Court Orders Repayment of CNY 100,000 Loan with Interest and Guarantee Liability

In a private lending dispute heard in an Eastern China City court, the court entered judgment in favor of the lender, Mr. Yang, ordering the borrower, Mr. Xu, to repay a principal loan of CNY 100,000 along with agreed interest and enhanced penalty interest. The co-defendant, Mr. Xie, who acted as a guarantor, was held jointly and severally liable for the full amount. The judgment was rendered after a default hearing, as both defendants failed to appear despite proper service of process.

The case arose from a loan agreement dated November 12, 2010, under which Mr. Xu borrowed CNY 100,000 from Mr. Yang. The parties agreed on a monthly interest rate of 1.5 percent and set the repayment deadline for December 11, 2010. The loan contract further stipulated a daily penalty of 5 percent of the principal for each day of delay. Mr. Xie signed as a guarantor, providing a joint and several guarantee with a term purportedly lasting until the entire principal and interest were fully repaid. After the maturity date, Mr. Yang made repeated demands for repayment, but neither Mr. Xu nor Mr. Xie paid any amount. Mr. Yang initially filed a claim seeking the principal, interest calculated from the loan date at 1.5 percent per month, and overdue penalty interest of CNY 70,000. At trial, however, he reduced his request: interest from November 12 to December 11, 2010 at 1.5 percent per month, and thereafter penalty interest at four times the benchmark loan rate published by the People’s Bank of China until the date of actual repayment.

During the court hearing, Mr. Yang’s legal representative, Mr. He, appeared and submitted several pieces of evidence. These included the plaintiff’s and defendants’ identification documents, as well as a written IOU that clearly recorded the loan amount, the terms, and Mr. Xie’s guarantee. The defendants did not file any written defense or submit evidence, nor did they appear at the hearing. The court reviewed the submitted materials and found them to meet the basic evidentiary standards. Because the defendants failed to attend, they were deemed to have waived their right to challenge the evidence. Accordingly, the court admitted all the evidence and used it to establish the facts of the case.

The court found that the facts set forth by Mr. Yang were fully proven. The lending relationship between Mr. Yang and Mr. Xu was a valid private loan contract under Chinese law, and the principal of CNY 100,000 was due. Since the loan had matured and remained unpaid, the court held that Mr. Xu must repay the principal together with the contractual interest for the initial period and the statutory penalty interest for the overdue period. Regarding the guarantee, the court noted that the guarantee term stated “until the principal and interest are fully repaid.” Under the relevant interpretation of the Supreme People’s Court, such a clause is considered ambiguous. Consequently, the guarantee period was set at two years from the date the principal obligation became due. Mr. Xie was therefore liable as a joint and several guarantor, and after satisfying the debt, he would have the right to pursue recourse against Mr. Xu.

The court’s legal reasoning focused on several key points. First, the loan contract was lawful and binding. Second, the reduced claim for interest and penalty was permitted because the lender voluntarily limited his demands within the scope of his civil rights. Third, the guarantee clause, though broadly worded, triggered the default rule that the guarantor’s liability lasts for two years after the debt matures. The court applied provisions of the Contract Law, the Guarantee Law, and the Civil Procedure Law. Notably, the 5 percent daily penalty originally in the contract was not enforced; instead, the court substituted the statutory maximum of four times the benchmark lending rate, which is a common judicial practice to prevent excessive penalties.

This case serves as a practical reminder for both lenders and guarantors. When a borrower defaults, the lender may seek both principal and interest, and the court may reduce an overly harsh penalty to a lawful ceiling. For guarantors, ambiguous language such as “until full repayment” will be interpreted as a two-year limitation period, not an indefinite liability. The defendants’ absence did not prevent the court from entering a default judgment, which is enforceable through standard civil procedure. Both defendants must now satisfy the judgment within ten days, or face additional interest for delayed payment.

Disclaimer: This article is for informational purposes only and does not constitute legal advice.