What is the ruling when one borrows money, uses it to purchase an item from the lender, and the currency turns out to be counterfeit (Zuyuf)?
Chapter on Loan (Qard)
Al-Mughni
Book of Sales
Primary text
The sale transaction is valid, and the seller cannot reclaim anything from the buyer regarding the price. This is because the currency was the buyer's money, thus the defect rests upon him. The lender may only claim from the buyer repayment of the principal loan amount, which was given in counterfeit currency.
Supporting text
If the lender sold an item to the borrower using currency he was unaware was counterfeit, then the lender is entitled to sound currency, and the borrower must return the defective currency. The borrower may then pass this defective currency back to the original seller as fulfillment of the loan, leaving the price due on the borrower's liability. If the borrower instead settles the debt with good currency after the lender accepts the counterfeit currency in fulfillment of the loan, the transaction is valid.