Real Estate Civil Litigation | Analysis of a Supreme Court Judgment on the ‘Date Eligible for Set-Off’ Recorded in a Document

The plaintiffs in this real estate civil lawsuit were four individuals, including A.

They were the purchasers who had entered into apartment sale contracts.

Under a guarantee from the Korea Housing Finance Corporation, they took out loans for the full amount of the interim payments from their respective financial institutions, and they paid this amount to B, the apartment construction company and the defendant in this case.

B also jointly and severally guaranteed the plaintiffs’ reimbursement obligations toward the Korea Housing Finance Corporation.

However, the plaintiffs did not repay the loans even as the maturity date approached.

Accordingly, the Housing Finance Corporation first repaid the loan principal and interest to each financial institution. B then repaid to the Corporation the money it had paid on behalf of the plaintiffs.

B subsequently notified the plaintiffs of its intention to cancel the sale contracts, citing reasons such as the nonpayment of the sale price.

Upon learning that the sale contracts would be cancelled, the plaintiffs asked B to return the down payments they had paid.

Citing the ‘Confirmation Letter Pursuant to the Interim Payment Loan Application’ that both parties had previously prepared together, B stated that it had no money to return.

A and the others then filed a lawsuit against B.

The lower court, which heard this real estate civil lawsuit, ruled in favor of the plaintiffs.

The issue in this lawsuit was the date on which the intent to set off was expressed, that is, the ‘date eligible for set-off,’ and at what point in time it should be deemed to fall.

B argued that the ‘date eligible for set-off’ in this case should be deemed to be the maturity date of the interim payment loan.

However, the lower court did not accept this.

First, the lower court closely analyzed the provisions of the ‘Confirmation Letter Pursuant to the Interim Payment Loan Application’ prepared by both parties.

Article 1, Paragraph 4 of the Confirmation Letter provided that ‘B shall have an advance right of indemnity against the plaintiffs as to the loan principal, interest, and all other monies upon the occurrence of a ground for loss of the benefit of time with respect to the interim payment loan, and the plaintiffs shall pay such monies to B immediately upon the occurrence of such ground.’

In addition, Article 2 of the same document contained the following: ‘Upon the occurrence of a ground specified in Paragraph 1, B may deduct or set off the monies based on the advance right of indemnity under Paragraph 1 from the sale price already paid by the plaintiffs or from the claim for return of the sale price, and the plaintiffs shall raise no objection whatsoever thereto.’

Article 17 also provided that ‘if each sale contract is terminated, among the refund upon termination, the penalty, late fees, and other various costs shall be allocated to B first; the loan shall be repaid to the relevant financial institution; and the remaining amount shall be handled in accordance with legal procedures, to which the plaintiffs may raise no objection against B.’

However, the lower court pointed out that these provisions merely expanded the grounds on which B could exercise its advance right of indemnity and relaxed the procedural requirements for exercising it.

It added that the evidence submitted by B alone provided no reason to regard the date eligible for set-off as the maturity date of the interim payment loan.

It then held that B was required to pay each of the plaintiffs tens of millions of won.

B, dissatisfied with this, filed a petition for a final appeal.

The Supreme Court, which subsequently heard this real estate civil lawsuit, reached a different determination.

The Supreme Court likewise relied on the ‘Confirmation Letter Pursuant to the Interim Payment Loan Application’ as a principal basis.

Within the Confirmation Letter, the Supreme Court focused on the sentence stating that ‘the plaintiffs shall pay such monies to B “immediately” upon the occurrence of a ground for loss of the benefit of time with respect to the interim payment loan, and B may, “simultaneously therewith,” deduct or set off the monies based on its advance right of indemnity from the plaintiffs’ claim for return of the sale price and the like.’

According to that content, the correct interpretation is that, through the Confirmation Letter, both parties set the ‘time of the loss of the benefit of time’ as the point of eligibility for set-off.

The Supreme Court also added that, even if at the time of the loss of the benefit of time the sale contracts had not yet been cancelled and the plaintiffs’ claim for return of the sale price and the like had therefore not yet arisen, the provision should be interpreted to mean that, where such claim for return of the sale price and the like later arises and a set-off is effected, the reference point for that set-off is to be regarded as the time of the loss of the benefit of time.

It further explained that, because the plaintiffs failed to pay most of the loan interest after the interim payment loan and B bore all of it, the plaintiffs should be regarded as having lost the benefit of time at the latest on the maturity date of the interim payment loan, and that, in accordance with the Confirmation Letter, the point of eligibility for set-off should be regarded as the maturity date of the interim payment loan.

However, because the lower court calculated the amount based on the date of cancellation of the sale contracts, the Supreme Court found that the lower court had erred by misapprehending the legal principles on set-off in a manner that affected the outcome of the judgment, and it remanded the case to the lower court.

In real estate civil litigation, even the related terminology can be complex, so it is often difficult to know where and how to begin.

As in this case, real estate civil litigation can involve an intense dispute centered on even a single sentence recorded in a related document.

For this reason, it is advisable to obtain the assistance of an attorney with extensive experience in such matters.

Daeryun Law Firm LLP operates a 🔗‘Construction and Real Estate Group’ staffed by numerous attorneys who concentrate on various real estate disputes, including those involving construction, leases, and ownership.

It provides high-quality legal services across a wide range of matters, from various administrative regulations relating to real estate to civil and criminal litigation.

If you have any inquiries regarding real estate civil litigation, you are welcome to reach out to Daeryun Law Firm LLP at any time.