Credit Cooperative Recovers CNY 300,000 from Defaulting Borrower and Guarantors
A credit cooperative in Eastern China obtained a court judgment ordering a borrower and three guarantors to repay a loan of CNY 300,000 plus accrued interest. The borrower failed to make payments when due, and the guarantors did not honor their obligations. The court found the loan agreements valid and enforceable, ruling that all defendants were jointly and severally liable for the outstanding debt and interest.
In 2009, the Da Qi Credit Cooperative (the plaintiff) entered into a guarantee loan contract with Mr. He (the primary borrower) and two individual guarantors, Mr. Yao and Mr. Lu. Under the contract, Mr. He borrowed CNY 300,000 for a term of one year, from November 20, 2009, to November 19, 2010. Mr. Yao and Mr. Lu agreed to provide joint and several liability guarantees. On the same day, a third guarantor, Mr. Gu, signed a separate guarantee contract to cover the same loan principal and interest. The plaintiff disbursed the loan as agreed. However, Mr. He defaulted on both principal and interest payments when the loan matured. The guarantors also failed to step in. The plaintiff then filed a lawsuit seeking repayment of the principal, interest calculated up to November 23, 2011 (CNY 90,107.27), and continuing interest until full payment, plus an order that all guarantors bear joint liability.
At the court hearing, the plaintiff presented several pieces of evidence, including the guarantee loan contract, a loan receipt, an interest statement, and the separate guarantee contract. All documents were verified against the originals. The defendants, Mr. He, Mr. Yao, Mr. Lu, and Mr. Gu, were properly summoned by the court but did not appear at the hearing. They also did not submit any written defense or evidence. Because the defendants failed to attend, they lost their right to cross-examine the plaintiff’s evidence. The court accepted the plaintiff’s exhibits as credible and reliable. During the trial, the plaintiff withdrew its claims against a fifth defendant, Mr. Zhu, and the court permitted that withdrawal.
The court held that the guarantee loan contract between the plaintiff, Mr. He, Mr. Yao, and Mr. Lu was legally valid, as was the separate guarantee contract with Mr. Gu. The plaintiff had fulfilled its obligation by disbursing the loan. Mr. He, as the primary borrower, was required to repay principal and interest on schedule. By failing to do so, he committed a breach of contract. The court further found that Mr. Yao, Mr. Lu, and Mr. Gu, as guarantors, were obligated to assume joint and several liability for the entire debt. The plaintiff’s claims were lawful and well-founded, and the court granted them in full.
Under Chinese contract law, a borrower who defaults must repay the outstanding principal plus contracted interest and any penalty interest specified in the agreement. The guarantee law provides that a guarantor who has agreed to joint and several liability can be sued directly by the creditor without first exhausting remedies against the primary debtor. In this case, the guarantors signed clear contracts accepting that responsibility. Once they pay, they have a statutory right to seek reimbursement from the primary borrower. The court also noted that because the defendants were duly served but chose not to appear, a default judgment was appropriate under civil procedure rules. The judgment included an order for doubled interest on late payments if the defendants failed to comply within the specified period.
This case illustrates the importance of clear loan documentation and the enforceability of guarantee agreements in commercial lending. For financial institutions, having multiple guarantors with joint and several liability provides a stronger safety net. Borrowers and guarantors alike should understand that failure to meet repayment obligations can lead to court-ordered enforcement, including the recovery of all principal, interest, and legal costs. The court also reminded parties that a defaulting party may face additional penalties for delayed payment. This judgment reinforces standard lending practices and the courts’ willingness to uphold contractual rights in debt recovery actions.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.