CNY 900,000 Loan Dispute – Guarantors Held Jointly Liable
A commercial bank in Eastern China City filed a lawsuit against a borrower and three guarantors after a loan of CNY 900,000 was not repaid on time. The court ruled in favor of the bank, ordering the borrower to repay the principal and interest, and holding the guarantors jointly and severally liable. The case highlights the enforceability of guarantee contracts and the consequences of default under Chinese financial law.
The plaintiff, a branch of a commercial bank in Eastern China City, entered into a maximum-amount guarantee contract with four defendants on January 11, 2011. Under that contract, three guarantors – Mr. Wang, Mr. Wang (a second individual with the same surname), and Ms. Zhu – agreed to provide joint and several guarantee for debts incurred by the borrower, Mr. Zhang, up to a maximum of CNY 1,100,000 during the period from January 11, 2011 to January 10, 2012. On October 9, 2011, the bank signed a personal loan contract with Mr. Zhang for CNY 900,000, with a term from that date to February 9, 2012, at a monthly interest rate of 12.63 per thousand. The contract stipulated that if the borrower failed to repay the principal on time, a penalty interest rate of 50 percent above the contract rate would apply. The bank disbursed the loan as agreed, but upon maturity Mr. Zhang did not repay the principal or interest, and none of the guarantors performed their obligations.
The bank initiated proceedings on February 20, 2012. The court held a public hearing on March 14, 2012, with the bank’s authorized representatives and the defendants Mr. Zhang, Mr. Wang (first guarantor), and Ms. Zhu present. The second defendant, Mr. Wang (second guarantor), failed to appear despite proper summons, and the court proceeded in his absence. The bank submitted three key pieces of evidence: the maximum-amount guarantee contract, the personal loan contract along with a loan disbursement notice and receipt, and a detailed statement of account showing the outstanding debt. The defendants who appeared raised no objections to the evidence, and the court admitted all exhibits. The absent guarantor had waived his right to challenge the evidence by not attending.
The court found that the personal loan contract between the bank and Mr. Zhang represented the true intentions of both parties and was legally valid. The bank had fulfilled its obligation by providing the loan, while Mr. Zhang failed to repay the principal and interest when due, constituting a breach of contract. The three guarantors had voluntarily assumed joint and several liability for Mr. Zhang’s debts under the guarantee contract, and therefore were required to perform their guarantee obligations. The court also noted that after fulfilling their guarantee duties, the guarantors would have the right to seek reimbursement from Mr. Zhang.
According to relevant law, the court applied the Contract Law of the People’s Republic of China and the Guarantee Law. Specifically, Article 60 of the Contract Law requires parties to fully perform their obligations; Article 107 addresses liability for breach; and Articles 205, 206, and 207 govern interest, repayment, and overdue interest. Under the Guarantee Law, Article 18 defines joint and several liability, and Article 31 grants guarantors a right of recourse after payment. The court also relied on Article 130 of the Civil Procedure Law for default judgment procedure. The legal analysis confirmed that the bank was entitled to recover the principal of CNY 900,000, interest of CNY 18,945, and overdue interest from the maturity date until actual payment at the contractually agreed penalty rate of 18.945 per thousand per month.
The court ordered Mr. Zhang to repay the full principal and interest within ten days of the judgment taking effect, and to pay overdue interest calculated from February 10, 2012 until the date of actual payment. The three guarantors – Mr. Wang, Mr. Wang, and Ms. Zhu – were held jointly and severally liable for the entire amount, with the right to claim reimbursement from Mr. Zhang upon payment. The court also allocated the case acceptance fee and property preservation fee, totaling CNY 11,494.50, to be borne jointly by all four defendants. This case serves as a practical reminder that both borrowers and guarantors must carefully assess their obligations under loan and guarantee agreements, as courts will enforce clear contractual terms and hold all parties accountable for default.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.