[1] Whether the act of not deeming losses naturally occurred due to an occurrence of a fact, such as the case of releasing a debt constitutes “interest” as the requirement for establishing unjust enrichment (affirmative)

[2] Whether a set-off contract where a party’s claim is not established or invalidated and thus the exemption of an obligation becomes null and void as a matter of course (affirmative) / In a case where the other party’s claim exists effectively, whether it may be deemed that the obligor obtained a benefit of exempting the other party from his/her obligation without any legal ground on the ground that the other party failed to perform his/her obligation (negative), and in a case where the other party’s claim was not established or null and void, whether the obligor obtained a benefit of exempting the obligor from his/her obligation (negative)

[1] A person who gains a profit from another person’s property or labor without any legal cause and thereby causes a loss to another person shall return such profit (Article 741 of the Civil Act). There is no limitation on the method of obtaining “profit” which is the requirement for establishing such unjust enrichment. This constitutes a benefit in which a fact, such as releasing a debt, does not necessarily constitute a loss which occurred as a matter of course due to an occurrence of a fact.

[2] A set-off contract is a contract the content of which is to exempt each other from the amount of debt on an equal or equal basis on the premise that a claim in conflict between the parties exists effective. Since the extinction of two claims has causation, if the other party’s claim is not established or null and void, then the exemption becomes null and void as a matter of course, the other party’s obligation exemption will also become null and void. In this case, where the other party’s claim has been effective, the other party’s claim is still existing, and the obligor is obligated to perform the other party’s obligation. Even if the obligor fails to perform this, it cannot be deemed that he/she gains profit from discharging the other party’s obligation without any legal cause. In addition, if the other party’s claim is nonexistent or null and void and void, it is merely a non-existent obligation exemption for the non-existent obligation, and thus, the obligor is not obligated to perform the obligation

[1] Article 741 of the Civil Code / [2] Articles 492, 493, and 741 of the Civil Code

[2] Supreme Court Decision 2005Da3113 decided Apr. 28, 2005 (Gong2005Sang, 803)

Korea Railroad Corporation (Law Firm LLC, Attorneys Kim Su-chul et al., Counsel for the defendant-appellant)

Republic of Korea (Law Firm Osung, Attorneys Choi Sung-gu et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2016Na204163, 2044170 decided April 11, 2017

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

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Factual basis

According to the reasoning of the lower judgment and the record, the following facts are revealed.

A. The Defendant (Counterclaim Plaintiff; hereinafter “Defendant”) established the Framework Act on Railroad Industry Development by Act No. 6955 on July 29, 2003 to promote structural reform of the railroad industry that separates the railroad facility sector from the railroad operation sector in order to strengthen the competitiveness of the railroad industry and build a foundation for development of the railroad industry.

The Defendant established the Korea Rail Network Authority (hereinafter referred to as the “Korea Rail Network Authority”) and the Plaintiff (Counterclaim Defendant; hereinafter referred to as the “Plaintiff”) by combining or converting the relevant organizations of the existing Korea Railroad and the Korea High-speed Railroad Facility Authority. Accordingly, the Korea Railroad Facility Authority vicariously executes part of the duties such as construction and management of railroad facilities, such as railway tracks owned by the Defendant, and the Korea Railroad Operation Authority performed the railroad operation project, such as railroad passengers and freight transportation.

B. In relation to the management and use of the general railroad facility assets, multiple contracts were concluded and extended between the original and the Defendant and the Korea Facilities Corporation, and the management and use relationship from 2008 to 2011 in this case is as follows:

(1) The Facility Authority entered into a contract for the management of railroad facility assets with the Defendant and entrusted the management of the Defendant’s railroad facility assets. As a result, the Facility Authority entered into a contract for the use of railroad tracks, etc. (hereinafter “contract for the use of railroad tracks, etc.”) with the Plaintiff, and the Facility Authority decided to use tracks, etc. to the Plaintiff, etc., and to collect user fees from

(2) On the basis of the proviso to Article 38 of the Framework Act on Railroad Industry Development, the Plaintiff concluded an entrustment contract with the Defendant for the maintenance and repair of general railroad facilities and received the entrustment of the Defendant’s performance of the maintenance and repair of the railroad assets. The Plaintiff agreed to receive reimbursement of the expenses incurred by the Plaintiff while performing the entrusted duties. Part of the expenses was directly paid by the Defendant, and the remainder was determined as the same amount as the usage fees to be paid to the Corporation according to the use contract, such as railroad tracks, and allowed the Plaintiff to offset

Accordingly, 30% of the cost of maintenance and repair implemented and disbursed by the Plaintiff has been paid directly by the Defendant, and the remainder 70% has been repaid in a way that the Plaintiff offsets the total amount of the usage fee, such as the tracks to be paid to the Facilities Corporation.

(3) On the other hand, the Facility Authority granted permission for free use and approval for sub-lease (hereinafter “instant permission for use”) to allow the Plaintiff to use passenger convenience facilities installed in platforms, underground stations, connect passages, etc., separately from the contract for use of tracks, etc. (hereinafter “instant permission for use”). The said permission for use added a condition that the Plaintiff would preserve the property for use and repair necessary for the use of the permitted property by bearing the expenses (hereinafter “instant permission for use”).

2. Scope, etc. of maintenance obligations under the instant condition of permission (ground of appeal Nos. 2-8)

A. The Defendant asserted that among the maintenance and repair costs of the Plaintiff’s direct payment from the Defendant (30%) and the Plaintiff’s installation and construction charges (70%) set off against the Plaintiff’s obligation to pay the entire cost (hereinafter “the instant execution subject”) pursuant to the instant conditions of permission, the Plaintiff obtained the benefit corresponding to the maintenance and repair costs of the instant execution subject without any legal ground.

B. On this argument, the lower court determined as follows.

(1) In light of the contract for use of tracks, etc., maintenance and repair agreement, permission for use of the instant case, details of the terms and conditions of permission, etc., expenses for maintenance and repair of platforms, connection passages, connection platforms, etc. subject to the instant permission for use shall be borne by the Plaintiff according to the instant permission terms and conditions of permission. This does not change merely because it is partly included in the scope of the said entrustment contract concluded by the original and the Defendant

(2) Among the items subject to execution of the instant case, the said items include the scope of maintenance obligations to be borne by the Plaintiff according to the said conditions of permission in light of the content of the instant conditions of permission and the literal meaning of “management”.

(3) Some of the instant items subject to execution did not clearly dispute the Plaintiff. In addition, the Plaintiff and the Defendant calculated the cost of entrustment of maintenance and repair on the instant subject of execution through consultation. Accordingly, this part is included in the scope of maintenance and repair stipulated in the instant condition of permission.

C. Examining the reasoning of the lower judgment in light of the record, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules, or by misapprehending the legal doctrine regarding the scope of maintenance obligations or the interpretation of expression of intent in accordance with the free use permit, the principle of allocation of burden of proof, the right to use the subject of the instant enforcement, the purpose and scope of passenger or cargo transport, and the priority

3. Whether unjust enrichment is established (Ground of appeal No. 1)

A. A person who, without any legal cause, gains profits from another’s property or labor, and thereby causes damage to another person shall return such profits (Article 741 of the Civil Act). There is no limitation on the method of obtaining “gains” which is the requirement for establishing such unjust enrichment. This constitutes a benefit in which a fact, such as releasing a debt, does not necessarily constitute a loss arising as a matter of course due to the occurrence of a fact.

A set-off contract is a contract with the purport to exempt the other party from the amount of debt on an equal or equal basis on the premise that a claim conflicting between the parties exists effective. Since the extinction of two claims has causations, if the other party’s claim is not established or null and void, then the exemption of the other party’s obligation becomes null and void as a matter of course. In this case, where a claim of the other party exists effectively, the other party’s claim is still existing, and thus, the obligor is obligated to perform the other party’s obligation. Even if the obligor fails to perform this, it cannot be deemed that the other party’s claim has gained profit from discharging the other party’s obligation without any legal cause (see Supreme Court Decision 2005Da3113, Apr. 28, 2005, etc.). In addition, in cases where the other party’s claim was not established or null and void and thus no longer exists, the obligor is merely subject to the exemption of an invalid obligation as to the non-existent obligation, and thus, it does not obtain any profit that

B. (1) The lower court: (a) held that the Plaintiff should bear the cost of maintenance and repair in accordance with the terms and conditions of the instant contract; (b) held that, among the maintenance and repair costs, the Plaintiff should return the amount equivalent to 30% of the amount directly received from the Defendant as unjust enrichment; and (b) held that the Plaintiff was able to benefit from discharging the Plaintiff’s obligation of usage fees such as tracks, etc. within the scope of the equal amount by offsetting the Plaintiff’s obligation of usage fees, such as tracks, which the Plaintiff should pay to the Corporation; and (c) held that the Plaintiff was able to benefit from property equivalent

C. However, among the judgment of the court below, the above (1) part is just, but it is difficult to accept the above (2) part. The reasons are as follows.

(1) The Plaintiff received money from the Defendant within the scope of 30% of the cost of maintenance and repair according to the terms and conditions of the instant permission without any legal ground, but cannot be deemed to have obtained any benefit that offsets the cost of maintenance and repair against the obligation, such as usage fees, within the scope of 70%.

(2) The Plaintiff has to bear the cost of maintenance and repair of the permitted property, and there is no claim for reimbursement from the Defendant or the Facilities Corporation. Meanwhile, the Plaintiff does not bear the obligation to pay the cost of maintenance and repair of tracks, etc. equivalent to the cost of maintenance and repair. This is because the Plaintiff uses the property for which the permission for use was granted under the instant permission for use as “free”. The Plaintiff’s disbursement of the cost of maintenance and repair of the permitted property is subject

(3) However, inasmuch as a set-off agreement was made on the erroneous premise that the Plaintiff is obliged to bear the cost of maintenance and repair, and that the Plaintiff is also liable for the payment of the same amount of royalty, the exemption of the obligation is null and void, and it is nothing more than that of being subjected to the non-existent usage fee exemption. Therefore, it cannot be deemed that the Plaintiff obtained a benefit from discharging the obligation.

(4) In light of the fact that the Plaintiff gains a benefit from discharging his/her obligation for fees, such as tracks, and thus, the obligation to return unjust enrichment is established within the scope of the offset amount, the Plaintiff’s repayment of the same amount as the cost of maintaining and repairing the facility is unreasonable.

D. Nevertheless, the lower court erred by misapprehending the legal doctrine on offset and unjust enrichment, thereby adversely affecting the conclusion of the judgment. The allegation in the grounds of appeal assigning this error is with merit.

4. Conclusion

The Plaintiff’s appeal is with merit, and this part of the judgment below against the Plaintiff is reversed and 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 Kim Chang-suk (Presiding Justice)