Court Invalidates Loan and Mortgage Contracts for CNY 200,000
A court in Eastern China City has ruled that a loan agreement and related mortgage contract for 200,000 CNY are invalid, after determining that the borrower’s signatures were forged. The judgment highlights the importance of verifying borrower identity in lending transactions and the legal consequences of fraudulent documentation.
The dispute arose between Mr. Zhou, a local resident, and Eastern China City Small Loan Company (the lender). Mr. Zhou claimed that his younger brother used his identity documents, including a property certificate and ownership papers left with their parents, to obtain two loans totaling 200,000 CNY from the lender without his knowledge. The loan contract, dated January 13, 2011, and a mortgage agreement covering Mr. Zhou’s apartment (Unit 502, Building 9, Jiangnan Shijia) were executed in his name. Mr. Zhou stated he never signed any documents, did not authorize the loan, and never received the borrowed funds. The actual borrower, his brother, disappeared after receiving the money. Mr. Zhou sought a court declaration that both the loan contract and the mortgage contract were void, and asked the lender to bear the litigation costs.
During the hearing, both parties presented evidence. Mr. Zhou submitted copies of the loan contract and mortgage application, obtained from the court, arguing the signatures were not his or his wife Ms. Wang’s. He also provided a forensic handwriting analysis report, produced by a judicial鉴定中心 (forensic center) at his request and at a cost of 4,000 CNY, which concluded that the signatures of “Mr. Zhou” and “Ms. Wang” on the loan contract were likely not genuine. The lender countered with an appraisal form, a property registration certificate, the loan contract, an online banking transfer receipt showing the funds were deposited into an account opened in Mr. Zhou’s name, and identity documents of Mr. Zhou, Ms. Wang, and two guarantors (Mr. Huang and Mr. Hou). The lender argued that the loan was valid and that Mr. Zhou was merely trying to avoid repayment.
The court reviewed all evidence from both sides. It accepted the forensic report as credible, noting that the鉴定center was legally authorized and the analysis was properly conducted. The court also examined the transfer of funds, but found that the account used was not opened by Mr. Zhou personally, and he had no access to the money. The lender’s argument that the loan was procedurally sound was undermined by the lack of proof that Mr. Zhou or his wife actually signed the contract.
Applying relevant law, the court held that under Article 52 of the Contract Law, a contract is void if it is made through fraud or violates mandatory legal provisions. Since the signatures were forged, the loan contract did not reflect Mr. Zhou’s true intent and was therefore invalid. Under Article 5 of the Guaranty Law, a mortgage contract is an ancillary contract to the main loan agreement; if the main contract is void, the ancillary contract is also void. Thus, the mortgage contract was invalid as well.
The court ruled in favor of Mr. Zhou, declaring both the 200,000 CNY loan contract and the mortgage contract signed on January 13, 2011, null and void. The lender was ordered to pay the court costs of 1,000 CNY and the forensic fee of 4,000 CNY, totaling 5,000 CNY. This case underscores the necessity for financial institutions to rigorously verify borrower identity and signatures before executing loan and security documents. Failure to do so may result in contracts being set aside, leaving lenders without recourse against the named borrower.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.