[1] The method of interpreting the content of a contract where the objective meaning of the language and text of the disposal document is not clearly revealed

[2] In a case where Gap raised funds from Eul and invested in the complex development project promoted by Byung and two years thereafter, Eul and Byung prepared a return agreement stating that "if Byung company received investments from Eul as investment funds, Byung company shall immediately return the funds paid from Eul to Eul, and if Byung company received investments from Eul, it shall pay 5% per annum, and if so, Byung company shall lose the due date and pay interest at 20% per annum," and Byung company requested Byung company to return the investment funds to Byung upon entering into a loan agreement with Jung company for consumption with a third party, the case holding that the judgment below erred in the misapprehension of legal principle that Byung company shall pay Byung investment funds at the rate of 20% per annum, and Byung company shall pay Byung investment funds at the rate of 20% per annum."

[1] Where the content of a contract is prepared in writing between parties as a disposal document and the objective meaning of the text is clear, barring any special circumstance, the existence and content of the expression of intent shall be recognized pursuant to the language and text, barring special circumstances. However, where the objective meaning of the text and text is not clearly revealed, it shall be reasonably interpreted according to logical and empirical rules, social common sense, and transaction norms, by comprehensively examining the contents of the text and text, the motive and background of the contract being made, the purpose and genuine intent to be achieved by the parties to the contract, and transaction practices, etc.

[2] In a case where Gap raised funds from Eul and invested in the composite cooking development project promoted by Byung and two years thereafter, Byung and Byung established a repayment agreement stating that "if Byung company receives investments from Eul for investments, Byung company shall immediately refund Eul, and if Byung company receives investments from Eul, it shall pay 5% per annum, and if so, Byung company shall lose the due date and pay interest at 20% per annum; Byung company shall enter into a loan agreement with Jung for consumption and request Byung company to refund the money to Byung company, the case held that the court below erred in the misapprehension of the legal principle that Byung company’s obligation to refund the money for interest at the rate of two (20) years prior to the due date when it violated Byung’s obligation to return the money for interest, and that it is difficult for Byung company to pay the money for interest at the rate of two (20) years prior to the due date of the repayment agreement, regardless of the form of equity investment, the court below’s determination that Byung company did not have an obligation to return the money for interest at the rate of two (20) years prior to the due date of return agreement."

[1] Article 105 of the Civil Act / [2] Article 105 of the Civil Act

[1] Supreme Court Decision 95Da29130 delivered on July 30, 1996 (Gong1996Ha, 2639) Supreme Court Decision 2000Da72572 delivered on May 24, 2002 (Gong2002Ha, 1479)

Plaintiff (Law Firm Han, Attorneys Kang Dong-dong et al., Counsel for the plaintiff-appellant)

LTP Korea Co., Ltd. (Bae & Yang LLC, Attorneys Choi Byung-soo et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2015Na205036 decided July 7, 2016

The part of the lower judgment against the Defendant is reversed, and that part of the case is remanded to the Seoul High Court.

The grounds of appeal are examined.

1. Where the content of a contract is prepared in writing between the parties to the contract as a disposal document and the objective meaning of the text is clear, barring any special circumstance, the existence and content of the expression of intent shall be recognized in accordance with the language and text. However, where the objective meaning of the language and text is not clearly revealed, it shall be reasonably interpreted in light of logical and empirical rules, social common sense, and transaction norms by comprehensively considering the contents of the language and text, the motive and background leading up to the conclusion of the contract, the purpose and genuine intent to be achieved by the parties to the contract, and transaction practices, etc. (see Supreme Court Decision 95Da29130, Jul. 30, 1996, etc.). In particular, where the content of the contract claimed by one of the parties imposes a serious liability on the other party, it shall be more strictly interpreted (see Supreme Court Decision 200Da72572, May 24, 2002, etc.).

2. According to the reasoning of the lower judgment, the Nonparty raised funds from the Plaintiff and invested KRW 500 million in the complex development project promoted by the Defendant on September 4, 2009, and the Plaintiff and the Defendant drafted an agreement on the return of the said investment amount (hereinafter “instant return agreement”) on December 8, 2011. The instant return agreement states that “the Defendant shall promptly return the said amount to the Plaintiff, if the Defendant received an investment from the Plaintiff on September 4, 2009, for KRW 500,000,000, which was paid from the Plaintiff for the purpose of the investment amount.”

A. The lower court rejected the Defendant’s assertion that “an investment as referred to in the instant return agreement is limited to equity investment,” on the grounds that there is no expression of equity investment in the said language and text. Accordingly, it construed that the Defendant’s entry that “an investment is made” would return money to the Plaintiff, irrespective of the form of equity investment, etc., means that the Defendant’s repayment deadline for the Defendant’s obligation to return the investment money to the Plaintiff would arrive where the Defendant would receive an investment from

Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine and the record, the lower court did not err in its judgment by exceeding the bounds of the principle of free evaluation of evidence inconsistent with logical and empirical rules, or by misapprehending the legal doctrine on investment.

B. In addition, the lower court recognized the Defendant’s receipt of KRW 1 billion from Jinjin Electric Co., Ltd. (hereinafter “Jinjin Electricity”), around July 2012, and transferred KRW 650,000,000 among them, based on the motive and background leading up to the Defendant’s intent to invest in the development project, and ② the terms and conditions of the Defendant and Jinjin Electric Co., Ltd.’s receipt of electrical construction orders or return of money, the lower court deemed that the said KRW 650,000,000 was in the form of a loan for consumption even though it took the form of a loan for consumption, and determined that the time limit for the obligation to return the investment money as stipulated in the instant return agreement has arrived through investments in Jinjin Electric Co.

In light of the records, the court below’s determination that the amount of money can be demanded to return the money only if it was unable to receive the electrical construction exceeding 40 billion won in total due to the Defendant’s failure to do so in the development project. In addition, in full view of the content of the agreement, the amount of money payment depends on the Defendant’s failure or performance of business without uniform and fixedness. In addition, in full view of the following: (a) a series of process during which Jin Electricity expressed the Defendant’s intent to invest in the development project; (b) a series of processes leading to money transactions; (c) the details leading up to the preparation of a loan contract for consumption on two occasions; and (d) the objective to be achieved by the parties, etc., the amount of KRW 6.5 million paid by Jin Electric constitutes “investment” as referred to in the instant return agreement. The judgment of the court below is justifiable. Contrary to what is alleged in the grounds of appeal, the court below did not err by

3. However, it is difficult to accept the part of the lower court that determined that interest for arrears of 20% per annum from September 4, 2009 for 500 million won of investment occurred.

A. The instant return agreement states, “However, 5% per annum shall be paid until the time when the amount of the interest is returned. If this is possible, the Defendant shall lose the benefit of the time and pay interest at 20% per annum.” In full view of the relevant employment evidence, the lower court concluded that, upon receiving a new investment, the Defendant agreed to lose the benefit of the time and pay interest at 20% per annum from September 4, 2009, when the Plaintiff did not immediately refund the said investment amount to the Plaintiff even after receiving the new investment. In other words, if the Defendant did not immediately return the investment amount to the Plaintiff immediately after receiving the new investment, it was agreed that the Plaintiff should pay interest at 20% per annum from September 4, 2009 to September 4, 2009.”

B. According to the reasoning of the lower judgment, the following facts are revealed. The amount of KRW 500 million that the Plaintiff remitted to the Defendant on September 4, 2009 is the investment amount of the Nonparty, not the Plaintiff. The Nonparty concluded an investment agreement with the Defendant and paid the said money by raising funds from the Plaintiff. After that agreement, as the Nonparty failed to pay the additional investment amount to the Defendant, the said agreement was rescinded in 2011, and on December 8, 2011, the instant return agreement was drafted with the Nonparty’s understanding that the Defendant directly returned the investment amount to the Plaintiff.

Inasmuch as the instant return agreement was concluded two years after the date of remittance, the content of the said agreement acknowledged by the lower court is ultimately subject to liability for damages according to the interest rate of 20% per annum for the period prior to the establishment of the obligation to return the investment deposit, solely on the ground that the Defendant delayed performance of the obligation to return the investment deposit even after receiving a new investment (i.e., the investment principal is KRW 500 million, and the amount calculated at the rate of 20% per annum for two years is KRW

Even in light of the circumstances in which the time when the Defendant was to receive an investment at the time of the instant return agreement, or it is difficult for the Plaintiff to immediately understand it even if the Defendant received an investment, the content of the said agreement acknowledged by the lower court may be deemed as imposing heavy liability for delay of the pecuniary obligation. Therefore, the content of the text of the return agreement on the payment of interest in arrears need to be strictly interpreted

C. The phrase “the loss of the benefit of time” stipulated in the instant return agreement is not clear in its objective meaning. As seen earlier, insofar as the Defendant appears to have determined that the time limit for the repayment of the investment amount would have arrived when the Defendant received an investment from a domestic or foreign country, the Defendant would not immediately return the investment amount in accordance with the agreement if the time limit for the payment arrives, and there is no room for the Defendant to lose the obligor’s benefit, i.e., the benefit of time when the time limit has not yet arrived.

Meanwhile, “interest in arrears” is damages for delay of a pecuniary obligation, and is generally calculated by applying the statutory or agreed interest rate from the date of delay to the principal. Under the refund agreement in this case, the Defendant’s interest in arrears for repayment of the investment deposit accrued from a new investment and delay in the return of the investment deposit. The agreement in this case does not stipulate in the return agreement in this case that “interest in arrears at the rate of 20% per annum” is payable on behalf of the parties to the agreement in this case. Although the agreement in this case states that “the Defendant would lose the benefit due to the breach of the agreement,” it is difficult to conclude that the interest in arrears was set earlier on September 4, 2009, two years prior to the date of the refund agreement in this case.

Therefore, in order to recognize the agreement on interest in arrears that imposes heavy responsibilities on the Defendant as above, the lower court should have determined whether there are special circumstances to recognize such agreement by comprehensively taking into account the developments leading up to the instant return agreement, the purpose of the agreement on interest in arrears, the genuine intent of the parties pursuant to the agreement on interest in arrears, etc.

D. Nevertheless, the lower court determined that the Defendant was liable to pay interest calculated at the rate of 20% per annum from September 4, 2009 to the amount of investment inasmuch as the Defendant violated the refund agreement of this case by failing to exhaust all necessary deliberations on the facts necessary for making the above determination, etc. In so doing, the lower court erred by misapprehending the legal doctrine on the time when the interest was accrued, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment. The allegation in the grounds of appeal assigning this error is with merit

4. Therefore, without examining the remaining grounds of appeal, the part against the defendant among the judgment below is reversed, and that part of the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Poe-young (Presiding Justice)