Guarantor Recovers 950,000 Yuan After Paying Defaulted Business Loan

A guarantee company has successfully recovered nearly one million yuan after fulfilling its obligations under a business loan guarantee. The case demonstrates how counter-guarantee arrangements protect guarantors when primary borrowers default.

In December 2010, a pet products company borrowed one million yuan from a rural cooperative bank in an eastern Chinese city. The loan term was one year with quarterly interest payments. A local guarantee company provided a joint liability guarantee for the loan, and the borrower submitted a performance deposit of 50,000 yuan.

To protect itself, the guarantee company obtained counter-guarantees from five parties: the pet products company’s legal representative, his spouse, a packaging factory, and two individual guarantors. The counter-guarantees covered the full loan amount, interest, penalties, and legal fees including attorney costs.

When the loan matured in December 2011, the pet products company was unable to repay. The bank demanded that the guarantee company fulfill its guarantee obligations. The guarantee company paid the bank 1,014,456 yuan, consisting of the one million yuan principal and 14,456 yuan in accrued interest.

The guarantee company then filed a claim against the borrower and all five counter-guarantors to recover the amount paid. After deducting the 50,000 yuan performance deposit, the net claim was 964,456 yuan plus daily penalties of 0.05%.

The borrower and several co-guarantors acknowledged the debt without dispute. However, the two individual guarantors argued that the 0.05% daily penalty rate was excessive and should be reduced to the standard bank lending rate. They also contested the requirement to pay attorney fees directly.

The court found that the guarantee company had properly fulfilled its obligation and was entitled to seek recovery from the counter-guarantors. The performance deposit was appropriately deducted from the principal amount. Regarding the penalty rate, the court noted that the parties had contractually agreed to the 0.05% daily rate, which served as liquidated damages for the guarantor’s loss.

The court ordered the primary borrower to pay 950,000 yuan in principal, 14,456 yuan in interest, daily penalties, and 50,000 yuan in attorney fees. All five counter-guarantors were held jointly liable for the full amount.

This case highlights the importance of establishing counter-guarantee arrangements when providing business loan guarantees. Guarantors should ensure counter-guarantee documentation covers all potential losses including legal costs.

Disclaimer: This article summarizes a court judgment for educational purposes only and does not constitute legal advice.