Guarantors Liable for CNY 1,000,000 Loan Despite Dispute Over Guarantee Scope
A dispute over a second loan guarantee reached the appellate court after three guarantors argued they had not consented to guarantee a renewed loan. The borrower, Mr. Zhao, had taken an initial loan of CNY 1,000,000 from a bank in Eastern China City, repaid it early, and then obtained a second loan of the same amount. When he defaulted, the bank sought repayment from the borrower, his spouse, and three guarantors. The guarantors claimed they had only agreed to guarantee the first loan, not the second. The lower court held them jointly liable, and the appellate court affirmed.
In November 2009, Mr. Zhao borrowed CNY 1,000,000 for six months, with his spouse Ms. Qian as a co-debtor and three guarantors—Mr. Lin, Ms. Wang, and Mr. Zhang—providing joint and several guarantees. Mr. Zhao repaid that loan early. In April 2010, he applied for a new one-year loan of CNY 1,000,000, citing working capital needs. The bank issued the loan on April 7, 2010. The guarantors had previously signed documents indicating they would guarantee both loans. Specifically, Ms. Wang and Mr. Zhang signed a guarantee contract for the second loan, but the date was left blank and later filled in by the bank. Mr. Zhao was arrested in November 2010 on criminal charges, and interest payments stopped in February 2011.
At trial, the bank presented loan agreements, guarantee contracts, and written commitments from Ms. Qian. The guarantors argued that the second guarantee contract was invalid because they had signed it only for the first loan, and the bank had fraudulently backdated it. Mr. Lin claimed he never signed a guarantee for the second loan. The court heard testimony and examined the documents, including two loan applications signed by Ms. Wang and Mr. Zhang that referenced both loan periods. The bank maintained that the guarantors had pre-authorized the second guarantee when they signed the first set of papers.
The court found that the second loan guarantee contracts were valid and binding. It held that Mr. Lin, Ms. Wang, and Mr. Zhang had each signed contracts or applications showing their intent to guarantee both the first and second loans. The fact that the bank later filled in the date on one contract did not amount to fraud, as the guarantors had voluntarily signed with knowledge that a second loan was contemplated. The court also noted that Mr. Lin failed to provide evidence that he had not signed the second guarantee. Because the guarantee contracts did not specify separate shares, the guarantors were deemed joint and several co-guarantors.
Under the Contract Law and the Guarantee Law, the court reasoned that a guarantee contract is accessory to the principal loan agreement, and as long as the guarantor’s signature reflects a genuine intention to guarantee the debt, the contract is enforceable. The evidence showed that the guarantors understood the transaction structure and agreed in advance to cover both loans. The court rejected arguments about missing borrower names on guarantee forms, as the linked loan contract clearly identified the borrower. It also dismissed claims of fraud, stating that no deception had occurred because the guarantors had signed the second guarantee contract before the first loan was even repaid.
The appellate court upheld the lower judgment, ordering Mr. Zhao and Ms. Qian to repay the outstanding principal of CNY 1,000,000 plus interest and late charges, and requiring Mr. Lin, Ms. Wang, and Mr. Zhang to bear joint and several liability. This case illustrates that guarantors who sign documents in anticipation of multiple loan drawdowns may be held liable for later loans, even if they did not sign a second set of papers at the time of the new loan. It serves as a reminder for guarantors to clearly define the scope and duration of their guarantees in writing and to avoid signing blank or undated contracts.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.