Guarantor Seeks Reimbursement of CNY 11,056.40 After Borrower Default
A guarantee company in Eastern China City brought a claim against a borrower, his spouse, and a co-guarantor after the borrower defaulted on a car loan. The plaintiff sought recovery of the sum it paid to the bank on the borrower’s behalf, together with contractual penalties, legal costs, and enforcement of a vehicle mortgage. The court ruled in favor of the plaintiff but adjusted the penalty amount downward, finding the originally agreed rate excessive.
Mr. Wang and Ms. Ma, a married couple, entered into a vehicle purchase loan agreement with Eastern China City Bank Nanhu Sub-branch in July 2010. The loan amounted to CNY 118,000 with a three-year term and monthly installment repayment. The plaintiff, Eastern China City Guarantee Co., Ltd., acted as a joint and several guarantor for the loan. Simultaneously, Mr. Wang and Ms. Ma signed a mortgage contract pledging their Ford Mondeo car as counter-guarantee to the plaintiff. Additionally, Mr. Wang and Mr. Lv signed a separate counter-guarantee contract under which Mr. Lv provided a personal joint and several guarantee to the plaintiff. After the bank disbursed the loan, Mr. Wang failed to make payments. The plaintiff honored its guarantee and paid the bank a total of CNY 11,056.40 in overdue principal and interest across three installments between August 2011 and January 2012. The plaintiff then sued the three defendants for reimbursement, penalty interest, legal fees of CNY 2,500, and enforcement of the vehicle mortgage.
During the court hearing, the plaintiff submitted documentary evidence, including the loan agreement, the mortgage contract, the counter-guarantee contract, vehicle ownership and registration documents, loan disbursement records, bank payment receipts demonstrating the subrogation payments, and a lawyer engagement contract with invoices. The defendants, Mr. Wang, Ms. Ma, and Mr. Lv, were duly summoned but failed to appear in court or submit any defense. The court examined the evidence and found it to be lawful, truthful, and relevant. In the absence of any contrary evidence, the court accepted all the plaintiff’s exhibits and adopted the facts as alleged by the plaintiff.
The court held that the loan contract, mortgage contract, and counter-guarantee contract were all legally formed and binding on all parties. Mr. Wang’s failure to repay triggered the plaintiff’s guarantee obligation, and after making the subrogation payment, Mr. Wang became liable to reimburse the plaintiff. Because the debt arose during the marriage of Mr. Wang and Ms. Ma, Ms. Ma bore joint liability for repayment. On the penalty claim, the court found that the agreed rate of 0.06% per day was excessive. Applying the relevant legal standard, the court reduced the penalty to 30% above the overdue loan interest rate set by the People’s Bank of China. The court calculated the adjusted penalty for the period up to February 15, 2012, as CNY 274.78, with further penalty accruing at the adjusted rate until full payment.
The court applied key legal principles from the Contract Law and the Guarantee Law. It noted that the plaintiff held both a mortgage on the car and a personal guarantee from Mr. Lv. Under the Property Law, when both a security interest in property and a personal guarantee exist for the same debt, the creditor must first enforce the property security before seeking recovery from the guarantor. Accordingly, the court ruled that the plaintiff could exercise its priority right against the mortgaged vehicle and recover the remaining shortfall from Mr. Lv as joint and several guarantor. Mr. Lv was entitled to seek recourse from Mr. Wang after satisfying the debt. The court also allowed