Loan Agreement format with Surety and without security.

Format of Loan Agreement with surety guarantees to repay loan.

Sometimes it is a practice to give loan on the guarantee of surety. If the borrower do not repay the loan amount and interest, the surety will be liable to repay it. 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 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______________________ ., and Mr. ________________S/o ____________ R/o ____________________, hereinafter jointly called the "Sureties" on the SECOND PART, AND

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

Whereas the creditor has agreed to advance a loan of Rs.________ (Rupees __________________ ) to the debtor, which is to be repayable in four years with interest at the rate of __% per annum, provided two persons stand as surety of the debtor.

And whereas sureties above named are ready to stand as sureties of the debtor.

NOW THIS DEED WITNESSES AS UNDER:

1. That in pursuance of the said agreement the creditor has advanced a sum of Rs.___________ (Rupees ______________ only), the receipt of which has been acknowledged by the debtor.

2. The debtor shall repay the loan in five years in half yearly installments of Rs._____________ /- with interest at the rate of 12% per annum.

3. That in case the debtor repays the installment of loan before at least 15 days of the due date, the interest shall be paid at the rate of 10% per annum.

4. That in case of failure on the part of the debtor or repay the loan and interest or its part thereof, the sureties shall be liable to repay such unpaid amount of loan and interest, for which sureties are agreed.

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 the following witnesses.
 

DEBTOR___________________

Name __________ Signature _________ Address________

 

SURETY NO. 1 _________________

Name __________ Signature _________ Address________

 

SURETY NO. 2 _________________

Name __________ Signature _________ Address________

 

CREDITOR ____________________

Name __________ Signature _________ Address________

Witnesses
1.

 

2.

 

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."