Loan Agreement with Surety and Hypothecation of Property.

Format of Loan Agreement with surety and Hypothecation of property as security.

Loan granted with surety and hypothecation of property is to ensure maximum security to the loan provieded. If the borrower do not repay the loan amount and interest, it can be realised through selling hypothecated goods. If the amount is not enough, the surety will be liable to repay the loan. Loan with surety is governed by Section 126, 127 and 128 of Indian Contract Act. Loan agreement should contain term of loan, loan amount, interest rate, period of loan and details about surety. The agreement should be signed by at least two witnesses.

Sample Format of Loan agreement with surety and Hypothecation is given below.

LOAN AGREEMENT

THIS DEED is executed on this _______ day of _______at ______________

BETWEEN

1. Mr. A_____________ S/o Mr. ____________________Aged about _________R/o ____________________ , hereinafter called the "Debtor" on the FIRST PART.

2. Mr._____________________________ S/o _________________________, R/o______________________ , hereinafter jointly called the "Surety" on the SECOND PART, AND

3. Mr. ______________________ S/o _____________________, R/o ____________________, hereinafter called the "Creditor" on the THIRD PART.

Whereas the debtor has applied for a loan of Rs _________which shall be repayable in ____ installments as specified hereunder with interest at the rate of __% per Annum.

And

Whereas the surety has agreed to give security for the above loan and the creditor has agreed to advance the loan on such security.

NOW THIS BOND WITNESSES AS UNDER:

1. That in pursuance of the said agreement the creditor has advanced a sum of Rs _____ to the debtor. The debtor and surety have jointly and severally agree with the creditor as under:-

2. That the debtor and the surety are jointly and severally responsible for repayment of the above amount in four equal installments with interest on half yearly basis as under:-

INSTALLMENTS

Particulars	Due Date	Principal Amount	Interest
1st Installment
2nd Installment
3rd Installment
4th Installment
5th Installment

3. That in case of failure to pay any installment or part thereof with interest, the debtor amount along with interest shall become payable at once and the debtor and the surety
shall be jointly and severally liable to pay the same.

4. That for the consideration aforesaid and in further pursuance of the aforesaid agreement the debtor and the surety grant and transfer by way of simple mortgage to the creditor. All that property described in the Annexure I shall remain and be charged by way of simple mortgage as security for the payment to the creditor of the said principal amount along with interest in accordance with the covenants herein contained.

5. The debtor and the surety hereby declare that the said property is free form all encumbrances.

6. That it is hereby agreed and declared that in cases of failure of the part of debtor to pay the installment in time, the creditor shall be entitled to dispose the mortgage property in part or full to recover the principal amount and interest.

We the above noted parties have signed this deed on the date and place mentioned above, after fully understanding the contents of this deed in the presence of

DEBTOR___________________

Name __________ Signature _________ Address________

SURETY _________________

Name __________ Signature _________ Address________

CREDITOR ____________________

Name __________ Signature _________ Address________

Witnesses
1.

Annexure I

List of Properties hypothecated

Property Name Description Amount

Section 2 (n) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

Hypothecation

Section 2(n) "hypothecation" means a charge in or upon any movable property, existing or future, created by a borrower in favour of a secured creditor without delivery of possession of the movable property to such creditor, as a security for financial assistance and includes floating charge and crystallisation of such charge into fixed charge on movable property.

Section 126 of Indian Contract Act 1972

126. 'Contract of guarantee', 'surety', 'principal debtor' and 'creditor'

A 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the 'surety'; the person in respect of whose default the guarantee is given is called the 'principal debtor', and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written. -A 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the 'surety'; the person in respect of whose default the guarantee is given is called the 'principal debtor', and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written."

Section 127 of Indian Contract Act 1872 : "Consideration for guarantee"

Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee.

128. Surety's liability.

The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. -The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract." Illustration A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is dishonoured by C. A is liable, not only for the amount of the bill, but also for any interest and charges which may have become due on it. A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is dishonoured by C. A is liable, not only for the amount of the bill, but also for any interest and charges which may have become due on it."

Loan Agreement with Surety and Hypothecation of Property.

Format of Loan Agreement with surety and Hypothecation of property as security.

Section 2 (n) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

Section 126 of Indian Contract Act 1972

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