15-Year Loan Dispute: Court Upholds 20% Annual Interest on Ambiguous Promissory Note

A court in eastern China has ordered a borrower to repay 100,000 yuan in principal and 15 years of accrued interest at 20 percent annually on a loan taken in 1996 for hotel renovations.

In October 1996, Mr. Xu borrowed 120,000 yuan from Mr. Hu, introduced by a relative. The promissory note specified a “rate” without clarifying whether it meant annual or monthly. Mr. Xu claimed the rate was 2 percent annually. Mr. Hu argued it was 20 percent annually, reflecting the original intent of 2 percent monthly.

The court found the promissory note ambiguous. Under judicial interpretation, when the parties dispute the rate and cannot prove their position, the court may apply up to four times the bank’s benchmark rate. Since 20 percent annual interest was below that threshold, the court upheld Mr. Hu’s claimed rate.

In December 2009, Mr. Xu repaid 20,000 yuan in principal. The outstanding balance was 100,000 yuan. The court ordered repayment of this balance plus interest from October 1996 at 20 percent annually until payment.

Mr. Hu sued both Mr. Xu and his wife for joint liability. The court found the loan was in Mr. Xu’s name alone and exceeded household needs. Mr. Hu failed to prove the funds were used for family purposes, and the wife did not ratify the debt. The court held it was Mr. Xu’s personal debt, not a marital obligation.

The case acceptance fee of 8,599 yuan was split: 215 yuan to the plaintiff and 4,084.50 yuan to Mr. Xu.

Disclaimer: This article is for informational purposes only and does not constitute legal advice.