Guarantor Released from Liability in 48,880 Yuan Unpaid Goods Dispute Due to Expired Guarantee Period

Guarantor Released from Liability in 48,880 Yuan Unpaid Goods Dispute Due to Expired Guarantee Period

CASE OVERVIEW

A civil court in Northern China ruled that a company must pay 48,880 yuan for delivered slippers plus interest, but released the individual guarantor from liability because the creditor waited too long to demand payment. The case illustrates how guarantee periods operate under Chinese law.

CASE BACKGROUND AND FACTS

On July 31, 2009, a company in Northern China purchased 104 cartons of slippers from Mr. Chen. Each carton contained 100 pairs at a unit price of 4.7 yuan, totaling 48,880 yuan. The parties signed a product purchase and sales contract on August 3, 2009, agreeing that payment would be made within 45 days.

After the company failed to pay, Mr. Chen pursued the debt. On November 5, 2009, Mr. Tao, an employee of the company, provided a personal guarantee for the outstanding amount. Mr. Tao wrote a note on the contract stating that he guaranteed the payment and that at least 20,000 yuan would be paid by November 12, 2009.

Despite this guarantee, neither the company nor Mr. Tao made any payment. Mr. Chen filed a lawsuit on October 27, 2010, seeking payment of 48,880 yuan plus interest for late payment from the company, and demanding that Mr. Tao bear joint and several liability as guarantor.

COURT PROCEEDINGS AND EVIDENCE

The court accepted the case on October 27, 2010, and applied simplified procedures. A public hearing was held on December 31, 2010. Mr. Chen and his legal representative appeared. Mr. Tao and his legal representative also attended. The company was properly summoned by court summons but failed to appear without justification.

The primary evidence was the product purchase and sales contract, which contained Mr. Tao’s handwritten guarantee notation. Both Mr. Chen and Mr. Tao provided testimony during the hearing.

COURT FINDINGS AND JUDGMENT

The court found that the product purchase contract was legally valid. The company had received goods worth 48,880 yuan but failed to pay as agreed, constituting a breach of contract. The company was ordered to pay the full amount plus interest calculated from November 13, 2009, at the benchmark loan rate published by the People’s Bank of China, running until the date of actual payment.

Regarding Mr. Tao’s guarantee, the court applied the following analysis. Since the parties did not specify a guarantee period, the law implies a period of six months. The guarantee period began on November 13, 2009, the day after the promised partial payment date. This meant the guarantee period expired on May 13, 2010. Mr. Chen did not take legal action against Mr. Tao until October 27, 2010, well after the guarantee period had ended. The court therefore held that Mr. Tao’s guarantee liability was extinguished.

The court also ordered the company to pay double the interest on the debt during any period of delayed enforcement, as required by Article 229 of the Civil Procedure Law of the People’s Republic of China (2007 version). Court costs of 556 yuan were assessed against the company.

KEY LEGAL PRINCIPLES

The case applies Article 26 of the Guarantee Law of the People’s Republic of China. Where a guarantee period is not specified, it defaults to six months from the date the principal debt repayment period expires. If the creditor fails to demand performance from the guarantor within this period, the guarantor is released from liability.

The court also applied Article 107 and Article 159 of the Contract Law, establishing that a buyer who receives goods must pay the agreed price, and failure to do so constitutes breach of contract requiring compensation for losses.

PRACTICAL INSIGHTS

This case serves as a cautionary example for creditors. When a personal guarantee is provided, the creditor must act promptly. The six-month guarantee period runs quickly, and if the creditor does not file a lawsuit or demand payment from the guarantor within that window, the guarantor walks away free. In this case, the creditor waited nearly a full year after the guarantee was given, losing all recourse against the individual guarantor.

For guarantors, the case confirms that liability is not indefinite. If the creditor delays, the guarantor may be discharged. However, the case also shows that courts will enforce the underlying debt against the primary debtor without hesitation.

LEGAL REFERENCES

Contract Law of the People’s Republic of China, Articles 107 and 159
Guarantee Law of the People’s Republic of China, Article 26
Civil Procedure Law of the People’s Republic of China (2007), Articles 130 and 229

DISCLAIMER

This article is for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and individual circumstances may change legal outcomes. Readers should consult a qualified attorney for advice on specific legal matters.