Court Orders Repayment of CNY 500,000 Loan with Guarantor Liability
In a recent civil dispute heard in an Eastern China City court, a lender sought the return of a 500,000 CNY loan along with accrued interest and legal costs from a borrower and two guarantors. The court ruled in favor of the plaintiff, ordering the borrower to repay the principal and interest, and holding the guarantors jointly and severally liable for the debt and associated fees. The case highlights key principles of private lending and guarantee agreements under Chinese law.
The plaintiff, Mr. Chen, entered into a written loan agreement with the borrower, Mr. Li, on November 9, 2010. The loan amount was 500,000 CNY with a two-month term, monthly interest at a rate of 20 per thousand, and a requirement to repay principal and any unpaid interest at maturity. Two individuals, Mr. Wang and Ms. Zhao, signed the contract as guarantors and also issued a separate irrevocable guarantee letter. The guarantee covered the principal, interest, default penalties, and all costs incurred by the lender to enforce the debt, including legal fees, with a two-year guarantee period. On the same day, Mr. Chen delivered 100,000 CNY in cash and transferred 400,000 CNY via bank to Mr. Li. After the initial term expired, the borrower requested an extension and continued paying interest until September 8, 2011, after which no further payments were made. The plaintiff then sued for repayment, interest at four times the bank benchmark rate, and 10,000 CNY in attorney fees.
During the hearing, the plaintiff presented several pieces of evidence, including the loan contract, the guarantee letter, a receipt for the cash payment, a bank transfer record, and an invoice for legal fees. The borrower, Mr. Li, was properly summoned but failed to appear in court without justification, effectively waiving his right to challenge the evidence. The guarantors, Mr. Wang and Ms. Zhao, attended through their legal representative and did not dispute the existence of the loan or their signatures on the guarantee documents. However, they argued that they had not consented to the loan extension and that their guarantee was given on behalf of a local factory, not as individuals, claiming the plaintiff had sued the wrong parties. The court admitted all the plaintiff’s evidence and found it credible.
The court found that the loan agreement between Mr. Chen and Mr. Li was valid and legally binding. According to the evidence, the borrower had received the full 500,000 CNY and was obligated to repay it. The court noted that the interest rate requested by the plaintiff, set at four times the central bank’s benchmark rate for the same period, was within legal limits and did not harm the rights of the borrower or the guarantors. Since interest payments stopped on September 8, 2011, the court calculated interest from September 9, 2011, onward. The court also determined that Mr. Wang and Ms. Zhao had signed the loan contract and guarantee letter in their personal capacity. The guarantors failed to provide any proof that they signed on behalf of the factory. As a result, the court rejected their defense regarding improper parties.
The court analyzed several legal points. Under the Contract Law, the borrower must repay the loan and interest as agreed. The Guarantee Law provides that a guarantor who signs a joint and several liability clause is responsible for the entire debt, including principal, interest, and enforcement costs, unless the guarantee contract limits the scope. In this case, the guarantee letter explicitly covered all such costs, including legal fees. The court further noted that the guarantee period was two years from the date of the guarantee, and the loan extension did not discharge the guarantors’ obligations because the plaintiff’s claim was made within that period. The court also applied relevant judicial interpretations on private lending interest rates and guarantee liability.
The court ordered Mr. Li to repay the 500,000 CNY principal along with interest calculated at an annual rate of 5.60% multiplied by four, from September 9, 2011, until the date of full payment, all within seven days of the judgment. It also ordered Mr. Li to pay the plaintiff’s legal fees of 10,000 CNY. Mr. Wang and Ms. Zhao were held jointly and severally liable for both the principal, interest, and the legal fees. After fulfilling their guarantee obligations, the guarantors have the right to seek reimbursement from Mr. Li. This case serves as a practical reminder that personal guarantors cannot avoid liability by claiming to represent a company without clear evidence, and that courts will enforce clearly written loan and guarantee agreements according to their terms.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.