Rescission of Contract | Judgment Redefining the Legal Nature of a Sale-Demand Contract by Recognizing That Rescission Remains Possible Even After a Final Judgment

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“Can a sale-demand contract confirmed by a final judgment also be rescinded like an ordinary contract?”

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 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.

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 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.

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.

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