Guarantor Recovers 243,486 Yuan in Subrogation and Enforces Counter-Guarantee Against Multiple Defendants in Eastern Chi
Guarantor Recovers 243,486 Yuan in Subrogation and Enforces Counter-Guarantee Against Multiple Defendants in Eastern China
Case Overview
In a dispute arising from a commercial guarantee arrangement, a guarantee company in Eastern China sought reimbursement from a primary borrower and enforcement of a counter-guarantee against three individual guarantors. The court ruled in favor of the plaintiff, ordering the borrower to repay the sum of 243,486.69 yuan, which the plaintiff had paid to a bank on the borrower’s behalf, plus daily contractual违约金 (liquidated damages). The court further held that the three counter-guarantors were jointly and severally liable for the entire amount.
Case Background and Facts
On October 29, 2010, a local credit union in Eastern China (the lender) entered into a loan agreement with a borrower, Mr. Hou. The plaintiff, a guarantee company, acted as the guarantor for this loan. The loan amount was 300,000 yuan, with a maturity date of October 27, 2010, and a monthly interest rate of 8.7 per mille. On the same day, the plaintiff and Mr. Hou signed an entrustment guarantee contract, which required Mr. Hou to pay a risk保证金 (security deposit) of 60,000 yuan to the plaintiff. To secure the plaintiff’s risk, Mr. Hou, along with three other individuals (Mr. Liu, Mr. Cai, and Ms. Cai), signed a counter-guarantee contract. This contract stipulated that the three individuals would provide a joint and several liability counter-guarantee for all principal, interest, and costs under the main loan agreement.
Upon the loan’s maturity, Mr. Hou failed to repay the principal and interest. On November 1, 2010, the plaintiff fulfilled its guarantee obligation by paying the credit union 243,486.69 yuan. This payment consisted of 240,000 yuan in principal (after deducting Mr. Hou’s 60,000 yuan security deposit) and 3,486.69 yuan in interest. The plaintiff subsequently demanded repayment from Mr. Hou and the three counter-guarantors, but received no response.
Court Proceedings and Evidence
The plaintiff initiated legal proceedings in a court in Eastern China on November 25, 2010. The court applied a summary procedure and held a public hearing on December 24, 2010. The plaintiff’s legal representative appeared, but all four defendants, Mr. Hou, Mr. Liu, Mr. Cai, and Ms. Cai, failed to appear despite being properly served with court documents. They did not provide any explanation for their absence.
The plaintiff submitted seven pieces of evidence to support its claims. These included the business license of the plaintiff, identity documents of the defendants, the entrustment guarantee contract, the main loan agreement between the lender and Mr. Hou, the counter-guarantee contract, and financial documents such as bank transfer checks and receipts showing the plaintiff’s payment of 243,486.69 yuan to the credit union. The court, having verified the evidence, found it to be lawful, truthful, and relevant. The court accepted all the evidence and established the facts as presented by the plaintiff.
Court Findings and Judgment
The court held that all contracts in question were valid. The loan agreement, the entrustment guarantee contract, and the counter-guarantee contract were all entered into with genuine intent and did not violate any mandatory laws or administrative regulations. The court found that the plaintiff had fulfilled its obligation as a guarantor by paying the credit union on behalf of Mr. Hou. Therefore, the plaintiff had the legal right to demand reimbursement from Mr. Hou.
The court further held that Mr. Liu, Mr. Cai, and Ms. Cai, as joint and several counter-guarantors, were obligated to bear joint and several liability for the plaintiff’s loss. The court ordered Mr. Hou to repay the plaintiff 243,486.69 yuan within ten days of the judgment taking effect, plus违约金 (liquidated damages) calculated at 0.03% per day on that amount from November 1, 2010, until the date of full payment. The court also ordered Mr. Liu, Mr. Cai, and Ms. Cai to bear joint and several liability for this debt. The court clarified that after fulfilling their obligations, the counter-guarantors had the right to seek reimbursement from Mr. Hou.
Key Legal Principles
This case applies the principle of subrogation in guarantee law. When a guarantor fulfills its obligation to pay the creditor, it is subrogated to the creditor’s rights and can claim reimbursement from the debtor. The case also affirms the validity and enforceability of a counter-guarantee. A counter-guarantor, who guarantees the guarantor’s risk, is liable for the guarantor’s loss if the primary debtor defaults. The court also confirmed the application of contractual违约金 (liquidated damages) for late payment, as agreed upon in the entrustment guarantee contract.
Practical Insights
This case illustrates the importance of having a written counter-guarantee agreement when providing a guarantee for a third party. Such an agreement provides a direct legal basis for the guarantor to recover its losses from the counter-guarantors. For lenders and guarantors, this case demonstrates that a properly structured guarantee and counter-guarantee chain can effectively allocate risk and ensure recovery. For borrowers, it highlights the significant financial consequences of default, including liability for the principal, interest, and contractual penalties. The failure of the defendants to appear in court did not prevent the court from rendering a judgment based on the evidence presented.
Legal References
Contract Law of the People’s Republic of China, Article 114 (liquidated damages).
Guarantee Law of the People’s Republic of China, Articles 4, 12, 18, 21, and 31 (subrogation, joint and several liability, counter-guarantee).
Civil Procedure Law of the People’s Republic of China (2007 Revision), Article 130 (default judgment).
Disclaimer
This article is for informational purposes only and does not constitute legal advice. Consult a qualified attorney for specific legal matters.