Basic Case Details: One Contract, Two “Lenders,” and the Mystery of the Flow of 3.81 Million Yuan
In November 2023, Liu signed a “Maximum Amount Loan Agreement” and a “Maximum Amount Real Estate Mortgage Agreement” with a real estate company in Wuhan. The agreements stipulated that the period during which the debt would be determined was from November 1, 2023, to October 30, 2024, with a maximum principal loan limit of 10 million yuan; interest was to be calculated at an annual rate of 15.6% and paid quarterly, with a 1% comprehensive fee charged monthly; the real estate company provided a maximum-amount mortgage guarantee using nine commercial properties under its name and completed the mortgage registration. To secure the aforementioned debt, the Real Estate Company’s affiliated enterprises, as well as Zhou, Sun, Deng, Xu, Li, and others, successively issued “Joint and Several Guarantee Letters” to Liu, pledging to assume joint and several liability for the loan principal, liquidated damages, and costs associated with enforcing the claim (including attorneys’ fees), with the guarantee period lasting three years from the date the debt becomes due.
However, the actual “funders” were others. From November 10 to 13, 2023, third parties Sun and Long transferred a total of 3.8145 million yuan to the Real Estate Company in two installments; subsequently, the Real Estate Company, either on its own or through affiliated companies, made seven repayment installments, with Sun and Long as the recipients. Throughout the entire transaction, the Real Estate Company consistently dealt with an intermediary, Zhao—the Real Estate Company had previously defaulted on a loan from Zhao’s company and was unable to repay it; Zhao then introduced Sun and Long to pool funds to “take over” the loan, arranged for Liu to sign the contract in question, and handled all matters related to the loan on Zhao’s behalf.
In June 2025, Liu filed a lawsuit against the Real Estate Company and the six guarantors, seeking a court order requiring the Real Estate Company to repay the principal amount of 2.767 million yuan plus interest (calculated at an annual rate of 15.6%) and to pay 50,000 yuan in attorney’s fees, while holding the six guarantors jointly and severally liable for repayment. Liu also applied for a property preservation order against all defendants.
Crucially, it was not until September 2025—three months after the lawsuit was filed—that Sun and Long retroactively signed a “Letter of Authorization for Asserting Claims” with Liu, stating that the two were the “true creditors” and that Liu was “merely the nominal lender and mortgagee,” authorizing them to assert the claims in their own names.
Challenges for Counsel: A Complete Chain of Written Evidence; the Guarantor Caught Between a Rock and a Hard Place
For Li, acting as the guarantor, the case began from an extremely disadvantageous position.
First, the plaintiff held the “Maximum Amount Loan Agreement,” the “Real Estate Maximum Amount Mortgage Agreement,” and a complete set of “Joint and Several Guarantee Letters.” The loan agreement had been filed and registered, and the mortgage right had been registered with the real estate registry; the chain of formal evidence was seamlessly linked and complete. Second, Li was merely a finance staff member at the real estate company. When he was instructed by the company to sign the guarantee letters at the time, key elements of the documents were still left blank, making it difficult to prove the fact of “signing blank documents.” Third, the actual investor remained hidden behind the scenes, with fund pooling and intermediary arrangements spanning multiple entities; reconstructing the facts required sifting through a vast volume of transfer vouchers and WeChat chat records; Fourth, and most crucially—under the principle of contractual relativity, Liu was explicitly named as the lender in black and white. Convincing the court to recognize a “discrepancy between form and substance” in the loan arrangement and to confirm that the actual lender was someone else would directly determine the outcome of the case.
Professional Approach: Using Fund Flows as the Spear, Legal Application as the Shield
Faced with this predicament, the defense attorney did not get bogged down in the minutiae of the guarantee clauses but instead focused directly on the underlying debt itself, establishing a dual-track defense strategy combining “procedural and substantive” arguments:
(1) Tracing the flow of funds to establish the fundamental fact of a “discrepancy between form and substance.” The 3.8145 million yuan loan was paid directly by Sun and Long; the seven repayment installments from the real estate company were also all directed directly to Sun and Long; and all post-default collection communications were handled by the intermediary Zhao—the three key elements of funding, interest collection, and debt collection were all unrelated to Liu. The defense counsel further submitted WeChat chat records between the real estate company’s financial staff and Zhao, containing exchanges such as “The Xinwanli account has been frozen; we can only make repayments on behalf of others from other accounts,” “Sun has already transferred 200,000 yuan,” and “Please have Sun sign a receipt for us.” These records fully illustrated the complete picture of the transaction: “Zhao facilitated the loan throughout the entire process, and repayments were made directly to Sun and Long.”
(2) Exploiting the Time Discrepancy to Use the Plaintiff’s Own Arguments Against Them. The “Authorization for Claim of Debt” retroactively signed in September 2025 appeared to strengthen Liu’s standing in the lawsuit, but in reality, it constituted a decisive admission by the actual investor: on the one hand, it acknowledged that Liu was “merely a nominal lender,” thereby confirming the disconnect between the nominal and actual parties to the loan; on the other hand, the authorization was issued three months after the filing of the lawsuit, which sufficiently proves that at the time Liu Mou filed the lawsuit, he did not hold any substantive rights to the loan in question—a retroactive authorization cannot retroactively “cure” the defect in rights that existed at the time of filing.
(3) Citing Article 925 of the Civil Code to establish the true parties to the contract. Where a principal enters into a contract with a third party in the principal’s own name and within the scope of the principal’s authorization, and the third party is aware of the agency relationship between the principal and the agent at the time of entering into the contract, the contract directly binds the principal and the third party. In this case, the Real Estate Company was aware from the outset that Sun and Long were the actual lenders and explicitly acknowledged this during the trial; therefore, the loan agreement in question should directly bind Sun, Long, and the Real Estate Company. Liu is not a true party to the loan relationship and has no right to demand repayment.
(4) Cutting off the root cause: the joint and several guarantee loses its foundation. Joint and several guarantee liability is predicated on the valid existence of the principal debt. Since the claim for the principal debt cannot be established, the joint and several liability of the six guarantors becomes like water without a source or a tree without roots. At the same time, the attorney of record lawfully moved to add Sun and Long as parties to the litigation, urging the court to fully investigate the source of funds and the structure of the loan arrangement.
Judgment: All claims were dismissed.
After deliberation, the court held that: based on the process of lending and repayment, the “Authorization for Claim of Debt,” Mr. Long’s statement, and WeChat chat records, it can be established that Mr. Sun and Mr. Long were the actual lenders of the funds in question, and that their relationship with Mr. Liu was one of agency; The Real Estate Company was fully aware of the identities of the actual lenders at the time the contract was signed. Pursuant to Article 925 of the Civil Code, the contract in question directly binds Sun and Long to the Real Estate Company; There was no genuine loan agreement between Liu and the Real Estate Company, and Liu himself did not actually lend or disburse the funds. Therefore, his demand that the Real Estate Company repay him and pay his attorney’s fees lacks factual and legal basis; Since the principal claim is invalid, the joint and several liability of the six guarantors also lacks a basis. The court therefore ruled: to dismiss all claims brought by the plaintiff, Liu; the case filing fee of 30,993 yuan, the preservation fee of 5,000 yuan, and the publication fee shall all be borne by the plaintiff.
It should be noted that although the court recognized that Liu, as the counterparty to the contract, met the procedural requirements for filing a lawsuit, it explicitly rejected his claim for the debt on the merits—a procedural “entry ticket” does not guarantee a substantive “judgment in his favor.”
Lawyer’s Analysis: Three Key Warnings Regarding the “Discrepancy Between Form and Substance” in Private Lending
(1) To Lenders: Lending under another’s name may result in “winning the battle but losing the war.” The establishment of a private loan requires “genuine mutual consent and actual delivery of funds.” When the court determines the identity of the lender, the actual source and flow of funds carry far more weight than a signature on the contract. In this case, the actual investor was forced to retroactively sign a power of attorney during litigation to “ratify” the nominal lender’s legal actions—a move that precisely exposes the inherent flaw of lending under another’s name: the nominal lender lacks substantive rights when filing a lawsuit, while the actual investor is not a party to the contract, thereby adding procedural complications to the enforcement of the debt. In addition, two red lines should be highlighted: First, the total of the interest rate on private loans and various fees must not exceed four times the one-year Loan Prime Rate (LPR) in effect at the time the contract was formed; the structure in this case—“15.6% annual interest + 1% monthly fee”—clearly crosses this line; Second, pooling others’ funds to make external loans or engaging in commercial lending activities may cross the red line regarding the contractual validity of professional lending; it is imperative to ensure that the funds lent are lawful and one’s own.
(2) For Guarantors: The key to defending against guarantee liability lies beyond the “principal claim.” The most significant lesson for guarantors in this case is that the scope of defense should not be limited to the guarantee clause itself, but should boldly scrutinize the validity of the principal debt—if the principal contract is invalid, the guarantee liability has no basis. When the principal debt is suspected of being a “loan under another’s name,” the guarantor may conduct an investigation along the following lines: Who actually provided the funds? To whom are repayments actually made? Who actually carried out the debt collection? Was there an agency relationship between the nominal lender and the actual investor? Was the borrower aware of the actual investor’s identity? At the same time, it is essential to keep two principles firmly in mind: never sign any blank documents, and verify every element of the principal contract before signing any guarantee documents. Professionals providing personal guarantees for corporate financing must exercise even greater caution—once a joint and several guarantee is signed, it exposes all personal and family assets.
(3) To all market participants: The assertion of a right begins when the right comes into existence. The right to sue is based on substantive rights. In this case, the nominal lender had not obtained authorization from the actual investor at the time of filing the lawsuit, and the power of attorney signed retroactively cannot have retroactive effect. This serves as a reminder to all parties: Before asserting a right, first confirm who holds that right and in what form it exists; every link in the chain of rights—delegation, authorization, and transfer—must be documented in writing at the time the act occurs; the court may not accept retroactive “catch-up” documentation.
Conclusion
This case represents yet another successful practice by King&Capital Law Firm in the intersecting fields of private lending and guarantee disputes. The dispute over the discrepancy between the nominal and actual parties regarding the 3.81 million yuan loan ultimately concluded with the nominal lender’s claims being dismissed in their entirety and the guarantor being fully exonerated. Behind this victory lies a thorough examination of fund flows, the precise application of the rules of indirect agency, and the skillful management of the burden of proof. Whether you are a professional deeply entangled in guarantee risks or a lender seeking to enforce your claims in compliance with the law, King&Capital Law Firm is committed to safeguarding your financial security through professional and practical legal services.
