Court Upholds Guarantee for CNY 225,000 Debt

In this case, the appellate court dismissed an appeal by a guarantor who challenged a lower court decision that he must bear mortgage liability for his father’s debt of CNY 225,000 to a lender. The dispute centered on whether a guarantee agreement and a related property mortgage were enforceable despite claims of forged signatures and restrictions on mortgaging rural land.

The plaintiff, Mr. Liu, had lent money to Mr. Wang, the defendant’s father. On 11 April 2010, the defendant, Mr. Chen, issued a guarantee letter stating that if the debt was not repaid, the title deed for a six-room house would belong to Mr. Liu. On 12 May 2010, Mr. Wang wrote a promissory note for CNY 225,000, due on 30 May, and Mr. Chen signed as guarantor. The house, originally owned by Mr. Wang, had been transferred to Mr. Chen in January 2009. Mr. Liu later sued Mr. Wang and Mr. Chen, reaching a mediation agreement in June 2010, but Mr. Wang failed to pay. Mr. Liu then pursued Mr. Chen for enforcement of the guarantee.

During the hearing, the court examined the guarantee letter, the promissory note, and the prior mediation order. Mr. Chen argued that the signature on the promissory note was not his, claiming his father had signed it without authorization. He also asserted that the property was a rural residential house on collective land, which could not be legally mortgaged, and that the house was jointly owned by his family, so he had no right to pledge it. However, Mr. Chen did not apply for a forensic handwriting examination to support his forgery claim.

The court held that the evidence showed Mr. Chen had signed as a guarantor on the promissory note, indicating he knew the full debt amount and voluntarily assumed liability. According to relevant law, the clause in the guarantee letter that purported to transfer ownership of the house to Mr. Liu upon default was invalid. However, the Supreme People’s Court’s interpretation of the Guarantee Law provides that the invalidity of such a forfeiture clause does not affect the rest of the mortgage agreement. Thus, the mortgage itself remained valid, and Mr. Chen was obligated to fulfill his security obligation.

The legal analysis focused on two key points. First, the defendant’s failure to contest the signature through expert evidence meant the court accepted that he signed the promissory note. Second, although the guarantee letter contained an illegal forfeiture clause, the underlying mortgage contract was not entirely void. The court did not need to rule on the broader question of whether rural residential land use rights can be mortgaged, because the defendant did not adequately prove that the property was inalienable or that the mortgage violated mandatory laws. The mortgage agreement was therefore enforceable as to the debt amount.

The appellate court found that the trial court’s factual findings were correct and its legal reasoning was sound. It rejected all grounds of appeal and affirmed the original judgment. Mr. Chen was ordered to pay the court costs of the appeal. This case illustrates that a guarantor cannot escape liability merely by pointing to a defective clause in the security document, as long as the core agreement is valid. It also underscores the importance of verifying signatures and seeking expert evidence before making forgery claims.

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