Supreme Court: "Real Estate Contracts with Unpaid Interim and Final Payments... Contractual Relationship Terminated"

[Asia Economy Reporter Heo Kyung-jun] The Supreme Court has ruled that if only the deposit is paid during a real estate transaction and the intermediate and final payments are not made for a long period, the contract relationship should be considered broken.

The Supreme Court's 3rd Division (Presiding Justice Noh Jeong-hee) overturned the lower court's ruling, which partially ruled in favor of the plaintiff in the appeal case where Mr. A filed a collection claim lawsuit against Mr. B, and remanded the case to the Ulsan District Court on the 1st.

In January 2007, Mr. B entered into a contract to sell his real estate to Construction Company C for 300 million KRW and received a deposit of 30 million KRW but did not receive the promised intermediate and final payments. Company C agreed to pay Mr. B 60 million KRW as the intermediate payment one month after the contract and 210 million KRW as the final payment within 10 days after obtaining approval for the apartment complex construction project planned in the area of Mr. B's real estate.

However, Construction Company C did not pay the intermediate and final payments and failed to obtain project plan approval by February 2012. Consequently, Mr. B sold the real estate to another buyer.

Later, Mr. A, who was owed money by Company C, filed a collection lawsuit against Mr. B in February 2017, demanding "30 million KRW as the deposit and penalty for non-performance of the contract."

The first trial court ruled that the contract had already been terminated at the time Company C failed to pay the intermediate payment, but the second trial court ruled that the contract was valid even if the intermediate payment was not made and ordered Mr. B to pay 30 million KRW.

However, the Supreme Court judged, "By February 2017, when the seizure and collection order reached Mr. B, it had become impossible to obtain project approval, and there is a possibility that the claim expired as five years had passed since the due date for the transfer of ownership registration."

The court stated, "If the original claim subject to non-performance had already expired and been extinguished at the time of the declaration of contract termination due to non-performance, unless there are special circumstances, the right to rescind and the claim for restoration cannot be exercised regardless of whether the non-performance occurred before or after the expiration of the original claim."