A well-intentioned gesture of helping a friend secure financing has left many individuals not only losing their friendships but also burdened with significant debt. This type of lending dispute has become increasingly common, and one recent case handled by Shanghai Shenhu Law Firm highlights the intricate legal issues at play.
In this scenario, a man named Mr. Wang agreed to assist a friend who claimed he was ineligible for a bank loan. The friend assured Mr. Wang that the loan would have nothing to do with him and that he alone would be responsible for repayment. Acting on this promise, Mr. Wang obtained three loans totaling 211,000 yuan from two banks. After the funds were disbursed, the friend issued an IOU for the full amount, but only repaid a paltry 3,356 yuan before defaulting. Consequently, both banks demanded that Mr. Wang repay the entire outstanding balance. This situation, where one person signs for the loan and another person actually uses the funds, is commonly referred to as an "AB loan."
After being retained, the legal team at Shenhu Law Firm meticulously reviewed the loan contracts, the IOU, chat records, and financial transaction flows. They centered their litigation strategy around challenging the validity of the loan agreement. In the first-instance ruling, the court supported the core claims, confirming that the contract was void and ordering the return of the outstanding principal.
Money Given to a Friend, Loan Registered in His Own Name
Mr. Wang faced this borrowing dispute in July 2025. He stated that during the loan application process, bank staff used his mobile phone to operate the system, guiding him through signing documents and recording videos. It was only after the loans were successively approved that he realized he was not merely assisting with "credit approval," but was actually the designated borrower on the bank loan contracts.
The court determined that on July 31, 2025, Mr. Wang took out three loans from Jiangsu Bank and Nanjing Bank, totaling 211,000 yuan. After the funds arrived, he transferred the entire amount to his friend. The following day, the friend issued an IOU confirming receipt of the 211,000 yuan and outlining the responsibility for fees such as legal costs and travel expenses. Subsequently, the friend made three separate payments totaling 3,356 yuan, but the remaining balance was never returned.
Examining the Flow of Funds to Clarify the Contract's Validity
Following this, Mr. Wang engaged Shanghai Shenhu Law Firm to handle the case. The attorney in charge explained that the team's first step was to verify the three bank loan contracts, bank statements, and transfer records to trace the exact source and destination of the 211,000 yuan. They also organized the IOU, WeChat chat logs, and repayment vouchers to piece together the negotiation process, the transfer of funds, and the partial repayments.
In these transactions, there are typically two layers of legal relationships: one is the loan contract between the nominal borrower and the bank, and the other is the financial flow between the nominal borrower and the actual user of the funds. For the bank, the person who signs the loan contract and completes identity verification is the one responsible for repaying the debt under the terms of that contract. The verbal promises or separate IOUs made by the actual user do not automatically alter the borrower's identity in the original bank contract.
The fact that the funds originated from a bank loan is a crucial issue in these cases. While Mr. Wang could seek recourse from his friend based on the IOU, the loan between them did not involve his own personal funds; instead, it involved transferring borrowed bank funds to a third party. This directly impacts the validity of the private lending contract and the determination of repayment obligations.
Based on the compiled evidence, the Shenhu lawyers argued that the private lending arrangement between the two parties constituted "obtaining financial institution loans and re-lending them," rendering the loan contract invalid. They asserted that the party who actually received and used the funds must still return the principal and bear the associated costs of capital occupation and the agreed-upon legal fees incurred during the dispute. During the litigation, the legal team also assisted Mr. Wang in applying for a property preservation order, submitting materials like loan contracts and transfer records to mitigate the risk of enforcement difficulties down the line.
Who is Obligated to Repay?
In its first-instance ruling, the Binhai County People's Court in Jiangsu Province determined that the 211,000 yuan at the center of the dispute came entirely from financial institution loans. Because Mr. Wang obtained these funds and then transferred them to his friend, the private lending relationship between them was governed by judicial interpretation as "obtaining financial institution loans for re-lending," thus making the loan contract void. The court clarified that a nullified contract does not absolve the actual fund user from repayment obligations.
Under the Civil Code, property obtained through an invalid civil legal act must be returned; if the property cannot be returned or such return is unnecessary, it shall be compensated at its appraised value. Furthermore, the party at fault must compensate the other party for any resulting losses. After deducting the 3,356 yuan already repaid, the court ordered the defendant to return the remaining principal of 207,644 yuan to Mr. Wang, along with interest for capital occupation at an annual rate of 3% calculated from July 31, 2025. The court also mandated the defendant to cover the legal fees of 20,000 yuan and litigation insurance costs of 500 yuan. While Mr. Wang had initially sought losses based on the actual interest rates of the three separate bank loans, the court weighed the degree of fault on both sides and determined the capital occupation interest based on the prevailing one-year Loan Prime Rate, dismissing other claims.
With the assistance of the Shenhu attorneys, Mr. Wang's core requests—to have the loan contract declared invalid, to recover the remaining principal, to receive corresponding interest, and to have the other party bear the agreed-upon costs—were upheld in the first instance. This judgment clarified the private lending relationship between Mr. Wang and his friend, but it does not alter Mr. Wang's standing as the borrower in the bank loan contracts, meaning he remains liable to the banks.
Exercise Caution When Signing Documents
Shenhu lawyers offer a strong warning: when faced with requests to "help with credit approval," "apply for a loan on my behalf," or "lend your credit line," you must first understand who is signing the loan contract, who is using the funds, and who is ultimately responsible for repayment. Do not hand your phone to others to operate, and do not sign, record videos, or complete facial recognition checks without fully understanding the contract terms.
Even if the actual user promises to handle all repayments or provides a separate IOU, the bank retains the legal right to pursue the named borrower according to the contract. If repayments stop, the nominal borrower could face collection calls, a default record, and negative impacts on their personal credit score. For those who have already encountered such a situation, it is crucial to promptly preserve all relevant documents—loan contracts, disbursement records, transfer vouchers, chat histories, IOUs, and repayment logs—to comprehensively reconstruct the loan application and fund transfer process, and seek professional legal counsel without delay.
Transforming a Landmark Case into a Public Legal Education Tool
The risks reflected in this case are widespread and universal. The "AB loan" practice touches on contract validity, liability determination, and evidence assessment, and it also blurs the boundaries of trust in interpersonal relationships.
On the afternoon of September 2, Guan Baoying, a Shanghai Municipal People's Government Counselor and former Deputy President of Shanghai University of Political Science and Law, was appointed as an academic advisor to Shanghai Shenhu Law Firm. Discussing his research area of social integrity, Guan noted that some dishonest behaviors surface in a "grey area" that is difficult to judge at face value. Upon deeper analysis, these actions may already involve specific legal obligations. Zhang Hengwei, the director of Shenhu Law Firm, emphasized that "behind every legal provision lies theoretical and value support." He elaborated that lawyers encounter specific facts, evidence, and litigation procedures through their cases, while academics can conduct further research on the basis of rules, institutional purposes, and the boundaries of their application. Landmark cases, when professionally analyzed, can also be transformed into public-facing legal education materials.
The newly revised Lawyers Law of the People's Republic of China, effective from September 1, includes new provisions encouraging and supporting law firms and lawyers to participate in public interest legal services. Transforming publishable and representative cases into easily digestible public educational content aligns with the social responsibility emphasized by these regulations. Shenhu Law Firm, established in 2008, currently employs nearly 300 practicing lawyers. In April, the firm engaged with Shanghai University of Political Science and Law on matters like student internships, two-way faculty appointments, practical training bases, and AI-driven legal services. In May, the two parties signed a donation agreement and inaugurated a university student practice teaching base.