In light of a recent discussion:
Under what circumstances can a loan be open-ended and “callable,” meaning that its term is of no fixed-length, and that the lender may ask for redemption at any time?
In practice, banks are extremely reluctant to refuse demands on open-ended lines of credit, as a result of treble damages awarded, if it can be shown that failure to honor a demand was proximate cause of financial distress to the debtor. Does the same doctrine hold true insofar as “calling” these individuals loans is concerned?
The best I can come up with, in theory, is that a “callable” loan would have a call-option penalty; which would discourage the lender from maliciously bankrupting his debtor – AND – that the call-option would require the passage of some amount of time (a week? a month?) during which the debtor might arrange alternative funding. But the penalty only mitigates, it does not eliminate, the very real possibility that debtors could be bankrupted by a unilateral decision to essentially alter the terms of the contract. The agreement is that the loan is for an indefinite period of time – except insofar as the lender may decide, at any time, that it is no longer for an indefinite period of time, but instead due immediately or perhaps at best, after the passage of a brief period of time. A contract, a provision of which allows for the unilateral cancellation or fundamental alteration of its other terms, cannot possibly be considered valid or binding.
Much like a mortgage with a balloon payment due, such a loan would likely come with a provision explicitly dismissing the lender of any obligation to refinance the loan in the event that he decides to “call” it in. And that’s what this loan is – it’s akin to a mortgage with a balloon payment due; only neither party (especially the borrower) can know with any degree of certainty when this payment will be due, and no security is given to the borrower in the event that he becomes obligated to make the balloon payment. No borrower would ever agree to these terms without an implicit agreement that the loan would never be called.
The additional requirement, that the call option could not be immediately excercised, bastardizes the indefinite term of the agreement, effectively converting it from a demand-line to a short-term note payable. This seems to be a pretty significant contradiction, and leads me to believe that such “loan” agreements are metaphysically impossible.
