Court Orders Repayment of CNY 1,000,000 Loan Plus Interest
A dispute over a private loan of CNY 2,000,000 ended with a court order for the borrower to repay the remaining principal of CNY 1,000,000 along with interest at a reduced rate. The lender, Ms. Zhang, originally lent the money to Mr. Hu in 2010, with Mr. Zhang acting as a guarantor. After partial repayment by another guarantor, Ms. Zhang sought repayment of the balance and interest, leading to litigation in Eastern China City.
The loan was made on October 21, 2010, when Mr. Hu borrowed CNY 2,000,000 from Ms. Zhang for business purposes. The parties executed a loan contract and a promissory note, agreeing on a monthly interest rate of 2 percent. Mr. Zhang, along with another individual and a company, provided joint and several guarantees through a separate irrevocable guarantee letter. The lender transferred the full amount via bank transfer on the same day. Mr. Hu later failed to pay the interest and did not repay the principal. In June 2011, one guarantor, Mr. Ma, repaid CNY 1,000,000 to Ms. Zhang, leaving a balance of CNY 1,000,000. Ms. Zhang then demanded the remaining amount plus interest, but Mr. Hu avoided the matter.
During the court hearing, Ms. Zhang presented three key pieces of evidence: the loan contract and promissory note, the irrevocable guarantee letter signed by Mr. Zhang and others, and a bank transfer receipt confirmed by the bank. The defendants, Mr. Hu and Mr. Zhang, did not appear in court or submit any written defense. The court reviewed the evidence and found it authentic, lawful, and relevant to the case. It accepted all documents as proof of the loan and guarantee. The court then proceeded with the hearing in the absence of the defendants.
The court held that the private loan agreement between Ms. Zhang and Mr. Hu was legally valid. It also confirmed that the guarantee contract established by Mr. Zhang’s signature was enforceable. However, the court found that the agreed interest rate of 2 percent per month was too high. According to relevant law, the maximum allowable interest rate for private loans is four times the benchmark interest rate issued by the People’s Bank of China for the same loan term. For a one-to-three-year loan, the benchmark rate was 5.60 percent per year, making the legal maximum 22.40 percent per year. The court therefore adjusted the interest rate downward to that ceiling. It further noted that Ms. Zhang had voluntarily waived her claim for attorney fees.
The legal analysis focused on the application of contract and guarantee laws. The court reasoned that the loan contract took effect when the lender delivered the funds. Since Mr. Hu failed to repay the principal and interest, he was obligated to do so under the agreement. For the interest, the court applied the statutory cap to prevent usury. As for Mr. Zhang, his guarantee was joint and several, meaning he was liable to repay the debt together with Mr. Hu. The court also noted that Ms. Zhang’s amended claim for interest at the capped rate was lawful, and it approved the change. The defendants’ absence did not affect the ruling, as the court proceeded with a default judgment.
In summary, the court ordered Mr. Hu to repay the outstanding principal of CNY 1,000,000 within seven days of the judgment, plus interest calculated at an annual rate of 22.40 percent from October 22, 2010, until the date of full payment. Mr. Zhang was jointly liable for the entire amount. The court also ordered the defendants to share the reduced court costs. This case underscores that Chinese courts enforce private loan contracts but strictly limit interest rates to four times the central bank benchmark. Guarantors should be aware that signing a joint guarantee can lead to full liability for the debt.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.