Court Orders Repayment of CNY 40,000 Loan Plus Penalty
A civil dispute over a private loan resulted in a judgment ordering the defendant to repay the principal amount of 40,000 CNY together with a contractual penalty of 10,000 CNY. The case arose from a loan agreement made in early 2010, with the borrower failing to repay by the agreed deadline. The plaintiff sought judicial intervention to recover the funds and enforce the penalty clause. The court ruled in favor of the plaintiff after a hearing where the defendant did not appear.
The plaintiff, Mr. Li, claimed that on 2 February 2010, the defendant, Mr. Wang, borrowed 40,000 CNY for working capital purposes. Mr. Wang issued a written promissory note that specified the repayment date of 20 March 2011 and included a penalty clause requiring daily payment of 0.5 percent of the outstanding amount in case of late repayment. Mr. Wang never repaid the loan. Mr. Li filed the lawsuit on 21 February 2012 in the local court located in an Eastern China City, demanding repayment of the 40,000 CNY principal plus 10,000 CNY as the agreed penalty.
During the court hearing held on 9 March 2011, Mr. Li appeared through his legal representative. Mr. Wang was properly served with a summons but did not attend the hearing without any valid reason. Mr. Li submitted two key pieces of evidence: copies of his own identification and a household registration record for Mr. Wang to establish the parties’ legal standing, and the original promissory note dated 2 February 2010. The note clearly recorded the loan amount, the repayment deadline, and the daily penalty rate of 0.5 percent for late payment. The court reviewed the evidence and found it lawful, authentic, and relevant to the case. Because Mr. Wang did not appear, the court deemed that he had waived his right to challenge the evidence.
The court held that a legally formed contract is binding on both parties. In this case, after Mr. Li provided the 40,000 CNY loan, Mr. Wang was obligated to repay it by the agreed date. Since Mr. Wang failed to do so, he committed a breach of contract. The court therefore found that Mr. Li’s claim for repayment of the principal was justified and granted that relief. Regarding the penalty, the court noted that the requested amount of 10,000 CNY fell within the scope agreed by the parties in the promissory note. The court also determined that this penalty did not violate any mandatory provision of law, and thus it was fully enforceable.
According to relevant law, specifically Article 114 and Article 206 of the Contract Law of the People’s Republic of China, a debtor who fails to repay a loan on time must bear liability for breach. The agreed penalty is a valid liquidated damages clause, and the court must enforce it unless it is manifestly excessive. In this case, the court found no evidence that the penalty was disproportionate to the actual harm. The daily rate of 0.5 percent, applied over the period from the due date to the judgment, could have resulted in a much larger sum than the flat 10,000 CNY requested. By asking for only a fixed amount, the plaintiff effectively limited the penalty, and the court accepted that as reasonable. The court also ordered the defendant to pay double the interest on the debt for any delayed performance after the judgment.
This judgment reinforces the principle that written loan agreements with clear repayment terms and penalty clauses are enforceable in courts. Borrowers who fail to appear at hearings lose the opportunity to challenge evidence or present defenses. Lenders should ensure that promissory notes are properly drafted and retained as proof. The case also illustrates that courts will uphold penalty clauses that are not unconscionable, even when the defendant is absent from the proceedings.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.