[1] Whether Article 50 of the Bankruptcy Act applies to a contract where the contractor is declared bankrupt (affirmative)

[2] Whether Article 50 of the Bankruptcy Act applies to a bilateral contract for non-performance of both parties, where a contractor completed and delivered a building and is declared bankrupt (negative)

[1] Article 50 (1) of the Bankruptcy Act provides that when both the bankrupt and the other party have not yet completed the performance of the bilateral contract when the bankruptcy is declared, the bankruptcy trustee may either cancel the bilateral contract at his option or perform the obligations of the bankrupt and claim the other party to perform the obligations of the other party. In principle, the provisions stipulate the function of mutual security in the bilateral contract with legal and economic relations. In light of Article 51 of the Bankruptcy Act, where one of the parties to the bilateral contract failed to perform becomes bankrupt, the parties to the bilateral contract may cancel the bilateral contract or request the other party to perform the obligations of the other party, thereby protecting the interests of the bankrupt estate along with Article 51 of the Bankruptcy Act, and at the same time, protect the other party who responded to the choice made by the bankruptcy trustee. Article 50 of the Bankruptcy Act does not apply to the bilateral contract where the debtor is declared bankrupt, unless there is any provision excluding the application of Article 50 of the Bankruptcy Act to the contract. Therefore, Article 50 of the Bankruptcy Act does not apply to the case where the debtor becomes subject to the contract for the bankruptcy.

[2] In a contract for construction work, unless there are special circumstances, if the construction work has already been completed, the contract for construction work cannot be rescinded any longer. If the contractor becomes unable to cancel the contract for construction work because the contractor completed the construction work and delivered the building before the declaration of bankruptcy was made, the contractor shall be deemed to have fully performed the obligation under the contract for construction work. The contract for construction work shall not be deemed to be an executory contract at the time of the declaration of bankruptcy, and Article 50 of the Bankruptcy Act shall not apply.

[1] Articles 50 and 51 of the Bankruptcy Act, Article 664 of the Civil Act / [2] Articles 38 subparagraph 7 and 50 of the Bankruptcy Act, Article 667 of the Civil Act

The Nonparty in bankruptcy regarding the commencement of the bankrupt

Mobilization Metal Industry Co., Ltd. (Law Firm LLC, Attorneys Lee Young-hoon et al., Counsel for the defendant-appellant)

Seoul High Court Decision 200Na18754, 18761 delivered on March 29, 200

The part of the lower judgment against the Plaintiff (Counterclaim Defendant) regarding the counterclaim shall be reversed, and that part of the case shall be remanded to the Seoul High Court.

We examine the grounds of appeal.

1. The court below rejected the plaintiff's assertion that the defendant's claim for damages in lieu of the claim for repairing defects of the building in this case constitutes bankruptcy claim, and it is unlawful for the defendant to directly seek payment from the plaintiff (Counterclaim defendant; hereinafter referred to as "the plaintiff") through the lawsuit in this case, not bankruptcy procedure, through the lawsuit in this case. If the plaintiff's claim is declared bankrupt on October 21, 1998, the creditor of the bankrupt can not directly claim the payment from the bankruptcy trustee, and if the claim is declared bankrupt, the creditor of the bankrupt can not claim the payment from the bankruptcy trustee, and can claim the payment from the bankruptcy trustee directly without going through bankruptcy procedure if the claim is an estate claim. Thus, in the construction contract in this case, where one of the parties to the contract was declared bankrupt while the obligation for paying the construction price and the contractor's defect repair obligation are not fulfilled simultaneously, the contract constitutes a bankruptcy claim in this case's bankruptcy claim under Article 50 (1) of the Bankruptcy Act, and the plaintiff's claim for the payment of the contract in this case is without merit.

2. However, it is difficult to accept the above determination by the court below for the following reasons.

Article 50(1) of the Bankruptcy Act provides that when both the bankrupt and the other party to a bilateral contract have not yet completed the performance of the bilateral contract at the time bankruptcy is declared, the bankruptcy trustee may, at his option, cancel the contract, perform the obligations of the bankrupt and claim the other party to perform the obligations of the other party. This provision provides that in principle, both obligations of the parties to the bilateral contract are legally and economically related to each other, and functions as security in principle. In light of Article 51 of the Bankruptcy Act, where one of the parties to the bilateral contract failed to perform becomes bankrupt, the parties to the bilateral contract may cancel the contract or claim the other party to perform the obligations of the other party, thereby protecting the interests of the bankrupt estate along with Article 51 of the Bankruptcy Act and at the same time, the other party to the bilateral contract made to protect the other party who responded to the choice made by the bankruptcy trustee. Thus, unless Article 50 of the Bankruptcy Act does not provide that Article 50 of the Bankruptcy Act shall be excluded from the application of the said bilateral contract, unless there is any room for the debtor to choose the other party to perform the contract.

However, in the case of a contract for construction work, if the construction work has already been completed at the time of cancellation, the contract for construction work can no longer be rescinded (see the proviso of Article 68 of the Civil Act, Supreme Court Decision 95Da1521, Aug. 22, 1995). In this case, health stand, according to the facts duly established by the court below, the construction of the building and retaining wall should be completed in accordance with the contents of the contract for construction work with the defendant and completed the completion inspection and delivered the building to the defendant on May 10, 1997, and the plaintiff was declared bankrupt by the Seoul District Court on Oct. 21, 1998, and the plaintiff was appointed as bankruptcy trustee on Feb. 23, 199. Accordingly, even in the calculation of the contract for construction work, the contract for construction work of this case cannot be rescinded as soon as the contract for construction work of this case cannot be rescinded, and if the contract for construction work of this case cannot be executed in whole, the contract for construction work of this case can not be applied.

Nevertheless, on the premise that the construction contract between the bankrupt company and the defendant constitutes a bilateral contract for non-performance of both parties at the time when the contractor is declared bankrupt, and that the plaintiff claims performance of the contract under Article 50 of the Bankruptcy Act, the court below's determination that the damage claim in lieu of the defect repair of the defendant constitutes the estate claim is limited to the interpretation and application of Article 50 of the Bankruptcy Act and affected the judgment. The ground of appeal pointing this out has merit.

3. Therefore, the part of the lower judgment against the Plaintiff regarding the counterclaim is reversed, and that part of the case is remanded to the lower court. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Seo-sung (Presiding Justice)