Loan Default Case: 180,000 RMB Guarantee Dispute and Joint Liability Ruling

Loan Default Case: 180,000 RMB Guarantee Dispute and Joint Liability Ruling

Case Overview

In this case, a credit union in Eastern China sued a borrower and five guarantors for defaulting on a loan of 180,000 RMB. The court held that the borrower must repay the principal and interest, and the guarantors are jointly and severally liable. The judgment was entered after the borrower and two guarantors failed to appear in court.

Case Background and Facts

On April 27, 2009, the plaintiff, a credit union in Eastern China, entered into a guaranteed loan contract with the borrower, Mr. Ao, and five guarantors: Mr. Zheng, Mr. Deng, Mr. Xiang, Mr. Ao (a second individual with the same surname), and Mr. Fang. Under the contract, the credit union agreed to lend Mr. Ao a total of 180,000 RMB. The loan term was set from April 27, 2009, to April 20, 2010. The interest rate was 7.5225 per thousand per month. If the borrower failed to repay the principal on time, the overdue interest rate would increase to 11.28375 per thousand per month. The five guarantors agreed to provide joint and several liability guarantees, covering the loan principal, interest, penalties, damages, and costs of enforcing the debt. The guarantee period was two years from the loan maturity date.

The day after the contract was signed, the credit union disbursed the full loan amount of 180,000 RMB to Mr. Ao. However, upon the loan maturity date, Mr. Ao failed to repay the principal and interest. He only paid 2,487.29 RMB in interest covering the period up to June 22, 2009. None of the five guarantors fulfilled their guarantee obligations.

Court Proceedings and Evidence

The credit union filed the lawsuit on August 16, 2010. The court formed a panel and held a public hearing on January 27, 2011. The credit union was represented by its agents. Three guarantors, Mr. Zheng, Mr. Deng, and Mr. Xiang, appeared in court. The borrower Mr. Ao and another guarantor Mr. Ao (the second) were served with summons but did not attend. The guarantor Mr. Fang was served by public notice but also failed to appear. The court proceeded with the hearing in their absence.

The credit union presented three pieces of evidence: identity documents for all six defendants, the original guaranteed loan contract (verified against the copy), and the loan receipt showing the disbursement of funds. The three guarantors who appeared confirmed the authenticity, legality, and relevance of all evidence. The absent defendants did not submit any written defense or evidence, waiving their rights to contest the facts and evidence.

Court Findings and Judgment

The court found that the guaranteed loan contract was a genuine expression of the parties intentions and legally valid. Mr. Ao breached the contract by failing to repay the loan principal and interest as agreed. He must bear the contractual liability for default. The five guarantors provided joint and several liability guarantees. Since Mr. Ao did not repay the debt after the loan matured, the guarantors must fulfill their obligations within the guarantee period and scope.

The court ruled in favor of the credit union. Mr. Ao must repay the principal of 180,000 RMB and pay interest of 18,951.84 RMB calculated up to July 7, 2010. From July 8, 2010, until full payment, interest accrues at a daily rate of 0.37613 per thousand on the outstanding principal. The five guarantors, Mr. Zheng, Mr. Deng, Mr. Xiang, Mr. Ao (the second), and Mr. Fang, are jointly and severally liable for the entire amount.

The court also ordered Mr. Ao to bear the case acceptance fee of 4,280 RMB and the public notice fee of 650 RMB, totaling 4,930 RMB. The five guarantors are jointly and severally liable for these costs.

Key Legal Principles

The court applied the principle that a valid contract binds all parties. A borrower who fails to repay a loan on time commits a breach of contract and must pay the principal, interest, and overdue interest as agreed. Under the guarantee agreement, a guarantor providing joint and several liability is obligated to repay the debt when the borrower defaults, even if the borrower has not been sued first. The guarantee period and scope are defined by the contract. If a defendant fails to appear after proper service, the court may enter a default judgment.

Practical Insights

This case illustrates the importance of understanding the consequences of signing a guarantee agreement. Guarantors who agree to joint and several liability are responsible for the full debt if the borrower defaults. Borrowers should be aware that failing to repay a loan results in additional interest and legal costs. For lenders, this case demonstrates that a well-documented contract and proper evidence can lead to a favorable judgment, even when some defendants do not appear in court. It also shows that courts will enforce guarantee obligations strictly according to the contract terms.

Legal References

Contract Law of the Peoples Republic of China, Articles 205, 206, and 207 (governing interest payment, principal repayment, and liability for breach). Guarantee Law of the Peoples Republic of China, Articles 18 and 21 (defining joint and several liability and the scope of guarantee). Civil Procedure Law of the Peoples Republic of China, Article 130 (allowing default judgment when a defendant fails to appear after service).

Disclaimer

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