Loan Guarantor Held Liable for 200,000 RMB Default in Eastern China Civil Dispute

Loan Guarantor Held Liable for 200,000 RMB Default in Eastern China Civil Dispute

CASE OVERVIEW
The Eastern China court ruled on a loan and guarantee dispute involving a 200,000 RMB loan. The borrower failed to repay the principal and interest, and the guarantor was ordered to assume joint and several liability. The judgment was entered in default after both defendants failed to appear.

CASE BACKGROUND AND FACTS
On March 20, 2010, the borrower, Mr. Shao, obtained a loan of 200,000 RMB from the plaintiff, Mr. Liu. The parties executed a formal loan contract on March 21, 2010, which stipulated that the loan would be repaid by May 4, 2010. The contract set the interest rate at four times the benchmark lending rate of the People’s Bank of China for the same period. The second defendant, Mr. Fu, signed the contract as a joint and several guarantor.

The plaintiff disbursed 190,000 RMB by wire transfer into an account designated by Mr. Shao on March 20, 2010. The remaining 10,000 RMB was paid in cash. Upon the maturity date, Mr. Shao did not repay the loan, and Mr. Fu did not fulfill his guarantee obligations. The plaintiff subsequently filed a lawsuit demanding repayment of the full principal of 200,000 RMB and interest calculated at four times the benchmark rate, amounting to 23,626 RMB as of October 9, 2010.

COURT PROCEEDINGS AND EVIDENCE
The court accepted the case on October 11, 2010. Because the defendants could not be served through ordinary means, the court ordered service by public announcement. A collegial panel was formed, and a public hearing was held on January 24, 2011. The plaintiff’s legal representative attended the hearing. Both defendants failed to appear despite proper notice by public announcement.

The plaintiff submitted two pieces of evidence: the original loan contract and a bank transfer receipt from Zhejiang Rural Credit Cooperative. The defendants submitted no答辩 (defense) and no evidence. The court noted that the defendants’ absence constituted a waiver of their rights to respond and to challenge the evidence. After review, the court accepted the plaintiff’s evidence as authentic and confirmed the facts as alleged by the plaintiff.

COURT FINDINGS AND JUDGMENT
The court found that a valid loan and guarantee relationship existed between the plaintiff and the two defendants. Mr. Shao, as the borrower, was obligated to repay the principal and interest in a timely manner. Mr. Fu, as the joint and several guarantor, was required to assume joint and several liability within the scope of the guarantee. The court held that after performing the guarantee obligation, Mr. Fu would have the right to seek reimbursement from Mr. Shao.

The court ruled that the plaintiff’s claims were lawful and justified. The defendants were ordered to pay the following:

First, Mr. Shao must repay the plaintiff the principal of 200,000 RMB within seven days after the judgment takes legal effect. He must also pay interest calculated at four times the People’s Bank of China benchmark lending rate from March 21, 2010, until the date of performance.

Second, Mr. Fu must assume joint and several liability for the above amounts. After fulfilling this obligation, Mr. Fu may seek recourse against Mr. Shao for the amount paid.

The court also ordered that if the defendants fail to pay within the specified period, they must pay double interest on the debt for the period of delayed performance. The litigation costs of 6,324 RMB were to be borne jointly and severally by the two defendants.

KEY LEGAL PRINCIPLES
This case applies core principles from Chinese contract and guarantee law. Under the Contract Law, a borrower must repay the principal and agreed interest upon maturity. Under the Guarantee Law, a joint and several guarantor is directly liable to the creditor when the principal debtor defaults. The guarantor’s liability is not conditional on first pursuing the debtor. After payment, the guarantor obtains a statutory right of recourse against the debtor. The court also applied the principle that interest in private lending may not exceed four times the benchmark bank rate, a standard limit under Chinese judicial practice.

PRACTICAL INSIGHTS
This case illustrates the importance of proper documentation in lending. The plaintiff’s use of a written contract and a bank transfer record was critical to proving the loan’s existence and terms. For guarantors, the judgment underscores that signing as a joint and several guarantor creates immediate and serious financial exposure. Guarantors should carefully assess the borrower’s creditworthiness before signing. For creditors, the case confirms that courts will enforce agreed interest rates up to the legal ceiling. The default judgment also shows that defendants who ignore court proceedings risk losing the opportunity to present a defense.

LEGAL REFERENCES
Contract Law of the People’s Republic of China: Articles 206, 207
Guarantee Law of the People’s Republic of China: Article 18, Paragraph 1; Article 21, Paragraph 1; Article 31
Civil Procedure Law of the People’s Republic of China (2007 Revision): Article 130

DISCLAIMER
This article is for informational purposes only and does not constitute legal advice. Laws and judicial interpretations may vary by jurisdiction and over time. Readers should consult a qualified attorney for advice on specific legal matters.