CNY 300,000 Loan Dispute – Borrower Liable, Guarantor Freed
Mr. Zou filed a lawsuit against Mr. Liu and Mr. Zhou in March 2012, seeking repayment of a 300,000 CNY loan plus interest. Mr. Liu had borrowed the money in 2009 with Mr. Zhou acting as guarantor. The court ruled that Mr. Liu must repay the principal and interest at a reduced rate, but released Mr. Zhou from all guarantee obligations because the creditor failed to demand performance within the statutory six-month period.
The dispute arose from a loan agreement dated March 5, 2009. Mr. Liu borrowed 300,000 CNY from Mr. Zou for business cash flow, with repayment due by June 4, 2009. The written loan note specified a monthly interest rate of 3% and named Mr. Zhou as guarantor, who agreed to assume joint and several liability. Mr. Zou transferred the full loan amount via bank transfer. Mr. Liu made interest payments through February 2011 and paid an additional 2,000 CNY in February 2012, but never repaid the principal. After repeated demands failed, Mr. Zou sued for the principal, 117,000 CNY in interest (calculated at 3% monthly for 13 months), and court costs.
The court held a public hearing on March 29, 2012. Mr. Zou attended and presented evidence, including his own identification, the defendants’ identification, the signed loan agreement, and a bank transfer receipt. The court found the evidence legally obtained and relevant to the case. Mr. Liu and Mr. Zhou did not appear or submit any defense, and the court treated their absence as a waiver of their right to contest the evidence and arguments.
The court found that the loan contract between Mr. Zou and Mr. Liu was valid, as the parties had genuine intent and the content did not violate mandatory legal provisions. However, the agreed monthly interest rate of 3% was excessively high. The court adjusted the rate to 1.6% per month, which it considered reasonable under applicable law. Regarding the guarantee, the court noted that no guarantee period was specified in the loan note. Under Chinese Guarantee Law, where no period is agreed, the guarantor is released if the creditor does not demand performance within six months after the principal debt matures. Since the loan matured on June 4, 2009, and Mr. Zou did not demand payment from Mr. Zhou within that six-month window, Mr. Zhou’s guarantee liability was extinguished.
The legal basis for the judgment rested on the Contract Law, which requires a borrower to repay principal and pay lawful interest, and allows courts to reduce interest rates that exceed legal limits. The Guarantee Law provided the key rule for the guarantor’s release: when no guarantee period is stipulated, the creditor must claim against the guarantor within six months from the maturity of the principal debt, or the guarantor is discharged. The court also applied procedural rules to proceed with a default judgment against the absent defendants, who were properly summoned.
The court ordered Mr. Liu to repay the 300,000 CNY principal to Mr. Zou, plus interest calculated at 1.6% per month from March 1, 2011 until full payment, with the 2,000 CNY already paid deducted. All other claims were dismissed, including those against Mr. Zhou. The court also ordered Mr. Liu to bear half of the litigation costs. This case illustrates the importance of acting promptly when enforcing a guarantee. Creditors should demand performance from a guarantor within the statutory period, otherwise the guarantee may become unenforceable even if the underlying debt remains valid.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.