Guarantee Contract Dispute: Son Must Cover Father 225,000 Yuan Debt with Property Mortgage

A guarantee contract dispute involving 225,000 yuan in unpaid loans and a property mortgage has been resolved by an appellate court, which upheld the lower court ruling that the guarantor must bear mortgage guarantee responsibility for his father’s debt.

Mr. Cui, the appellant, challenged a trial court decision holding him liable for mortgage guarantee obligations related to his father Mr. Cui Senior’s debt of 225,000 yuan owed to Mr. Liu. The dispute centered on whether the guarantee agreement was valid and enforceable.

The background of this case involves a series of lending transactions between Mr. Cui Senior and Mr. Liu. On April 11, 2010, Mr. Cui issued a guarantee letter to Mr. Liu stating that due to insufficient business capital, he was using his land use certificate as collateral for a loan, and if repayment was not made on time, the land use certificate and six rooms of property would belong to Mr. Liu. The property, a two-story building with six rooms located on a street in a town in northern China, had been transferred from Mr. Cui Senior to Mr. Cui in January 2009.

On May 12, 2010, Mr. Cui Senior issued an IOU to Mr. Liu for 225,000 yuan, with a repayment deadline of May 30. Mr. Cui signed as guarantor on this document. Mr. Liu stated that he had not lent any additional money to Mr. Cui Senior after April 11, 2010.

When the debt went unpaid, Mr. Liu initially sued both Mr. Cui Senior and Mr. Cui in June 2010. The parties reached a mediated settlement under which Mr. Cui Senior agreed to pay 50,000 yuan by August 16, 2010, another 50,000 yuan by September 16, and the remaining 125,000 yuan by December 31, with a 2,000 yuan penalty for non-compliance. Mr. Liu agreed not to pursue claims against Mr. Cui temporarily. The court confirmed this agreement through a mediation document.

After Mr. Cui Senior failed to comply with the settlement terms, Mr. Liu brought a new lawsuit against Mr. Cui seeking enforcement of his guarantee obligations.

The trial court found that Mr. Cui had signed both the guarantee letter and the IOU as guarantor, demonstrating his knowledge of the debt amount and voluntary assumption of guarantee responsibility. Although Mr. Cui claimed his father had only told him the debt was 40,000 to 50,000 yuan when he wrote the guarantee letter, he provided no evidence to support this assertion.

Regarding the clause stating the property would belong to Mr. Liu if the debt was not repaid, the court applied a judicial interpretation of the Guarantee Law which provides that any clause in a mortgage contract stipulating the transfer of mortgage property ownership to the creditor upon default is invalid. However, such invalidity does not affect the validity of other parts of the mortgage contract. Therefore, while the direct transfer clause was unenforceable, Mr. Liu retained the right to demand that Mr. Cui fulfill his mortgage guarantee obligations.

On appeal, Mr. Cui raised three main arguments. He claimed the signature on the IOU was forged by his father without authorization. He argued that the mortgaged property was built on rural residential land, which cannot legally be mortgaged under land law. He also contended that the property was jointly owned by his family, and he had no authority to mortgage it entirely.

The appellate court rejected all three arguments. On the signature issue, the court noted that Mr. Cui never requested a handwriting verification during the proceedings, so his claim lacked evidentiary support. On the rural land mortgage question, the court found that the Guarantee Law provisions regarding mortgage enforcement still applied regardless of the land classification. On the joint ownership claim, the court found no evidence that other family members had challenged the mortgage arrangement.

The appellate court affirmed the trial court decision, ordering Mr. Cui to bear mortgage guarantee responsibility using his six-room two-story property for the 225,000 yuan debt. The appeal costs of 100 yuan were assessed against Mr. Cui.

This case demonstrates that guarantee agreements must be entered into with full understanding of the obligations involved, and that signing as a guarantor creates binding legal responsibilities that courts will enforce even when the underlying debt was incurred by a family member.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Consult a qualified attorney for legal matters.