Guarantor Ordered to Pay After Promising to Guarantee Until Loan Repaid: A 350,000 RMB Loan Dispute in Northern China

Guarantor Ordered to Pay After Promising to Guarantee Until Loan Repaid: A 350,000 RMB Loan Dispute in Northern China

CASE OVERVIEW
A civil court in Northern China ordered a borrower to repay 350,000 RMB in principal plus overdue interest and held a guarantor jointly and severally liable for the full amount. The case involved two separate loan agreements, a partial repayment by the guarantor after the lawsuit was filed, and a critical legal question about the duration of a guarantor’s liability when the guarantee is stated to last until the debt is fully repaid.

CASE BACKGROUND AND FACTS
On May 4, 2008, the plaintiff, Mr. Xu, entered into a loan agreement with the borrower, Mr. Zhao, and the guarantor, Mr. Wei. Under this agreement, Mr. Zhao borrowed 250,000 RMB from Mr. Xu, with repayment due by November 3, 2008. Mr. Wei acted as the guarantor, but the agreement did not specify the scope, method, or duration of the guarantee. Mr. Xu delivered the full 250,000 RMB in cash on the same day. Mr. Zhao failed to repay the loan on time. On January 15, 2010, Mr. Wei signed the loan agreement again, agreeing to continue his guarantee for two more years until November 3, 2010.

On May 18, 2009, Mr. Xu and Mr. Zhao signed a second loan agreement. This time, Mr. Zhao borrowed 200,000 RMB, with repayment due by May 27, 2009. Mr. Xu delivered this amount in cash on the same day. Mr. Wei signed this agreement on October 28, 2009, agreeing to act as guarantor, but again without specifying the guarantee’s scope, method, or duration. Mr. Zhao did not repay this loan either. On April 5, 2010, Mr. Wei signed the agreement a second time, agreeing to continue his guarantee until the loan was fully repaid. Mr. Zhao never repaid either loan or any overdue interest, and Mr. Wei did not fulfill his guarantee obligations.

COURT PROCEEDINGS AND EVIDENCE
Mr. Xu filed a lawsuit on October 26, 2010, initially seeking repayment of 450,000 RMB plus overdue interest. He also asked the court to hold Mr. Wei jointly and severally liable. After filing the lawsuit, Mr. Wei made a partial repayment of 100,000 RMB on Mr. Zhao’s behalf. Mr. Xu then reduced his claim to 350,000 RMB in principal plus overdue interest.

Mr. Zhao did not appear in court or submit a defense. Mr. Wei appeared and admitted the facts of the loans and his guarantee. He argued that he had already repaid 100,000 RMB and asked the court to deduct this amount from the debt. To support his claim, he presented six receipts showing payments made between December 8, 2010, and January 25, 2011. Mr. Xu confirmed the authenticity of these receipts.

Mr. Xu provided four key pieces of evidence: the 2008 loan agreement, a bank passbook showing a withdrawal of 235,000 RMB, the 2009 loan agreement, and a marriage certificate along with a bank receipt showing a withdrawal of 200,000 RMB from his wife’s account. Mr. Wei did not challenge the authenticity of any of these documents. Mr. Wei also presented evidence of a separate loan of 17,350 RMB he claimed Mr. Xu owed him. The court found this unrelated to the current case and did not consider it.

COURT FINDINGS AND JUDGMENT
The court found that both loan agreements and the guarantee arrangements were valid and legally binding. Mr. Zhao breached his obligation to repay the loans on time. Since the agreements did not specify interest during the loan period, the court ruled that no interest was due for that period. However, Mr. Zhao was required to pay overdue interest from the date of default at the benchmark interest rate published by the People’s Bank of China for similar loans.

Regarding Mr. Wei’s liability, the court applied the Guarantee Law of the People’s Republic of China. Because the guarantee agreements did not specify the method of guarantee, the law presumes it to be a joint and several liability guarantee. For the 2009 loan, Mr. Wei agreed to guarantee until the debt was fully repaid. The court held that this type of clause is considered ambiguous under the law and interpreted it to mean the guarantee period is two years from the date the principal debt became due. Since Mr. Xu filed the lawsuit within this two-year window, Mr. Wei remained liable.

The court ordered Mr. Zhao to repay 350,000 RMB plus overdue interest calculated as follows: 150,000 RMB from November 4, 2008, and 200,000 RMB from May 28, 2009. Mr. Wei was ordered to bear joint and several liability for the full amount. The court also ordered both defendants to pay the court costs of 8,650 RMB.

KEY LEGAL PRINCIPLES
This case illustrates several important principles in Chinese civil law. When a loan agreement does not specify interest, no interest is payable during the loan term, but overdue interest accrues from the default date. When a guarantee agreement does not specify the method of guarantee, the law presumes it to be a joint and several liability guarantee, meaning the creditor can demand payment from either the borrower or the guarantor. A guarantee clause stating that the guarantor will remain liable until the debt is fully repaid is considered ambiguous. Under the Supreme People’s Court’s interpretation of the Guarantee Law, such a clause creates a guarantee period of two years from the date the principal debt becomes due.

PRACTICAL INSIGHTS
For lenders, this case highlights the importance of documenting all loan disbursements with clear evidence, such as bank records. For guarantors, it serves as a warning that signing a guarantee without specifying its scope, method, or duration can result in broad and long-lasting liability. A promise to guarantee until a loan is fully repaid does not create an indefinite obligation but extends liability for up to two years after the repayment deadline. Borrowers who fail to appear in court risk a default judgment against them.

LEGAL REFERENCES
Contract Law of the People’s Republic of China, Articles 206, 207, and 211. Guarantee Law of the People’s Republic of China, Articles 19, 21, and 26. Supreme People’s Court’s Interpretation on Several Issues Concerning the Application of the Guarantee Law of the People’s Republic of China, Article 32. Civil Procedure Law of the People’s Republic of China, Article 130.

DISCLAIMER
This article is for informational purposes only and does not constitute legal advice. Laws and regulations vary by jurisdiction. Readers should consult a qualified legal professional for advice specific to their situation.