Guarantee Company Recovers CNY 1.66 Million in Subrogation Dispute
A guarantee company based in Eastern China City filed a subrogation claim against a machinery company and two individual guarantors after covering the borrower’s defaulted loan. The court ruled in favor of the plaintiff, ordering the defendant company to repay the principal, interest, and legal fees, with the individual guarantors held jointly and severally liable. The total amount awarded was CNY 1,655,993.77, including a previously deducted deposit of CNY 400,000.
The plaintiff, a guarantee investment company, entered into a guarantee agreement with the first defendant, a machinery company, on April 19, 2011. Under the agreement, the plaintiff guaranteed a loan of CNY 2 million from a bank to the defendant company. As part of the arrangement, the defendant deposited CNY 400,000 as a保证金 into a dedicated account held by the plaintiff. On the same day, the second defendant (the company’s legal representative, Mr. Liang) and the third defendant (Mr. Wu) each provided a counter-guarantee, pledging their personal assets and shares in a related company to secure the plaintiff’s guarantee. The loan agreement was signed on April 20, 2011, with repayment due by October 18, 2011, at a monthly interest rate of 4.875 per thousand. The plaintiff also signed a separate guarantee contract with the bank. After the loan was disbursed, the defendant company failed to repay the principal and interest when due. On October 26, 2011, the plaintiff paid off the outstanding amount of CNY 2,007,993.77 on the defendant’s behalf, then deducted the CNY 400,000 deposit, leaving a net claim of CNY 1,607,993.77 plus CNY 48,000 in legal fees.
During the court hearing, the plaintiff presented documentary evidence including the guarantee agreement, the loan contract, the bank’s loan voucher, the counter-guarantee documents, a bank transfer record showing the plaintiff’s repayment, and an invoice for lawyer fees. The defendants were properly served with summons but failed to appear in court or submit any defense or evidence. The court accepted the plaintiff’s evidence as credible, noting the documents were relevant, authentic, and legally obtained, and that the defendants had waived their rights to challenge the evidence. The hearing proceeded by default, and the court announced its judgment at the conclusion of the session.
The court found that the guarantee and counter-guarantee agreements were validly formed, with all parties having legal capacity and the terms being lawful. The evidence showed the first defendant had defaulted on the bank loan, triggering the plaintiff’s obligation as guarantor. By repaying the debt, the plaintiff acquired the right to seek reimbursement from the borrower and from the counter-guarantors. The court determined that the first defendant must repay the net subrogation amount of CNY 1,607,993.77 plus the CNY 48,000 in legal fees, and that the second and third defendants were jointly and severally liable for the full sum.
According to relevant law, including the Contract Law and the Guarantee Law, a guarantor who performs an obligation is entitled to claim indemnity from the debtor and from any counter-guarantors. The court applied these principles, holding that the counter-guarantee signed by Mr. Liang and Mr. Wu required them to cover all losses arising from the plaintiff’s guarantee, including legal costs. The court also noted that the deduction of the CNY 400,000 deposit was proper under the guarantee agreement. Because the defendants failed to appear, they lost the opportunity to contest the facts or the legal basis, which strengthened the plaintiff’s case.
This ruling reinforces the enforceability of guarantee and counter-guarantee arrangements in commercial lending. It demonstrates that when a borrower defaults and the guarantor pays, the guarantor can recover the full amount from the borrower and any counter-guarantors, including legal fees. Companies and individuals providing such guarantees should be aware of their potential liability even if they do not participate in court proceedings. The case also highlights the importance of clear documentation and the court’s willingness to hold parties to their contractual commitments.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.