CONTENTS
- 1. Rescission of Contract | Overview of the Case
- - The Central Issues of the Case
- 2. Rescission of Contract | The Court's Determination
- - The Legal Nature of a Sale-Demand Contract: Identical to an Ordinary Bilateral Contract
- - The Possibility of Rescission After a Final Judgment: A Judgment Does Not Replace the Contract
- - Default and Rescission of Contract: The Association's Failure to Pay Constitutes a Material Breach
- - The Standard for Tender of Performance: A Substantive Rather Than a Formal Assessment
- - Deposit After Rescission of Contract: A Subsequent Deposit Has No Retroactive Effect
- 3. Rescission of Contract | Summary of the Key Legal Principles in Practice
- - Practical Checklist for Contract Performance and Dispute Response
- - Areas of Attorney Assistance
1. Rescission of Contract | Overview of the Case
This case, in which whether rescission of the contract was possible became the issue, arose after a reconstruction association exercised a demand for sale under the Act on the Maintenance and Improvement of Urban Areas, a sales contract was formed with the landowner, and a final judgment confirming the existence and content of that contract was obtained, when the association then failed to pay the purchase price.
In a reconstruction project, an association may exercise a demand for sale against a landowner who has not consented to the project, and a sales contract is formed as a result.
Because the contract is, in effect, finalized compulsorily at this stage, practitioners tend to regard it as a special legal relationship distinct from an ordinary sales contract.
In this case, however, the association failed to pay the purchase price even after obtaining a final judgment.
The plaintiff, the landowner, accordingly gave notice of rescission of the contract on the ground of default, and when the association disregarded this notice and attempted compulsory execution, the plaintiff filed an objection-to-claim suit.
The association then belatedly deposited the purchase price, but the plaintiff argued that, the contract having already been rescinded, that deposit was without effect.
The Central Issues of the Case
This case involves the following composite legal structure.
- The legal nature of a sale-demand contract under the Act on the Maintenance and Improvement of Urban Areas
- Whether the contractual relationship survives after a final judgment
- The possibility of rescission of the contract on the ground of default
- The standard for tender of performance in a relationship of concurrent performance
- The legal effect of a deposit made after rescission of the contract
In particular, the core can be distilled into the following question.
“Can a sale-demand contract confirmed by a final judgment also be rescinded like an ordinary contract?”
2. Rescission of Contract | The Court's Determination
The Seoul Southern District Court made the following determinations in this case.
The Legal Nature of a Sale-Demand Contract: Identical to an Ordinary Bilateral Contract
The court did not treat the sales contract formed through the exercise of a demand for sale as a special public-law contract.
It held, rather, as follows.
A contract formed through a demand for sale is ultimately a sales contract and, being a bilateral contract in which the parties owe reciprocal performance, the contract principles of the Civil Act apply to it as they stand.
In other words, the court made clear that even though the public-interest purpose of a reconstruction project is involved, the essence of the contract remains a private-law sales contract.
The Possibility of Rescission After a Final Judgment: A Judgment Does Not Replace the Contract
The court distinguished the meaning of the final judgment as follows.
A final judgment signifies the confirmation of the existence and content of the contract, but it does not discharge or alter the obligation to perform.
Accordingly, the court held that if the association fails to pay the purchase price, this still constitutes default, and the counterparty may rescind the contract.
This determination carries the significance of overturning the following established practical understanding.
The point is that a final judgment does not automatically place the contract in a terminated state; rather, the contract remains at the performance stage even after a final judgment.
Default and Rescission of Contract: The Association's Failure to Pay Constitutes a Material Breach
The court assessed the association's conduct as default.
Because the core obligation in a sales contract is payment of the price, a prolonged failure to pay makes it impossible to achieve the purpose of the contract.
The court therefore held that the plaintiff's rescission of the contract was justified.
The Standard for Tender of Performance: A Substantive Rather Than a Formal Assessment
The court also set out an important legal principle regarding the standard for tender of performance in a relationship of concurrent performance.
Tender of performance is not to be assessed uniformly but must be judged according to the specific circumstances and in accordance with the principle of good faith.
In other words, the point is that the merely formal assertion that “the counterparty also failed to perform” is insufficient, and the counterparty's state of readiness to perform, the duration of the delay, and the course of the transaction must all be considered together.
Deposit After Rescission of Contract: A Subsequent Deposit Has No Retroactive Effect
Although the association deposited the purchase price after rescission of the contract, the court rejected this.
Once a contract is lawfully rescinded, the contract is extinguished retroactively.
The court therefore held that a deposit made after rescission of the contract is merely an act premised on a contract that no longer exists and cannot undo the effect of the rescission.
3. Rescission of Contract | Summary of the Key Legal Principles in Practice
This judgment shows that the standards for assessing rescission of a contract are as follows.
First, even a sales contract formed through a demand for sale must be regarded as identical in its legal nature to an ordinary sales contract.
Accordingly, even where a final judgment has been rendered, so long as the contract remains at the performance stage, rescission of the contract is still possible once a party's default occurs.
In addition, the requirements for rescission of a contract are determined fundamentally by whether default has occurred, and tender of performance in a relationship of concurrent performance must be assessed flexibly, not by a uniform standard but in accordance with the specific circumstances and the principle of good faith.
A deposit made after a contract has been lawfully rescinded likewise cannot affect the rescission that has already taken place, so restoring the contractual relationship through a subsequent deposit alone is not permitted.
Practical Checklist for Contract Performance and Dispute Response
Category | Detailed Item |
Contract performance management | Managing the purchase-price payment schedule |
Securing a financing plan in advance | |
Response to rescission of contract | Reviewing in advance the possibility of a notice of rescission |
Analyzing whether the requirements for rescission are met | |
Deposit strategy | Reviewing the importance of the timing of the deposit |
Recognizing the limits of a subsequent deposit | |
Litigation response | Checking the status of the contract even after a final judgment |
A legal review before compulsory execution is indispensable |
Areas of Attorney Assistance
Our firm's attorneys experienced in construction matters provide the following legal services in related cases.
Area of Assistance | Main Content |
Analysis of contract structure | Review of the legal nature of a sale-demand contract |
Design of a rescission strategy | Review of whether default exists and of the requirements for rescission |
Dispute response | Response to objections to claim and compulsory execution |
Risk management | Analysis of structural risks in reconstruction projects |
Conduct of litigation | Response to rescission-of-contract and damages litigation |
Where necessary, we also collaborate with related legal experts, such as attorneys experienced in civil matters, to provide one-stop legal services for every legal risk arising from the client's case.
If you need assistance, you are welcome to make a 🔗construction attorney legal consultation reservation at any time.
