Guarantor Ordered to Repay CNY 70,000 Loan Plus Damages and Lawyer Fees
A local court in Eastern China City has ruled in favor of a lender in a guarantee contract dispute, ordering the guarantor to repay the principal loan of CNY 70,000, along with liquidated damages calculated at four times the benchmark lending rate and lawyer fees. The case arose after the primary borrowers failed to repay the loan within the agreed period, and the guarantor declined to fulfill the guarantee obligations. The court applied relevant provisions of the Contract Law and the Guarantee Law to hold the guarantor jointly liable for the debt.
On September 19, 2011, two borrowers, Ms. Liu and Mr. Yu, borrowed CNY 70,000 from the plaintiff, Mr. Yuan. The loan agreement specified a repayment date of October 18, 2011, and included a clause that if the borrowers defaulted and the lender took legal action, the borrowers would bear all costs incurred, including legal fees and court costs, and pay daily liquidated damages of 0.3 percent of the total loan principal. The defendant, Mr. Meng, voluntarily acted as a joint and several guarantor for the loan. After the loan maturity, neither the borrowers nor the guarantor made any repayment. Mr. Yuan then filed a lawsuit against Mr. Meng, demanding repayment of the principal, liquidated damages from October 19, 2011 until full repayment, and attorney fees of CNY 2,500.
During the court hearing, the plaintiff presented three key pieces of evidence: a written loan agreement signed by the borrowers and the guarantor, a receipt issued by Mr. Yu confirming receipt of the loan in cash, and an invoice for legal representation fees. The defendant did not dispute the authenticity of these documents but argued that he lacked the financial ability to pay and that the borrowers should be located first. The defendant also asserted that the liquidated damages and lawyer fees should not be his responsibility. The court admitted all three exhibits as valid evidence and confirmed their probative value.
The court found that the loan and guarantee arrangements between the parties were lawful and did not violate any mandatory legal prohibitions. The principal debt of CNY 70,000 was clearly established by the evidence. Because the loan agreement did not specify the type of guarantee, the court applied Article 19 of the Guarantee Law, which provides that if the parties have not agreed on the method of suretyship or the agreement is unclear, the guarantor shall bear joint and several liability. Furthermore, under Article 21 of the same law, the scope of guarantee includes the principal claim, interest, liquidated damages, damages, and the cost of enforcing the claim. Since the parties did not limit the guarantee scope, the guarantor must bear all debts.
The court reasoned that the plaintiff’s claim for liquidated damages at a rate not exceeding four times the benchmark loan interest rate published by the People’s Bank of China was reasonable and consistent with legal caps on default interest. The defendant’s objection to paying liquidated damages and lawyer fees lacked legal support. The court also noted that the defendant’s argument about inability to pay or the need to first pursue the borrowers did not relieve the guarantor of his independent liability. The court therefore ordered Mr. Meng to repay the principal, pay liquidated damages from October 19, 2011 until the date of actual payment at four times the benchmark rate, and reimburse the legal fees of CNY 2,500.
This case underscores the principle that a guarantor who agrees to joint and several liability faces direct recourse from the lender without the need to exhaust remedies against the primary debtors. It also highlights that standard guarantee clauses in loan documents, even if brief, can impose full liability for all costs of enforcement. Lenders and guarantors alike should carefully review the terms of guarantee agreements and understand that any omission in defining the scope of liability will likely result in the guarantor being responsible for the entire debt, including legal expenses and default penalties.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.