CNY 700,000 Loan Dispute Resolved by Court in Eastern China
A court in Eastern China has ruled that a company and two individual borrowers must repay a loan of CNY 700,000 plus interest and legal costs, with two guarantors held jointly liable. The judgment addressed claims of default, high interest rates, and enforcement of contractual guarantees.
In November 2011, the plaintiff Mr. Li lent CNY 700,000 to National Milk Company, along with Mr. Pan A and Mr. Pan B as co-borrowers. The loan was documented with a promissory note that set a monthly interest rate of three percent and required repayment by December 8, 2011. The note also stipulated that if the borrowers defaulted, they would bear all costs incurred by the lender to recover the debt, including legal fees. Mr. Chen and Mr. Dong signed as guarantors providing joint and several liability. After the borrowers failed to repay, Mr. Li filed a lawsuit seeking repayment of the principal, interest at the contractual rate, and reimbursement of CNY 42,000 in attorney fees.
The court held two hearings in March 2012. The plaintiff’s attorney presented the original promissory note, a payment voucher, and a bank transfer record as evidence of the loan and the guarantors’ signatures. Additionally, the plaintiff submitted a legal service contract and a tax invoice to prove the actual payment of CNY 42,000 in legal fees. The defendant Mr. Chen attended the hearings and acknowledged the loan but argued that the claimed interest and costs were excessive. The other defendants did not appear despite proper notice, and the court treated their absence as a waiver of their right to challenge the evidence.
After reviewing the evidence, the court found that the loan agreement was valid and legally binding. The borrowers had defaulted by failing to repay on time. The court accepted the plaintiff’s claim for repayment of the principal and interest, but it noted that the contractual interest rate of three percent per month exceeded the legal limit. Under Chinese law, interest on private loans cannot exceed four times the benchmark loan rate published by the People’s Bank of China. The court therefore adjusted the interest to the maximum allowable rate. The court also upheld the claim for legal fees because the promissory note expressly authorized such costs and the plaintiff had proven actual payment.
The court’s legal reasoning centered on the principle that a lawful lending relationship must be protected and that borrowers must honor their repayment obligations. The interest clause, while agreed by the parties, was subject to statutory caps to prevent usury. The guarantors, having signed the note as joint and several sureties, were obligated to cover the principal, interest, and enforcement costs. The court cited provisions of the Contract Law and the Guarantee Law to support its decision. It further ruled that once the guarantors pay, they may seek recourse against the borrowers.
The judgment ordered National Milk Company, Mr. Pan A, and Mr. Pan B to repay CNY 700,000 plus interest calculated at four times the central bank’s benchmark rate from the loan date until full payment. They were also ordered to reimburse the plaintiff’s CNY 42,000 legal fee. Mr. Chen and Mr. Dong were held jointly and severally liable for both sums. The court also granted the guarantors the right to recover from the borrowers after payment. The borrowers were additionally ordered to pay court costs of CNY 10,135. This case illustrates how courts enforce repayment obligations while ensuring interest rates comply with legal limits, and it underscores the binding effect of guarantee agreements in private lending disputes.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.