CNY 80,000 Loan Dispute – Interest and Guarantor Liability Upheld
The Eastern China City court has ruled in favor of a lender in a private lending dispute, ordering the borrower to repay 80,000 CNY in principal together with accrued interest at a monthly rate of 0.8 percent, and holding the guarantor jointly and severally liable for the debt. The case arose after the borrower defaulted on the loan and the guarantor failed to fulfill the guarantee obligation.
In September 2009, Mr. Bao, the borrower, obtained a loan of 80,000 CNY from Mr. Yu for business purposes. Mr. Hu agreed to act as a guarantor for the loan. On the same day, both Mr. Bao and Mr. Hu signed an IOU that stated a monthly interest rate of 0.8 percent. The agreement did not specify a repayment deadline. According to the lender, Mr. Bao made interest payments only up to December 21, 2011, and then stopped. The principal and the remaining interest remained unpaid. Mr. Hu also did not step in to satisfy the debt. Mr. Yu made repeated demands but received no response, and subsequently filed a lawsuit in early 2012.
During the court hearing, Mr. Yu appeared in person and submitted evidence, including identity documents of all parties and the original IOU signed by both defendants. The court had served the complaint and supporting documents on Mr. Bao and Mr. Hu, but neither defendant appeared at the hearing or filed a defense. The court treated their absence as a waiver of the right to cross‑examine evidence and to present arguments. After reviewing the materials, the court found that the IOU was legally obtained, relevant, and credible, and admitted it as proof of the loan and guarantee.
The court determined that the loan agreement between Mr. Yu and Mr. Bao was legally formed and valid. The agreed monthly interest rate of 0.8 percent did not exceed the statutory cap on lending rates, and therefore the interest term was enforceable. Because the parties did not set a fixed repayment date, the lender was entitled to demand repayment within a reasonable time. Mr. Bao’s failure to return the full principal and interest constituted a breach of contract, triggering liability for the outstanding amounts.
Under the Contract Law and the Guarantee Law of China, the court analyzed the guarantor’s role. Since the IOU did not specify the type, scope, or duration of the guarantee, Mr. Hu was deemed to have provided a joint and several guarantee. This means Mr. Yu could seek full repayment from either Mr. Bao or Mr. Hu. Furthermore, the law requires a creditor to claim against a guarantor within six months after the principal obligation becomes due. Here, because no due date was fixed, the limitation period began when the lender demanded repayment and the borrower failed to comply. The court found that Mr. Yu’s action was timely, and Mr. Hu remained liable.
The court entered judgment in favor of Mr. Yu. Mr. Bao was ordered to repay the principal of 80,000 CNY plus interest at the monthly rate of 0.8 percent from December 22, 2011, until the date of full payment. Mr. Hu was ordered to bear joint and several liability for the entire debt. The defendants were also directed to pay the reduced court costs of 940 CNY, with Mr. Hu again jointly liable. The ruling underscores the importance of having clear written loan documents and the serious consequences for both borrowers and guarantors who fail to honor their commitments. Parties in similar situations should note that a guarantor who does not specify terms may be held fully responsible alongside the primary debtor.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.