Question

Rakesh had approached Lena Bank for a Home Loan, one of the conditions of availing Home Loan was to obtain a Surety. Rakesh had for this purpose convinced Mohan to act as a Surety for Rakesh. Mohan agreed to act as a Surety for Rakesh. Can you explain what type of contract that Mohan will have to execute with the Bank. Give the features of such type of contract? In event of default by Rakesh, what steps can the bank take against Mohan? (

Answer 1

Mohan will enter into a Contract of Guarantee with the bank. As per the contract, should Rakesh default with his payments, Mohan would agree to cover the payment that Rakesh had to make to the bank.

In the event of a default by Rakesh, Mohan could be taken to court to make the payment on Rakesh's behalf. If he pledged some property, that property could be taken away. The Court could auction his property to recover the money. He could be sent to jail to coerce him into paying.