Court Orders Repayment of CNY 500,000 Loan with Interest

The Eastern China City People’s Court recently ruled in a private lending dispute, ordering a borrower to repay a loan principal of CNY 500,000 along with interest at a reduced monthly rate of 1.5 percent. The court also held a guarantor jointly and severally liable for the debt. The judgment was issued after the borrower failed to provide sufficient evidence to support claims of prior interest payments.

In this case, Mr. Xiang, the plaintiff, lent CNY 500,000 to Mr. Xu, the first defendant, on March 11, 2011, with the funds transferred into Mr. Xu’s bank account. The following day, Mr. Xu issued a promissory note to Mr. Xiang, agreeing to a monthly interest rate of 2 percent. Mr. Fang, the second defendant, signed the same note as a guarantor, thereby assuming liability for Mr. Xu’s debt. After the loan matured, Mr. Xiang made repeated demands for repayment, but Mr. Xu did not return the principal nor pay the agreed interest. Mr. Fang also failed to fulfill his guarantee obligations. Mr. Xiang then filed a lawsuit on February 27, 2012, seeking immediate repayment of the principal and interest calculated from March 12, 2011, at the contractual rate. During the trial, Mr. Xiang reduced his interest claim to 1.5 percent per month.

The court held a hearing on March 28, 2012, under summary procedures. Mr. Xiang’s legal representatives attended, and Mr. Xu appeared in person. Mr. Fang, however, did not attend despite proper legal service and offered no defense. Mr. Xu argued during the hearing that he had already paid interest up to the end of December 2011, claiming he transferred CNY 30,000 every 10 days through his Agricultural Bank and Rural Cooperative Bank accounts, totaling CNY 30,000 per month. He asserted these payments covered both principal and interest. However, he could not provide transaction records because his bank accounts had been frozen by another court order. He requested the court to investigate his payment history. The court admitted into evidence the promissory note, which Mr. Xu did not contest. Mr. Fang raised no objection.

Based on the admitted evidence and the parties’ statements, the court found the following facts: on March 12, 2011, Mr. Xu borrowed CNY 500,000 from Mr. Xiang at a monthly interest rate of 2 percent, with Mr. Fang acting as guarantor. Neither Mr. Xu nor Mr. Fang repaid any portion of the principal or interest. The court rejected Mr. Xu’s claim of having paid interest, because he failed to produce any supporting evidence and Mr. Xiang did not acknowledge such payments. The court therefore concluded that the private lending agreement between Mr. Xiang and Mr. Xu, as well as the guarantee contract between Mr. Xiang and Mr. Fang, were legally valid and binding.

The court applied the Contract Law and the Guarantee Law of China. Under Article 205 and Article 206 of the Contract Law, a borrower must repay principal and interest according to the agreed terms. Since Mr. Xu did not perform his obligations, Mr. Xiang was entitled to demand immediate repayment. The court further held that the reduced interest rate of 1.5 percent per month requested by Mr. Xiang complied with legal limits and was therefore permissible. Under Article 18 of the Guarantee Law, a guarantor who has agreed to joint and several liability may be required to repay the entire debt when the principal debtor defaults. Because Mr. Fang did not specify a guarantee method in the promissory note, Article 19 of the Guarantee Law deemed his liability as joint and several. Accordingly, the court ordered Mr. Xu to repay CNY 500,000 plus interest at 1.5 percent per month from March 12, 2011, until the date of actual payment, and ordered Mr. Fang to bear joint and several liability for the full amount.

This judgment highlights the importance of clear documentation and evidence in private lending disputes. Borrowers who claim to have made interest payments must provide verifiable bank records or other proof; otherwise, the court will not accept such assertions. Guarantors should understand that signing a promissory note without specifying the scope or type of guarantee can result in full liability for both principal and interest. The case also demonstrates that Chinese courts generally permit plaintiffs to reduce their interest claims during litigation, as long as the adjusted rate remains within legal limits. The court further noted that if the defendants fail to satisfy the judgment within ten days, they will be subject to additional interest for delayed performance.

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