Court Orders Repayment of CNY 1,000,000 Loan with Interest
A court in Eastern China City has ruled in favor of a lender seeking repayment of two loans totaling CNY 1,000,000, along with interest and legal fees, after the borrower defaulted. The court also found the guarantor jointly liable for the debt. The judgment addressed the validity of high interest rates and the enforceability of a guarantor’s obligation under Chinese contract and guaranty law.
The plaintiff, Mr. Zeng, filed a lawsuit against the borrower, Mr. Li, and the guarantor, Mr. Liu, on January 12, 2012. Mr. Zeng claimed that in August 2011, Mr. Li borrowed money twice to address cash flow difficulties in his restaurant business. On August 22, 2011, Mr. Li borrowed CNY 400,000, with a repayment deadline of December 21, 2011. On August 27, 2011, he borrowed an additional CNY 600,000, due by December 27, 2011. Both loans carried a monthly interest rate of 3 percent, with a default penalty of 6 percent per month if overdue. The loan agreements also stated that the borrower would cover any legal fees incurred by the lender. Mr. Liu signed as a guarantor for both loans. Despite repeated requests, Mr. Li failed to repay any amount. Mr. Zeng sought repayment of the principal, interest calculated at four times the central bank’s benchmark rate, and legal fees of CNY 23,000. He also asked the court to hold Mr. Liu jointly liable.
The case proceeded to an open hearing on March 27, 2012, before a single judge. Mr. Zeng’s legal representative, Mr. Chen, attended the hearing. Mr. Li and Mr. Liu did not appear in court and did not submit any evidence or written defense, despite receiving proper legal notice. At the hearing, Mr. Zeng amended his original interest claim to request interest at four times the central bank’s benchmark rate for similar loans, applied from the respective loan dates. Mr. Zeng presented two loan agreements (iou receipts), a lawyer’s fee receipt, and an invoice for the legal fees. He also offered his own testimony. The court admitted all of this evidence and confirmed the facts as stated by Mr. Zeng.
The court found that a lawful lending relationship existed between Mr. Zeng and Mr. Li. The evidence clearly showed that Mr. Li had borrowed CNY 1,000,000 in two separate transactions and had not repaid any portion. The loan agreements specified a 3 percent monthly interest rate and a 6 percent default rate, as well as a clause making the borrower responsible for legal costs. The court ruled that Mr. Zeng’s claim for repayment of the principal was valid and fully supported by the evidence. It also accepted the amended request for interest at four times the central bank’s benchmark rate, noting that this fell within the legal limits for private lending. The court further ordered Mr. Li to pay the lawyer’s fee of CNY 23,000, as contractually agreed.
In its legal analysis, the court applied the Contract Law of the People’s Republic of China, particularly Articles 205, 206, 207, and 210, which govern interest, repayment, default, and the validity of loan agreements. It also applied the Guaranty Law, Articles 18 and 21, which define the scope of a guarantor’s liability. Under these provisions, a guarantor who agrees to joint and several liability must pay the full debt if the borrower defaults. The court noted that Mr. Liu had signed as a guarantor and had not challenged the claim. Although the originally contracted monthly interest rates of 3 percent and 6 percent were high, the court found that the plaintiff’s reduced request—four times the central bank benchmark rate—was lawful. The court also emphasized that the borrower’s failure to appear did not prevent judgment, as the law allows default judgment when a party is properly summoned and fails to attend.
The court issued a judgment ordering Mr. Li to repay the principal of CNY 1,000,000 plus interest calculated at four times the central bank’s benchmark rate, from August 22, 2011 for CNY 400,000 and from August 27, 2011 for CNY 600,000, until the date of full payment. Mr. Li was also ordered to pay Mr. Zeng’s legal fees of CNY 23,000. Mr. Liu, as the guarantor, was held jointly and severally liable for both the debt and the court costs. If Mr. Li or Mr. Liu failed to pay within 15 days of the judgment, they would be subject to double the interest for delayed payment. The court also imposed a case acceptance fee of CNY 7,364 on Mr. Li. This case illustrates that Chinese courts will enforce clearly documented loan agreements and guarantor obligations, even when the defendant does not participate in the proceedings. Private lenders should ensure that loan contracts specify interest within legal limits and that guarantors sign explicitly as joint and several obligors.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.