Eastern China Court Rules on Project Manager’s Personal Loan Liability in RMB 300,000 Dispute

Eastern China Court Rules on Project Manager’s Personal Loan Liability in RMB 300,000 Dispute

Case Overview

The Eastern China Intermediate People’s Court issued a final judgment in a private lending dispute, ruling that a project manager who borrowed RMB 300,000 from an individual and affixed a project department seal on the loan document acted personally, not on behalf of the construction company. The appellate court reversed the trial court decision, holding the project manager solely liable for repayment with interest at four times the central bank benchmark rate.

Case Background and Facts

In February 2005, a construction company (Company X) established a project department for a real estate development in Central China. The company appointed Mr. Yu as project manager and Mr. Bao as deputy project manager. In March 2005, Company X signed an internal economic responsibility contract with Mr. Yu, granting him full responsibility for the project construction, including all debts and claims arising from the project. The contract explicitly prohibited Mr. Yu from borrowing money in the company name without authorization.

In May 2005, Mr. Bao signed a written commitment to Company X, stating that the project department seal would only be used for technical engineering documents and that he would bear full responsibility for any other use.

Between July and October 2005, Mr. Bao borrowed money from Mr. Fang on multiple occasions, issuing personal promissory notes each time. On January 20, 2006, Mr. Bao issued a consolidated promissory note to Mr. Fang for RMB 410,000, stating the funds were for the project construction, with a three-month repayment term and monthly interest at 3%. This note bore Mr. Bao’s signature and the project department seal.

Court Proceedings and Evidence

Mr. Fang sued Company X and Mr. Bao in the trial court, seeking repayment of RMB 410,000 plus interest. The trial court held that Mr. Bao was the actual project contractor and that borrowing in the project department name made Company X liable. It ordered Company X to repay RMB 300,000 (finding the actual loan amount was RMB 300,000, not RMB 410,000) with interest, and dismissed the claim against Mr. Bao.

Company X appealed, arguing that the evidence showed Mr. Yu, not Mr. Bao, was the internal contractor. Company X presented the internal economic responsibility contract with Mr. Yu, which prohibited unauthorized borrowing. Company X also argued that Mr. Bao’s personal borrowing could not bind the company.

During the appeal, Mr. Fang submitted seven documents to prove Mr. Bao acted as the project’s actual manager. The appellate court found these documents were uncertified copies and insufficient to establish Mr. Fang’s claims. The court also reviewed the interest calculation sheets and payment records showing Mr. Bao made partial interest payments personally.

Court Findings and Judgment

The appellate court identified the core issue: whether Mr. Bao’s use of the project department seal constituted personal conduct or authorized company conduct.

The court found that Mr. Bao borrowed money in his personal name, issued personal promissory notes, and received loan proceeds personally. Mr. Bao consistently stated he never borrowed in the project department’s name. The partial repayments were made by Mr. Bao personally.

Regarding project department authority, the court noted that the internal contract prohibited even the project manager, Mr. Yu, from borrowing in the company name without authorization. As deputy manager, Mr. Bao had even less authority. Mr. Bao’s written commitment limited the seal to technical documents. Mr. Fang had seen Mr. Bao’s appointment letter and visited the project site, yet delivered funds to Mr. Bao personally rather than to the company account.

The court concluded Mr. Bao’s conduct constituted unauthorized agency, not apparent authority. Mr. Fang’s failure to verify authority meant he could not claim the company was bound.

The court reversed the trial judgment, ordering Mr. Bao to repay RMB 300,000 with interest at four times the central bank benchmark rate from April 21, 2006, after deducting RMB 40,000 in paid interest. The claim against Company X was dismissed entirely.

Key Legal Principles

The court applied the principle of contractual relativity, holding that the borrower was the individual who signed the promissory note and received funds. A project department seal alone does not make the company liable when the individual lacked actual or apparent authority. For apparent authority to apply, the creditor must reasonably rely on the appearance of authority, which requires verifying the agent’s position and the transaction’s nature.

Legal References

Civil Procedure Law of the People’s Republic of China (2007 Revision), Article 64, Paragraph 1
Contract Law of the People’s Republic of China, Articles 205, 206, and 207

Practical Insights

This case illustrates that creditors must verify the authority of individuals signing loan documents on behalf of companies. Delivering funds to a personal account rather than a company account, combined with knowledge of the individual’s limited position, undermines any claim of apparent authority. Companies should maintain clear written policies limiting seal usage and ensure project personnel understand they cannot bind the company without express authorization.

Disclaimer

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