CNY 2.3 Million Loan Dispute – Interest and Guarantee Ruling
The Eastern China City Intermediate People’s Court recently ruled on a civil appeal involving a loan of CNY 4 million, reduced to a disputed outstanding balance of CNY 2.3 million. The case centered on whether interest had been agreed, whether the borrower had made sufficient repayments, and the nature of the guarantee provided by a third party. The appellate court upheld the lower court’s decision, ordering the borrower and his spouse to repay the principal plus interest, and confirming the guarantor’s liability under a general guarantee.
The borrower, Mr. Wang, obtained two loans from the lender, Mr. Li. The first loan of CNY 2 million on 20 November 2008 was evidenced by a receipt with no mention of interest. The second loan of CNY 2 million on 13 February 2009 was documented in a loan and guarantee agreement that stated a monthly interest rate of 2 percent and a daily penalty of 0.3 percent for late payment, but no fixed repayment date. On 2 September 2009, Mr. Wang and a guarantor, Mr. Chen, signed a guarantee letter acknowledging that out of the total CNY 4 million borrowed, CNY 1.7 million had been repaid, leaving CNY 2.3 million outstanding. The letter set a repayment schedule for the remaining amount and stated that if Mr. Wang failed to pay, Mr. Chen would pay, with a two-year guarantee period. Mr. Wang was married to Ms. Yu, and the debt arose during their marriage.
At trial, Mr. Wang challenged the authenticity of the lender’s complaint, claiming the fingerprint was not Mr. Li’s. The court heard evidence including a telephone call with Mr. Li during the first hearing (played on speakerphone with Mr. Wang’s lawyer present) and a subsequent interview with Mr. Li, who confirmed the complaint was his. Mr. Wang later accepted this when the interview notes were read in court. Regarding the outstanding amount, Mr. Wang admitted borrowing CNY 4 million but argued he had repaid CNY 1.81 million through six transfers to accounts held by Ms. Hua, Ms. Mei, and Mr. Xian. The court found the evidence lacked clear connection to Mr. Li and noted no proof of repayments after the September 2009 guarantee letter.
The court held that the first loan of CNY 2 million had no agreed interest, so the CNY 1.7 million repaid was allocated to that loan, leaving a principal of CNY 300,000. For this amount, the court applied interest from the date of default (6 October 2009) at the benchmark rate set by the People’s Bank of China. For the second loan of CNY 2 million, the court accepted that the monthly interest rate of 2 percent was genuine, based on the reference to interest in the guarantee letter, local lending customs, and the penalty clause. The court ordered interest at 2 percent per month from the date of the loan. The court also ruled that the guarantor, Mr. Chen, had provided a general guarantee under Article 17 of the Guarantee Law, meaning he is liable only after the borrower’s assets are exhausted. Since the debt was incurred during the marriage, Ms. Yu was jointly liable with Mr. Wang.
On appeal, Mr. Wang and Ms. Yu argued that the repayment transfers followed Mr. Li’s instructions to pay into Ms. Hua’s account and that several recipients were relatives of Ms. Hua. They claimed further evidence was being gathered. The appellate court reviewed the facts and evidence and found no error in the lower court’s determination that the repayments were not proven to have been made to or for the benefit of Mr. Li. The court affirmed the original judgment, requiring Mr. Wang and Ms. Yu to repay the CNY 2.3 million principal plus interest as calculated, and Mr. Chen to fulfil his general guarantee obligation.
This case illustrates key principles in Chinese private lending disputes: the importance of clear written terms for interest, the court’s approach to allocating partial repayments when multiple loans exist, and the distinction between general and joint guarantee liability. Borrowers and lenders in Eastern China City and beyond should ensure loan documents specify interest rates and repayment schedules, and that guarantors understand the scope of their commitment. The ruling also confirms that debts incurred during marriage are presumed joint unless proven otherwise.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.