Bank Recovers CNY 9,000,000 Loan from Defaulted Borrower
A Chinese bank successfully obtained a court judgment against a borrower and its guarantors for unpaid loans totaling CNY 9,000,000. The Eastern China City court ruled that the borrower had breached its loan agreements by ceasing operations and suffering severe financial deterioration. The court allowed the bank to demand immediate repayment, enforce a mortgage on a third-party property, and hold the individual guarantor jointly liable.
The plaintiff, China Construction Bank Eastern China City Branch, entered into two loan agreements with the defendant, Eastern China City Liangfu Crafts Manufacturing Co., Ltd. (Liangfu Crafts). The first loan of CNY 4,900,000 was made in December 2010 with a one-year term at 5.838% annual interest. The second loan of CNY 4,100,000 was made in July 2011 with a one-year term at 7.544% annual interest. To secure these loans, Zhejiang Hefu Industrial Co., Ltd. (Hefu Industrial) provided two maximum-amount mortgage contracts covering properties in an Eastern China City industrial park. Additionally, Mr. Cai, the legal representative of Liangfu Crafts, signed two maximum-amount guarantee contracts, each with a limit of CNY 30,000,000, to personally guarantee the debts.
The court hearing took place in February 2012. The bank presented documentary evidence including the loan contracts, mortgage contracts, guarantee contracts, loan disbursement records, property registration certificates, interest statements, and notarized proof of a demand letter sent to the defendants. The defendants – Liangfu Crafts, Hefu Industrial, and Mr. Cai – were properly served with summons but failed to appear or submit any defense. The court therefore treated them as having waived their rights to challenge the evidence. All evidence was admitted as lawful and valid.
The court found that all contracts were the true expression of the parties’ intentions and legally binding. Liangfu Crafts had stopped production, its financial condition had seriously deteriorated, and it had failed to repay the loans. Under the loan agreements, the bank was entitled to declare the entire debt immediately due. The court confirmed that the bank could exercise its mortgage rights over Hefu Industrial’s properties and demand that Mr. Cai fulfill his guarantee obligations. The court also noted that the contracts stipulated a penalty interest rate of 50% above the loan rate for overdue amounts.
The court applied Article 176 of the Property Law of China, which governs situations where both a property guarantee and a personal guarantee exist for the same debt. Since the mortgage was provided by a third party (Hefu Industrial) rather than the debtor itself, the law allows the creditor to choose either to enforce the mortgage or to demand performance from the guarantor. The court held that the bank could proceed against the mortgaged property first or directly claim against Mr. Cai, as there was no contractual agreement between the parties limiting this choice.
The court ruled in favor of the bank on all claims. Liangfu Crafts must repay the full CNY 9,000,000 principal plus accrued interest of CNY 89,527.31 as of November 14, 2011, and further interest until full payment. The bank has priority to recover these amounts from the sale or auction of Hefu Industrial’s mortgaged properties. Mr. Cai is jointly and severally liable for the entire debt. The case highlights that when a borrower’s financial condition deteriorates, lenders can invoke acceleration clauses and enforce security without waiting for the loan maturity date. The absence of defendants does not prevent a judgment if proper service is made.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.