Car Loan Guarantee Dispute Results in CNY 49,546.85 Judgment
A Chinese asset management company brought a subrogation claim against two individuals after the company fulfilled its obligation as a guarantor on a car loan. The plaintiff sought reimbursement of the amount paid on behalf of the borrowers, plus contractual penalties. The court ruled in favor of the plaintiff, ordering both defendants to repay the principal and accrued penalties.
The dispute arose from a vehicle purchase loan agreement signed in March 2008. Mr. Chen borrowed 64,000 CNY from a bank to buy a car, with the plaintiff acting as a guarantor. Mr. Hong was listed as a co-borrower on a commitment document related to the loan. After the loan was disbursed, Mr. Chen failed to make payments as required. The plaintiff, as a joint guarantor, paid the bank 49,546.85 CNY to cover the outstanding amount. The plaintiff then demanded repayment from both Mr. Chen and Mr. Hong, along with a penalty fee of 10,008.46 CNY based on the contract. Mr. Chen appeared in court and admitted the facts, while Mr. Hong did not respond to the summons and did not attend the hearing.
At trial, the plaintiff submitted several pieces of evidence, including its business license, the identity documents of both defendants, the car loan guarantee application, the borrower commitment letter, and the loan agreement. The plaintiff also presented a certificate proving that it had paid the bank on behalf of the defendants. Mr. Chen did not challenge any of this evidence. The court accepted all exhibits as valid. Mr. Hong, having been properly notified, chose not to appear or submit a defense, which the court treated as a waiver of his right to challenge the evidence.
The court found that the loan guarantee contract was lawfully signed and reflected the true intentions of all parties. Both defendants had failed to repay the loan as agreed, constituting a breach of contract. After the plaintiff made the payment to the bank, Mr. Chen and Mr. Hong became jointly liable to reimburse the plaintiff under the terms of the guarantee. The plaintiff later reduced its penalty claim to 6,672.31 CNY as of October 18, 2011, with an ongoing penalty at a monthly rate of 2% on the principal until full payment. The court held that this penalty rate was within legal limits and approved the revised calculation.
According to relevant law, specifically Article 31 of the Guarantee Law, a guarantor has the right to recover from the debtor after performing the guarantee obligation. The court also applied Article 130 of the Civil Procedure Law, which permits a default judgment when a defendant fails to appear without just cause. In this case, Mr. Hong’s absence did not prevent the court from proceeding. The court reasoned that the contractual penalty clause was enforceable and that the reduced rate of 2% monthly was reasonable under the circumstances.
The court issued a judgment ordering Mr. Chen and Mr. Hong to jointly pay the plaintiff 49,546.85 CNY within ten days of the judgment taking effect, plus 6,672.31 CNY in penalties calculated through October 18, 2011, and an additional penalty at a monthly rate of 2% on the principal from October 19, 2011 until payment is complete. The defendants were also ordered to bear the court costs. This case illustrates the legal principle that guarantors may seek recourse against borrowers after fulfilling a guarantee, and that courts will enforce valid penalty clauses while permitting adjustments to avoid excessive charges.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.