Court Orders Guarantor to Repay CNY 30,000 Loan

A court in Eastern China City ruled that a guarantor must repay a CNY 30,000 loan after the borrower disappeared. The plaintiff, Mr. Li, had lent the money to Ms. Shen, who promised to repay within ten days. The defendant, Mr. Wang, signed as the guarantor on the IOU. After Ms. Shen failed to repay and could not be located, Mr. Li demanded payment from Mr. Wang, but received nothing. Mr. Li then filed a lawsuit seeking an order for the guarantor to fulfill the debt.

The dispute began on July 5, 2011, when Ms. Shen asked Mr. Li for a short-term business loan. Mr. Li agreed and handed over CNY 30,000 in cash. Ms. Shen and Mr. Wang jointly wrote and signed an IOU stating: “Borrowed from Mr. Li CNY 30,000, to be repaid within ten days. Borrower: Ms. Shen. Guarantor: Mr. Wang.” The borrower soon vanished after her business failed. Mr. Li repeatedly asked Mr. Wang to pay as the guarantor, but Mr. Wang refused. Mr. Li then initiated legal proceedings, asking the court to hold Mr. Wang jointly liable for the full amount.

At the hearing, Mr. Li appeared and presented the original IOU as evidence. The court had summoned Mr. Wang through public notice because he could not be located. Mr. Wang did not attend the hearing or submit any defense. The court examined the IOU and found it to be objective, genuine, and legally relevant. Although the defendant did not cross-examine the evidence, the court accepted it as valid proof of the loan and the guarantee. The hearing proceeded in the defendant’s absence, as permitted by law.

The court held that a legally formed contract is protected and must be performed in good faith. Under the Contract Law, the borrower was obligated to repay the principal on the agreed date. Because Ms. Shen did not repay within ten days, she breached the contract. The court further noted that the Guarantee Law applies when a guarantee type is not specified. Since the IOU did not define the guarantee as either general or joint, the law presumes a joint liability guarantee. This means the creditor can directly demand payment from the guarantor without first suing the borrower.

The court reasoned that Mr. Wang, as the guarantor, assumed joint liability for the debt. Because Ms. Shen did not repay and Mr. Wang failed to honor his guarantee, Mr. Li was entitled to recover the full amount from the guarantor. The court emphasized that joint liability guarantors cannot require the creditor to exhaust remedies against the borrower first. After paying, Mr. Wang may seek reimbursement from Ms. Shen through a separate claim. The court found Mr. Li’s demand legally sound and supported by the evidence and relevant statutes.

The court ordered Mr. Wang to pay Mr. Li CNY 30,000 within ten days of the judgment becoming effective. Mr. Wang must also bear the litigation fee of CNY 550. If he fails to pay on time, interest at double the statutory rate will accrue on the overdue amount. The judgment includes standard appeal instructions, allowing either party to file an appeal within fifteen days of service. This case illustrates that a guarantor who signs an IOU without specifying the guarantee type faces immediate liability if the borrower defaults and disappears.

Disclaimer: This article is for informational purposes only and does not constitute legal advice.