Guarantor Ordered to Pay CNY 70,000 Loan and Fees
In this case, a dispute arose over a personal loan guarantee. The plaintiff lent money to two borrowers, and the defendant acted as a guarantor. When the borrowers failed to repay, the plaintiff sought repayment from the guarantor. The court ruled in favor of the plaintiff, ordering the guarantor to pay the principal amount along with contractual penalties and legal costs.
The case background shows that on September 19, 2011, Mr. Yuan lent CNY 70,000 to Mr. Yu and Mr. Liu. The loan agreement set a repayment deadline of October 18, 2011. It also stated that if the borrowers defaulted, they would cover all expenses the plaintiff incurred to enforce repayment, including legal fees and travel costs, and would pay a daily penalty of 0.3 percent of the total loan. Mr. Meng signed as a joint guarantor. After the due date, the borrowers did not repay, and Mr. Meng did not fulfill his guarantee obligation. Mr. Yuan then sued Mr. Meng for the principal, a penalty calculated from October 19, 2011, at a daily rate of CNY 70, and legal fees of CNY 2,500. During the hearing, Mr. Yuan adjusted the penalty request to four times the benchmark interest rate set by the People’s Bank of China for the same period.
During the court hearing, Mr. Yuan presented three pieces of evidence. First, a loan receipt with a declaration of use, confirming the loan and Mr. Meng’s role as guarantor. Second, a written receipt from Mr. Yu acknowledging that he received the CNY 70,000 in cash. Third, an invoice for legal fees of CNY 2,500. Mr. Meng did not dispute the authenticity of these documents. He admitted that he had guaranteed the loan but argued that he could not pay at that time and suggested that the two borrowers should be located first. He also objected to paying the penalty and the legal fees. The court accepted all three exhibits as valid evidence.
The court found that the loan and guarantee agreements were lawful and binding. The facts clearly showed that the borrowers still owed the principal of CNY 70,000. Since the loan document did not specify the type of guarantee, the court applied Article 19 of the Guarantee Law. This provision states that when no guarantee method is agreed, the guarantor bears joint and several liability. The court also cited Article 21 of the same law, which provides that the scope of a guarantee includes the principal, interest, penalties, damages, and costs of enforcing the claim. Therefore, Mr. Meng was liable for the full debt.
In its legal analysis, the court noted that the plaintiff’s claim for a penalty at four times the benchmark interest rate was reasonable and within legal limits. The court rejected Mr. Meng’s argument that the penalty and legal fees should not be his responsibility. It held that because the guarantee was for the entire obligation, the guarantor must bear all agreed consequences of default. The court also referenced relevant provisions of the Contract Law regarding liability for breach and the obligation to repay on time. The legal basis was clear: the guarantor had no valid defense against the claim.
The court ruled that Mr. Meng must pay Mr. Yuan the principal of CNY 70,000 plus a penalty calculated from October 19, 2011, until the date of full payment, using four times the benchmark interest rate published by the People’s Bank of China for the same period. Mr. Meng was also ordered to pay the legal fee of CNY 2,500. The entire sum must be paid within ten days of the judgment taking effect. If Mr. Meng failed to pay on time, he would owe additional interest for delayed performance as prescribed by law. This case highlights that a guarantor who signs without specifying the guarantee type may become fully responsible for the debt, including penalties and legal costs.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.