss of
item(s) can be subject to penalty.
A contract loan is a loan in which the lender transfers to the
borrower the benefits and entitlements of some contract. A contract
loan is not a simple loan. A simple loan is not a contract loan.
For purposes of law, contractual money is a contract loan, even though
the borrower may borrow only tangible goods.
The exchange of a loan for a loan is a trade, and cannot be construed
to be a loan between the parties to the transaction. The exchange of
a loan for a service or tangible goods, when neither party is the
borrower identified in the loan, is a trade and cannot be construed to
be a loan between the parties to the transaction.
An arrangement of storage or accounting in which the party managing
storage or accounting has no decision-making authority with respect to
the items stored or accounted for cannot be construed to constitute a
loan to the managing party.
No law can require a party to be or become a party to a loan, or
prohibit a party from, or reward or punish a party for, being or
becoming a party to a loan, or change its manner of application on
that basis, except insofar as an individual who has breached a
contract can by court order be impaired in his ability to enter and
The state cannot be a party to a monetary loan in which the other
party is non-state, except that the state can hold contractual
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