A Loan Agreement is a written evidence of a loan between individual persons or entities, such as partnerships and corporations. It contains the amount of the debt and the terms and conditions of the loan. In this loan agreement, the person or entity lending the money will be called the creditor while the person or entity borrowing the money will be called the debtor.
Some conditions in the loan that may be included are:
- Interest and penalty rate. A condition for the payment of interest and the penalty rate must be in writing.
- Security. In order to be binding against third persons (i.e. persons who are not a party to the loan agreement), the condition for security must be in writing and must follow certain conditions described below. In order to use a property as security, the debtor must be the absolute owner of the property and they must have free disposal of the property or that they are legally authorized to use the property as security. If the property is part of the conjugal property of the debtor and their spouse, the spouse must also give their consent to use the property as security. Below are general ways that a property can be used as security:
- Personal property as security - personal property that will be used as security are generally all things that are not immovable property (i.e. land)
- Pledge. When a pledge is used to secure a loan, the property that will be used as security must be delivered to the creditor or a third person with the understanding that when the loan is fully paid, the property will be returned to the debtor. Delivery to a third person must be agreed upon by both parties. To bind third persons, the description of the thing pledged and the date of the pledge must appear in a public document, such as documents that have been acknowledged before a notary public.
- Chattel Mortgage. When a chattel mortgage is used to secure a loan, the property is recorded in the Chattel Mortgage Register as security for the payment of the loan. The property must be described in a manner that will enable the parties of the mortgage, or any other person, to identify the same after reasonable inquiry and investigation.To bind third parties, the chattel mortgage must include an Affidavit of Good Faith, be notarized, and must be recorded in the Chattel Mortgage Register in the Register of Deeds where the debtor resides and, if the property is located elsewhere, the property is located. There may be other registration requirements depending on the type of property that will be used in the chattel mortgage.
- Immovable property as security
- Real Estate Mortgage. A real estate mortgage is a contract when an immovable property (such as land) is used as security for the payment of the loan. To bind third persons, the real estate mortgage must be notarized and registered in the Registry of Deeds.
How to use this document
This Agreement sets out all the terms and conditions of the loan including the personal details of the creditor and the debtor (such as their names, nationalities, civil status, and address), the amount of money being borrowed, and the manner of payment of the loan, and the signature of the parties. If a representative will sign for any of the parties, the representative must present a Special Power of Attorney to enter into the Loan Agreement on behalf of said party.
If there is more than one creditor or debtor:
- If there is more than one creditor, the user must choose whether a creditor can demand payment for:
- the amount that he lent to the debtor - If a creditor can only demand payment for the amount that he lent, the user will be asked to fill in the amounts that each creditor can claim from the debtor.
- Example: if the creditors lent P1,000.00 to be financed as follows: Creditor A: P500.00, Creditor B: P300.00, and Creditor C: P200.00. Creditor A can only demand payment for the amount that he lent, in this case, P500.00. The same goes for Creditors B and C.
- the full amount of the loan - The creditor who receives the full amount shall be liable to repay the other creditors the amounts that they lent to the debtor.
- Example: Using the above example, Creditor A can demand payment of the P1,000.00. However, if he receives the same, he should pay Creditor B: P300.00 and Creditor C: P200.00. The same applies for Creditors B and C if they should be the one to demand and receive payment for the full amount of the loan.
- If there is more than one debtor, the user must also choose whether the creditor can demand the debtor to pay:
- only the portion that he promised to pay - If a the creditor can only demand that a debtor pay a specific portion, the user will be asked to fill in the amounts that each debtor will pay to the creditor.
- Example: If the creditor lent P1,000.00 to the debtors to be paid as follows: Debtor A: P750.00, Debtor B: P150.00, and Debtor C: P100.00. Debtor A will only be required to be pay the amount stated, in this case, P750.00. The same goes for Debtors B and C. The debtors cannot be required to pay more than the amount they promised.
- the full amount of the loan - The debtor who pays the full amount can ask the other debtors to repay him for their specific portion.
- Example: Using the example above, the creditor can demand pay of the full amount from Debtor A, in this case P1,000.00. If the full amount is paid by Debtor A, Debtor A can ask for reimbursement for Debtors B and C in the amounts provided above. The same goes for Debtors B and C.
The user can choose whether the payment of the loan will be in lump sum (the whole amount and interest to be paid in one date) or in installments. If the user chooses installment payments, the user can choose whether the installments will be paid in equal amounts until the full amount is paid or equal amounts with a lump sum at the end (e.g. 80% will be in equal installments and the last 20% will be paid in lump sum).
If the loan is secured, as discussed above, the document also includes an Affidavit of Good Faith, which the parties will also have to sign in the presence of a notary public, and an Acknowledgment and Certification of Oath for the notary public.
If the loan is not secured, the user has the option to include an Acknowledgment in order to convert the document into a public document. If a document is a public document, it becomes self-authenticating and require no further authentication to be presented in court as evidence.
Once completed, the document should print for each creditor and debtor. The parties must review the document carefully and sign the same. If the document will be notarized, the parties must personally go before a notary public with a competent proof of identification and acknowledge the loan agreement. If the document includes an Affidavit of Good Faith, the parties must sign the same in front of the notary public.
There are a number of special laws that affect loan agreements, however general law for loan agreements can be found in the Civil Code of the Philippines. Additionally, if the loan agreement is secured by a Chattel Mortgage, certain provisions of Act No. 1508, or the Chattel Mortgage Law, should be complied with in order to bind third parties.
How to modify the template
You fill out a form. The document is created before your eyes as you respond to the questions.
At the end, you receive it in Word and PDF formats. You can modify it and reuse it.