Bank Recovers CNY 50,000 Loan from Borrower and Guarantors
A bank in Eastern China City filed a lawsuit against a borrower and three guarantors after the borrower failed to repay a loan of 50,000 CNY plus interest. The court ruled in favor of the bank, ordering the borrower to repay the principal and interest and holding all guarantors jointly liable. The case illustrates the legal enforceability of loan contracts and guarantee obligations under Chinese law.
In July 2010, the borrower, Mr. Zhang, applied for a small agricultural loan of 50,000 CNY from the bank. The loan was intended for loach farming. On August 4, 2010, the bank signed a loan contract with Mr. Zhang, along with two individual guarantors, Mr. Liu and Ms. Wang, who provided maximum-amount joint and several guarantees. Additionally, Eastern China Mortgage Services Co., Ltd. issued a recommendation letter on July 28, 2010, promising to provide joint and several guarantee for the loan. The loan had a one-year term with an interest rate set at 25% above the central bank benchmark rate, and a penalty rate of 50% above the contractual rate for overdue amounts. The borrower withdrew the full 50,000 CNY on the same day the contract was signed.
During the court hearing, the bank presented key evidence, including the loan application form, the signed loan contract, the recommendation letter, accounting vouchers, account statements, transaction records, and an interest calculation sheet. The bank’s representative and the company’s representative attended the hearing. Mr. Zhang, Mr. Liu, and Ms. Wang did not appear in court despite being properly summoned. The company admitted to having issued the guarantee but did not dispute the bank’s claims.
The court found that the loan contract and the recommendation letter did not violate any mandatory laws or administrative regulations and were therefore valid and binding on all parties. The evidence clearly showed that Mr. Zhang had withdrawn the loan and failed to repay the principal and interest by the due date of August 3, 2011. As of January 19, 2012, the outstanding amount was 50,000 CNY in principal plus 6,427.98 CNY in interest and overdue interest. The court held that Mr. Zhang had breached the contract. The two individual guarantors and the company were found to have provided valid guarantees, and since no specific share of liability was agreed among them, they were jointly and severally liable for the entire debt.
Under the Contract Law and the Guaranty Law, a borrower must repay the loan and interest as agreed. The court applied the relevant provisions to confirm the interest calculation method, including the penalty rate of 12.3% per annum from the due date. Because the three guarantors had not specified their respective guarantee shares, they were deemed to be joint co-guarantors, each liable for the full amount. The court also noted that any guarantor who performs the obligation has the right to seek reimbursement from the borrower. The ruling was consistent with standard legal principles on joint and several liability.
The court ordered Mr. Zhang to repay the principal of 50,000 CNY and all accrued interest within ten days of the judgment becoming effective. The overdue interest after January 20, 2012 was to be calculated at 12.3% per annum until full payment. Mr. Liu, Ms. Wang, and the company were ordered to bear joint and several liability for the full amount. The court also directed the borrower to pay the reduced court fee of 605.50 CNY, with the guarantors jointly liable for that cost. This case highlights that lenders can enforce loan agreements through the courts and that guarantors should understand the scope of their joint and several obligations.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.