Court Rules on Car Loan Guarantee Dispute Yields CNY 552,517.78 Judgment
A dispute over a car loan guarantee has been resolved in Eastern China City, where a management company sought reimbursement from four individuals after paying off a defaulted vehicle loan. The plaintiff, Eastern China City Management Co., Ltd., claimed it was entitled to recover the principal, interest, penalties, and legal fees from the defendants. The court partially granted the claim, adjusting the applicable interest and penalty rates.
The case involved four defendants: Mr. Zhang and Ms. Wang, who were married, together with Mr. Li and Mr. Zhao. In September 2011, Mr. Zhang entered into a credit card installment loan contract with a local branch of the Industrial and Commercial Bank of China (ICBC) to finance the purchase of a Mercedes-Benz vehicle. The loan amount was CNY 561,500. The plaintiff acted as guarantor for Mr. Zhang under a guarantee agreement with the bank. On the same day, the plaintiff and all four defendants signed a counter-guarantee contract, under which Ms. Wang, Mr. Li, and Mr. Zhao agreed to provide counter-guarantees for the loan. The counter-guarantee covered any amounts the plaintiff paid to the bank, including principal, interest, late fees, penalties, and legal costs. The contract also required the defendants to pay the plaintiff interest at 2% per month on any sums advanced and a daily penalty of 0.1% of the total guaranteed amount.
The plaintiff presented evidence including the loan contract, guarantee agreement, counter-guarantee contract, and proof of payment to the bank. According to the evidence, Mr. Zhang made only one installment payment before defaulting. On January 6, 2012, the plaintiff paid off the entire outstanding balance of CNY 552,517.78 to ICBC. The plaintiff then sued the four defendants to recover that amount, plus interest and penalties from the date of payment, along with CNY 28,000 in legal fees. The defendants argued that the plaintiff had failed to register the vehicle’s license plates and complete the mortgage registration, that the guarantee agreements were invalid due to lack of proper disclosure, and that the interest and penalty rates were excessive. They also claimed the plaintiff wrongfully seized the vehicle.
The court found that Mr. Zhang, as an adult with full capacity, was bound by his signature on the contracts. Despite the defendants’ objections that certain clauses were not explained, the court held that the defendants had voluntarily executed the documents. The evidence showed that the plaintiff had indeed paid the bank on behalf of Mr. Zhang, triggering the counter-guarantee obligation. However, the court noted that the combined interest rate of 2% per month plus a daily penalty of 0.1% far exceeded the legal limit of four times the benchmark lending rate set by the People’s Bank of China. Accordingly, the court adjusted the rates to comply with the governing laws. The court also rejected the defendants’ claims regarding vehicle seizure and failure to register, as those issues were not directly related to the reimbursement claim.
According to relevant law, the court applied the principle that parties to a contract must honor their agreements, but that liquidated damages and interest cannot exceed statutory caps. The court held that the counter-guarantee contract was valid and enforceable because the underlying guarantee and loan agreements were effective. The court noted that the bank’s later ratification of the guarantee agreement, even if the bank’s seal was affixed after the lawsuit began, did not invalidate the contract. Furthermore, the defendants’ argument that the plaintiff should have only paid the missed installments rather than the full loan amount was not supported by the contract terms, which allowed the guarantor to pay off the entire debt upon default.
In this case, the court ruled that the four defendants were jointly and severally liable to reimburse the plaintiff for the CNY 552,517.78 paid to the bank. The court also ordered the defendants to pay interest at a reduced rate, set at four times the one-year loan prime rate, from January 6, 2012 until full payment. The penalty clause was similarly adjusted. The claim for CNY 28,000 in legal fees was allowed because the contract explicitly covered such expenses. The court dismissed the defendants’ counterclaims regarding the vehicle seizure and lost items, finding no evidence to support them. This decision reinforces that guarantors and counter-guarantors must fulfill their obligations, but courts will moderate excessive contractual penalties.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.