Administrator Kim Nam-soo (Attorney Park Jong-soo et al., Counsel for the defendant-appellant)

Korea Life Insurance Corporation

April 29, 2004

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The defendant shall pay to the plaintiff 241,044,219 won with 20% interest per annum from July 25, 2003 to the day of complete payment.

1. Basic facts

The following facts are not disputed between the parties or may be recognized by comprehensively considering the whole purport of the pleadings in each description of Gap evidence 1-2, Gap evidence 2-2, Gap evidence 3-1, Eul evidence 1-3 and Eul evidence 3.

A. On August 4, 200, Co., Ltd. Co., Ltd. (hereinafter “Co.”) concluded a savings insurance contract with the Defendant, the insurer, in accordance with the insurance terms and conditions, as follows, and paid KRW 300 million to the Defendant.

(1) Name of the insurance: Dive design re-insurance (hereinafter “instant insurance”);

(2) Insurance policy number: 280735

(c) Single insurance premium: 300 million won (temporary payment);

(d) Insurance period: Ten years; and

(5) Maturity insurance money: Liability reserve [The amount accumulated additionally by the calculation of the net insurance premium of the accumulation contract (interest rate of the standardized contract loan - 1.5%) from the payment date];

B. The instant insurance terms and conditions stipulate as follows.

(1) The contractor shall enter into an indemnity contract at the same time with the following indemnity contract (Article 2(1)). The contractor shall pay the insurance premium of the indemnity contract and the accumulated contract insurance premium as provided in paragraph 1 (Article 2(2)).

Indemnity contract: A contract in which the insured is paid insurance money due to the disabilities of Grades II through VI due to the death of the insured or the disasters of Grades I or VI prescribed in attached Table 3 among the "Disability Grade Table" prescribed in attached Table 4 during the insurance period.

A reserve contract: A contract to be paid the maturity insurance money if the insured is alive until the insurance period expires.

(2) The contractor may receive a loan according to the method determined by the company within the scope of the cancellation refund of this contract (Article 26(1)). The contractor may at any time repay the loan of the terms and conditions and its interest pursuant to the provisions of paragraph (1), and if the loan is not repaid, it shall be recovered by offsetting it from the amount of the payment on the date on which the cause for payment such as insurance money and cancellation refund occurs (Article 26(2)

(3) Upon calculating the premium, the Company will pay the amount of net insurance premium-based liability reserve calculated at the risk rate applied at the time of calculating the premium minus the unpaid new contract expenses. Here, the new contract expenses used in the initial year of the contract should be appropriated over the payment period of the insurance premium, which means the new contract expenses for the remaining payment period which has not been appropriated due to the termination of the contract.

C. On August 7, 200, Nonparty Company was loaned KRW 200 million from the Defendant in accordance with Article 26 of the Insurance Terms and Conditions and the following loan agreements (hereinafter “instant terms and conditions loan”).

(1) The period of the loan shall be one month from the date of the loan, and the date of repayment of principal and interest shall be the relevant date of the following loan (Article 1).

(2) Where repayment of principal and interest is not possible, the Defendant may be extended the lending period only by paying interest on the expiration of the period (Article 2(1)).

(3) The loan interest rate shall be later paid in the amount calculated on a monthly basis in accordance with the interest rate determined by the Company. In the event of arrears, the additional interest rate determined by the Defendant shall be paid (Article 3(1)).

(4) If the sum of the principal and interest reaches the cancellation refund under the terms and conditions of insurance, the insurance contract becomes null and void, or the principal and interest are not paid in arrears for not less than six months after the date of repayment, the Defendant’s arbitrary termination of the insurance contract, and appropriated it to the principal and interest (Article 4).

(5) When any cause for payment prescribed in the insurance terms and conditions occurs, regardless of whether it is before or after the date of repayment, the Defendant shall deduct the interest or principal of the loan from the amount to be paid by the Defendant and pay the insurance proceeds in installments (Article 5).

D. On August 21, 2002, upon the application of the non-party company, the Seoul District Court made a decision that the reporting period of reorganization claims, securities, and shares should be the end of September 25, 2002, which commenced the company reorganization procedure for the non-party company, appointed for gambling as the administrator.

E. Accordingly, on September 25, 2002, the Defendant reported the principal and interest of the Terms and Conditions Loan KRW 217,450,473 as a collateral, and the administrator accepted it only as a reorganization claim at the first meeting of interested persons held on November 20, 2002.

F. Park Jong-sung resigned on December 10, 2002 from the administrator on December 16, 2002, and the Plaintiff was appointed as administrator on December 16, 2002.

G. Since August 7, 2002, the non-party company failed to repay the principal and interest of the standardized contract loan of this case to the defendant from August 7, 2002, the defendant paid only KRW 81,359,265 of the balance calculated by deducting the principal and interest of the standardized contract loan of this case from income tax 4,434,219 on the ground that the contract of this case was terminated pursuant to Article 4 of the standardized contract loan agreement of this case and the contract of this case was not paid in arrears for six months or longer from the date of the second standardized contract meeting of this case on July 24, 2003.

H. On September 2, 2003, the reorganization program was finally authorized on September 2, 2003, and its contents were to pay only 12% of the reorganization claim and to convert the remainder of 88% into equity investments.

2. The parties' assertion

A. The plaintiff's assertion

(1) Article 162(1) of the Company Reorganization Act provides that where a reorganization creditor bears an obligation to the company at the time of the commencement of reorganization proceedings, and both of the claims and obligations can be offset against it before the expiration of the period for reporting reorganization claims, the reorganization creditor may offset the amount of the obligation without resorting to reorganization proceedings only within that period. However, since the non-party company failed to pay the principal and interest of the standardized contract loan of this case and six months have not passed since August 7, 2002, which was commenced from the expiration date of reporting reorganization claims, the defendant cannot terminate the insurance contract of this case on September 25, 2002, which was the expiration date of reporting reorganization claims, and it cannot be deemed that it is offset against the principal and interest of the standardized contract of this case since the defendant expressed his intention of offset on July 24, 2003, which is the expiration date of the period for reporting reorganization claims, the declaration of intention of offset made by the defendant is null and void. Accordingly, the defendant shall pay the principal and interest of the standardized contract of this case to the plaintiff.

(2) In addition, even where a claim is satisfied by exercising the right of set-off, it can be deemed as identical to the enforcement act in substance. The exercise of the right of set-off in this case constitutes an act that the defendant knew that he would harm the reorganization creditor pursuant to Article 78(1)1 and 2 of the Company Reorganization Act, and thus, can be denied for reorganization foundation. Thus, the defendant should pay to the plaintiff the cancellation refund set off against the principal and interest of the loan of this case, 241,04,219 won, and damages for delay.

B. Defendant’s assertion

Where an insurance contract under the premise is terminated, the loan of the terms and conditions is made within the scope of the cancellation refund to be received by the policyholder as collateral and is made together with the insurance contract without any credit assessment or pledge against the policyholder at the time of the loan. Therefore, the insurer is not liable to pay the principal and interest on the loan of the terms and conditions only if the insurance contract is terminated at any time regardless of the progress of reorganization proceedings, and the balance naturally deducted the principal and interest on the loan of the terms and conditions from the cancellation refund to be paid to the policyholder if the insurance contract is terminated at any time, regardless of the progress of reorganization proceedings. Thus, the Defendant is not liable to pay the Plaintiff the amount of the cancellation refund which has already been deducted under the pretext of the principal and interest on the loan of the terms and conditions in this case, and

3. Determination

(a) The significance and economic function of lending terms and conditions;

Under the premise of an effective insurance contract, the term "term contract loan" means interest-cum-loans within the scope of insurance money or refund money for cancellation to be paid by the insurer to the policyholder. From the perspective of the policyholder, the insurer can obtain a loan from the insurer while maintaining the insurance contract, and the insurer can obtain the effect of asset management under the reliable security of insurance money or refund money for cancellation without losing the customer from the standpoint of the insurer.

B. Characteristics of terms and conditions loans

In other words, in order to execute the standardized contract loan, the insurance contract between the policyholder and the insurer should be effective, and the contract loan can only be made within the extent of the liability reserve calculated for each policyholder, and even during the term of the standardized contract loan, if the contract is terminated upon the expiration of the insurance period or the termination of the insurance contract, the contract loan will be terminated at the same time, and at the same time the insurer will pay the principal and interest of the standardized contract loan which is not yet repaid to the policyholder in accordance with the insurance contract.(In this regard, Article 7-3 and attached Table 13 of the Insurance Supervision Regulations stipulate that the risk of the standardized contract loan claim should be calculated as 0% when classifying the asset soundness of the insurance company).

C. Legal nature of the standardized contract loan

The terms and conditions loan is a complex contract that has both the elements of loan loan and the elements of advance payment of the liability reserve to be paid to the future policyholder. The terms and conditions loan is made out of the document of loan loan, the repayment date of the loan and the payment of the borrower are agreed, and the insurance contract that is the premise after the terms and conditions loan still remains valid. However, the various features of the terms and conditions loan mentioned above are difficult to be explained as the legal principles of loan for consumption and it is easy to explain if it is deemed that the loan was paid in advance in the form of loan for the liability reserve to be received by the future policyholder as to the nature of the terms and conditions loan. Accordingly, the various legal issues derived from the terms and conditions loan are consistent with the terms and conditions loan, taking into account the characteristics of the terms and conditions loan, it should be determined by appropriately mixing the nature of the loan contract and the nature of the liability reserve as a prior payment in accordance with specific cases.

D. Review of the instant case

First, the relationship between the principal and interest on the loan of this case and the refund money for cancellation is examined.

From a formal perspective, the defendant's claim for principal and interest on the loan of the contract of this case is arising pursuant to the contract of this case and the plaintiff's claim for the cancellation refund money arises from the termination of the insurance contract of this case separate from the contract of this case. Therefore, in a case where two opposing claims are set-off and a set-off exists, each party may be exempted from his/her obligation within the scope of equal amount settled by expressing his/

However, in light of the fact that the defendant did not acquire any special security because the loan of this case was implemented within the scope of the cancellation refund to be paid to the non-party company who is a policyholder at the future, and that if the non-party company fails to repay the principal and interest of the loan of this case, the defendant is expected to recover the loan of this case by offsetting it from the payment amount from the day when the cause for payment such as cancellation refund occurs to the non-party company. The defendant can cancel the insurance contract of this case where the principal and interest of the loan of this case arrives at the cancellation refund or the non-party company fails to pay the principal and interest of the loan of this case for 6 months or longer from the date of redemption. The defendant agreed to deduct the principal and interest of the loan of this case from the amount to be paid to the non-party company at the time of the occurrence of the cause for payment specified in the insurance contract regardless of whether it was before or after the date of redemption, the contract of the loan of this case has the characteristics of both the insurance contract and the formation, continuation, repayment and extinguishment of the contract loan of this case.

Furthermore, in light of the above characteristics, the source of money actually loaned to the non-party company is a potential cancellation refund that will be paid to the non-party company in the future. Thus, it is reasonable to interpret that the non-party company and the defendant agreed that if the contract of this case is terminated for any reason at the time of the loan of this case and the defendant made an implied agreement to pay only the difference because the cancellation refund equivalent to the amount already paid is deemed to have already been paid if the principal and interest on the loan of this case remains in concrete when the defendant's obligation to return the cancellation refund of this case was terminated for the reason that the contract of this case was terminated for any reason at the time of the loan of this case. At least, the parties agreed to guarantee as a matter of course

Therefore, the overdue rent, other unjust enrichment, or damages arising from the lease contract are naturally deducted from the lease deposit when the lease deposit is returned, and the obligation to pay only the remainder after deducting all the principal and interest on the loan of this case which has not been paid at the time from the cancellation refund calculated in accordance with the method of calculation stipulated in the insurance contract where the contract of this case is terminated. In other words, in order to avoid the obligation to return the cancellation refund equivalent to the principal and interest on the loan of this case, the Defendant does not have to meet the requirements of offsetting under the Civil Act, such as offset and declaration of intention of offset, etc., and even in this case, the Defendant notified the Plaintiff on July 24, 2003 that the principal and interest on the loan of this case were to be offset in the amount of KRW 241,04,219, and even if Article 26(2) of the insurance contract of this case provides that the method of collecting the principal and interest on the loan of this case is a simple deduction.

Ultimately, the defendant is naturally exempted from the obligation to return the termination refund equivalent to KRW 241,04,219, which remains until July 24, 2003, pursuant to the legal principles of mutual aid not set-off. Therefore, it is justifiable to pay only KRW 81,359,265, which is the remaining amount after deducting the above amount and income tax, to the plaintiff. As long as such mutual-aid is a legitimate right arising from the terms and conditions loan agreement itself, the defendant's exercise of the right of set-off on the premise that it does not meet the requirements of set-off under Article 162 (1) of the Company Reorganization Act or cannot be recognized as the effect of a set-off on the ground of the grounds of denial of the Company Reorganization Act, without any further review,

4. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit. It is so decided as per Disposition.

Judges Lee Hong-chul (Presiding Judge)