CNY 350,000 Private Loan at 2.5% Monthly Interest: Court Enforces Joint Liability
An individual lender extended a cash loan of CNY 350,000 to three co-borrowers consisting of a married couple and a machinery manufacturing company. The loan carried a monthly interest rate of 2.5 percent, equivalent to 30 percent per annum, which exceeds the statutory ceiling then in effect under Chinese law. Three guarantors, including a village committee, signed guarantee agreements securing repayment. When the borrowers defaulted, the lender sued all parties in a county court, which entered judgment in favor of full principal recovery plus contractual interest, holding each guarantor jointly and severally liable for the entire obligation.
The loan transaction was formalized on August 25, 2011, through a handwritten promissory note and a separate receipt acknowledging receipt of CNY 350,000 in cash. The three borrowers were identified as Mr. Liang (an individual), Ms. Zhang (his spouse), and Zhejiang XX Machinery Co., Ltd., a limited liability company engaged in mechanical equipment production. The three guarantors were Mr. Yu (an individual), Ms. He (another individual), and the Villagers’ Committee of XX Village, a grassroots autonomous organization operating under the township government. The promissory note stipulated that any litigation costs arising from enforcement would be borne jointly by borrowers and guarantors alike.
After disbursement, the lender made repeated demands for payment but received no response from any of the obligors. Neither the borrowers nor the guaranters made any partial repayments or interest payments. The lender subsequently retained legal counsel and filed suit in the Xinchang County People’s Court in February 2012, seeking recovery of the principal sum, accrued interest at the agreed monthly rate of 2.5 percent from the disbursement date until actual payment, attorneys’ fees of CNY 16,000, and court costs. Service of process was effected on all defendants through registered mail, but none appeared at the trial hearing held on March 12, 2012.
The court examined the original promissory note, the cash receipt, and the invoice for legal fees and found them genuine and admissible. It noted that the loan agreement itself was valid as a civil contract because the principal purpose, lending money at interest, is not prohibited by law even though the agreed rate exceeded the four-times-bank-rate benchmark that courts typically enforce as a cap. Under Chinese judicial practice prevailing at the time, courts would generally reduce excessive interest to the statutory maximum but would not invalidate the entire loan contract on that ground alone. The guarantee agreements were likewise held effective, and because no mode of guarantee was specified, the default rule of joint and several liability applied automatically under the Guarantee Law.
The judgment contained three main holdings. First, the three co-borrowers were ordered to repay the principal of CNY 350,000 plus interest accruing at 2.5 percent per month from August 25, 2011 until the date fixed for performance, payable within ten days of the judgment taking effect. Second, the same borrowers were ordered to pay the lender’s attorneys’ fees of CNY 16,000. Third, the three guarantors were held jointly and severally liable for both the principal-interest award and the attorneys’-fee award, meaning the lender could pursue any one of them for the entire amount due. Court filing fees of CNY 5,795 (comprising a reduced case acceptance fee of CNY 3,275 plus preservation fees of CNY 5,220) were also charged to all defendants collectively.
This article is provided for informational purposes only and does not constitute legal advice. Loan guarantee structures and interest rate caps vary widely by jurisdiction. Consult a qualified attorney before entering into or enforcing loan arrangements.