In the adjudication of private lending cases, the selection and application of rules of thumb involved in fact-finding, as well as the assessment of the probative value of evidence, cannot be fully governed by explicit statutory provisions. Consequently, different views have emerged in judicial practice. The "Civil Adjudication Guidance and Reference," Volume 3 (Total Volume 63), compiled by the First Civil Division of the Supreme People's Court, provides a detailed explanation of the issues concerning the review and determination standards for facts in private lending cases. This article compiles relevant views from the Supreme People's Court and associated case examples for readers' reference.

Supreme People's Court’s Viewpoint

1. The evidentiary effect of debt instruments in private lending cases

When a lender asserts the borrower’s obligation to repay the loan, the facts that the lender must prove fall into two main categories: First, the parties must have reached an agreement on the legal relationship of lending and borrowing; second, the lender must have actually delivered the loan amount to the borrower. In cases where the lender can provide authentic and complete evidence of the loan transaction, it is generally reasonable to presume that an agreement on the loan contract has been reached between the lender and the borrower, and that the lender has indeed fulfilled its obligation to deliver the funds. Second, regardless of whether the parties have signed a written loan contract, it is possible that no complete evidence of the actual delivery of the loan has been retained—particularly when the loan was delivered in cash. In such cases, the lender often can only provide evidence such as the loan contract itself, or promissory notes, receipts, or IOUs, to prove that the funds have been delivered. In these situations, it is also necessary to make a specific distinction based on the type and content of the debt instruments used as proof.

(1) Promissory Note

A promissory note is typically a debt instrument written and signed by the borrower, bearing the borrower’s seal. It serves as evidence that the borrower has borrowed money from the lender and generally includes details such as the borrower’s and lender’s identities, the loan amount, the loan term, interest rate, and the date of borrowing. According to common transaction practices, the promissory note is issued at the same time the lender delivers the loan funds; after the borrower has fully repaid the loan, the note is either destroyed or rendered invalid through the lender’s issuance of a receipt. However, as the balance of power between supply and demand in the private lending market has become skewed, borrowers often issue promissory notes to lenders even before they have actually received the loan funds. In such cases, the promissory note becomes more akin to a loan contract both in terms of content and nature.

(2) Receipt

A receipt or acknowledgment is a document that certifies the receipt of money from another party. Typically, when individuals lend money to each other, a receipt serves as proof that the borrower has received the loan amount paid by the lender. When a business acts as the borrower, it usually issues a receipt to facilitate accounting entries. The content of a receipt or acknowledgment generally includes information such as the payer, the payee, the amount of money received, and the date of receipt. In informal lending transactions, in addition to being issued when the borrower receives the loan—thus serving as evidence for the lender to establish the existence of the loan relationship—the receipt or acknowledgment may also be issued by the lender when the borrower repays the loan, providing the borrower with evidence to refute claims that the loan has not been fully repaid. From both a content and a legal perspective, a receipt or acknowledgment differs from a loan agreement or promissory note; it places greater emphasis on the actual payment of funds rather than on the mutual agreement between the parties regarding the loan itself.

(3) Promissory Note

In private lending relationships, an IOU is typically issued unilaterally by the borrower to the lender as a document that specifies the amount borrowed, the loan term, the interest rate, and other relevant details. In some cases, the IOU does not explicitly identify the creditor; rather, the person actually holding the IOU is considered the creditor. Unlike loan contracts or promissory notes, the debt indicated by an IOU may not necessarily arise solely from a loan between the parties. Debts arising from other underlying legal relationships—such as sales, contracting, or equity transfers—can also give rise to an IOU after the parties have reconciled and settled their accounts, clearly specifying the outstanding amount and the repayment deadline. Therefore, in the adjudication of private lending disputes, if a party sues solely on the basis of an IOU demanding repayment of the loan, the court must carefully examine the factual basis upon which the IOU was created.

2. Comprehensively assess various factors related to the lending and borrowing facts.

In cases where the plaintiff brings a civil lending lawsuit based on evidence of creditor rights such as loan agreements, receipts, and promissory notes, and the defendant denies the occurrence of the lending transaction, the people’s court, in addition to relying on the creditor-right evidence provided by the parties, must also comprehensively examine other relevant facts and factors to make a holistic judgment on whether the lending transaction claimed by the plaintiff actually took place. Generally speaking, judges should not only verify the authenticity, legality, and relevance of direct evidence such as loan contracts, loan agreements, and proof of loan delivery, but also assess and determine the probative value of such evidence based on factors including the manner in which the evidence was obtained, the reasons for its formation, its form, the identity of the evidence provider, and its relationship to the case. Furthermore, judges must compare the relative strengths of the evidence presented by both parties and, guided by the standard of preponderance of the evidence in civil litigation, develop an inner conviction and arrive at a final determination.

(1) Loan amount

Generally speaking, people tend to exercise varying degrees of caution when dealing with different loan amounts. When the loan amount is relatively small, there is greater diversity and flexibility in the choice of fund-disbursement methods. In hearing such cases, if the lender claims that the loan was paid in cash, the factual verification can usually be completed by examining the authenticity, relevance, and legality of debt instruments such as promissory notes. In the absence of contradictory evidence, the fact of the loan can be confirmed. For large-scale loans, people’s courts typically should conduct a comprehensive review and assessment based on the loan contract, promissory notes, bank records documenting fund transfers, and corporate accounting documents. In cases where the lender claims that a large loan was paid in cash but cannot provide other evidence beyond the promissory note or similar debt instruments to prove that the loan has actually been paid, the court should further examine relevant facts, including the lender’s financial condition, the relationship between the borrower and the lender, and prevailing transaction practices, in order to determine whether the lender’s claim is substantiated. Moreover, the loan amount is interconnected to varying degrees with factors such as the closeness of the relationship between the parties, their respective financial capacities, and the source and intended use of the loan. Clarifying the loan amount itself is not only essential for correctly determining the principal amount in private lending cases but also constitutes a necessary step for further assessing, in conjunction with other relevant facts, whether the lending relationship actually took place.

(2) Payment Delivery

The clarification of the fact of fund delivery generally should encompass multiple aspects, including the method of delivery, the time of delivery, the place of delivery, as well as the identities of the deliverer and the recipient. Among these, the method of delivery primarily refers to whether the funds were actually delivered via bank transfer, payment by negotiable instruments, or cash payment. In judicial practice, lenders who find it difficult to prove actual delivery often claim that the transaction was conducted in cash, thereby evading the burden of proving that the funds were indeed delivered. Such claims should be treated with caution. Where a lender asserts that the loan was delivered in cash, further scrutiny and verification of specific delivery details—such as the time of delivery, the place of delivery, the identity of the deliverer, and the identity of the recipient—are required to ensure that the fact of fund delivery is thoroughly established.

(3) The financial capacity of the parties involved

The review of the parties’ financial capabilities primarily involves examining the lender’s financial status and the source of funds. At the same time, depending on the specific circumstances of the case, the court may also examine the borrower’s financial condition and the intended use of the loan, thereby better ascertaining the factual details of the case and forming a firm internal conviction as to whether the lending relationship actually occurred. If the parties dispute whether the lending relationship truly took place, or even if both parties do not dispute the fact of the loan but the people’s court, after trial, suspects that the case might involve a false lawsuit, it becomes necessary—so as to further verify the authenticity of the lending relationship—to examine the parties’ financial capacities and changes in their assets, thus enabling a comprehensive assessment of whether the transaction actually occurred.

(4) Trading methods and trading practices

The reason for taking trade practices into account when interpreting contracts is that the conduct of parties to a transaction is typically governed by established customs. Sometimes, the parties do not explicitly stipulate certain matters in the contract precisely because they both regard the existing trade practices as naturally forming part of the contractual agreement and thus see no need for explicit mention. It is important to note that, when asserting a particular trade practice, the parties must provide sufficient evidence to substantiate their claim. On the one hand, they must prove that such a trade practice indeed exists; on the other hand, this trade practice must be mutually recognized and followed by both parties. Given the diversity of trade practices, special attention should be paid to the principles of openness, general acceptance, and legality when identifying and applying them. Except in cases where a specific trade practice has been agreed upon between the two parties themselves, trade practices applicable to a broader scope should, in principle, be those that have repeatedly and consistently existed within a particular region or industry, and are commonly understood and recognized by trading entities within that region or industry, before they can be officially recognized as trade practices. Moreover, the application of trade practices must be predicated on the absence of any contradictory evidence.

(5) Witness testimony

It must be clarified that when reviewing witness testimony, the people’s courts shall strictly adhere to the provisions of the Civil Procedure Law and the Supreme People’s Court’s Interpretations on the Application of the Civil Procedure Law of the People’s Republic of China, as well as other relevant laws and judicial interpretations. In particular, in cases where objective evidence is relatively weak, greater attention should be paid to verifying the authenticity and legality of witness testimony. In determining the credibility of witness testimony, courts may also flexibly employ methods such as cross-examination to better ascertain the facts of the case.

(Excerpted from “Issues Regarding the Allocation of Burden of Proof and Standards for Fact-Finding in the Adjudication of Private Lending Cases,” by Shen Dandan, Judge of the First Civil Division of the Supreme People’s Court, published in Civil Trial Guidance and Reference (Issue No. 3, 2015; Total Issue No. 63), published by the People’s Court Press in April 2016)

WeChat Editor: Conceptual Editor

Relevant Cases

1. In a dispute over private lending, if the lender can only provide a loan note and the borrower fails to submit sufficient contrary evidence to rebut that note, the court may find that the loan fact indeed exists—Xu Hongming v. Chen Kaida et al., Private Lending Case.

Key points of the case: In disputes over private lending, the loan note serves as direct evidence proving the existence of the lending relationship and carries strong evidentiary force. Generally speaking, if the lender provides a loan note, it is sufficient to conclude that the lender has fulfilled its burden of proof. According to the rule of “he who asserts must prove,” if the borrower denies the existence of the loan, he or she must provide contrary evidence capable of rebutting the loan note; otherwise, the borrower shall bear the adverse consequences of insufficient proof. Therefore, in private lending disputes, if the lender can only provide the loan note and the borrower fails to offer sufficient contrary evidence to refute it, the court may directly ascertain that the loan fact indeed exists.

Case No.: (2011) Zhejiang Yongzhou Commercial Final Judgment No. 753

Trial Court: Intermediate People's Court of Ningbo City, Zhejiang Province

Source: “China’s Judicial Case Digest 2012 – Commercial Trial Cases Volume”

2. A receipt does not automatically carry the evidentiary force to prove that the loan has been delivered—Zhou Xinyan v. Kangfa Company and Zhang Yahui Loan Contract Dispute Case

Key points of the case: Regarding the fulfillment of a cash loan, it is not sufficient to simply rely on the receipt issued by the borrower to the lender to establish that the lender has fulfilled its lending obligation. If the borrower’s defense raises reasonable doubts in the judge’s mind, the court should conduct a further review of the loan facts. In cases where the facts remain unclear, the court should make a determination based on the rules of evidence.

Case No.: (2009) Yu Wu Zhong Fa Min Chu Zi No. 151; (2010) Yu Gao Fa Min Zhong Zi No. 78

Court of Trial: Chongqing Higher People's Court

Source: People's Justice • Cases, Issue No. 16, 2010