[1] The method of interpreting a juristic act in a case where the objective meaning is not clearly revealed by the party’s language and text

[2] Standard for determining whether the obligor clearly expresses his/her intent not to perform the obligation, and standard for calculating the amount of damages in the event of nonperformance due to the obligor’s refusal (=market price of the object of payment at the time of refusal

[1] Article 105 of the Civil Act / [2] Articles 390, 393, and 544 of the Civil Act

[1] Supreme Court Decision 93Da2629, 2636 Decided October 26, 1993 (Gong1993Ha, 3165), Supreme Court Decision 2008Da9095, 90101 decided May 14, 2009 (Gong2009Sang, 837), Supreme Court Decision 2015Da3914, 3921, 3938 decided March 27, 2018 (Gong2018Sang, 774) / [2] Supreme Court Decision 2005Da6337 decided September 20, 207 (Gong2007Ha, 1626)

Plaintiff (Law Firm Pyeongtaek, et al., Counsel for the plaintiff-appellant)

Defendant 1 and two others (Law Firm LLC et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2017Na201, 218 decided April 27, 2018

All appeals are dismissed. The costs of appeal are assessed against the Defendants.

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

1. Basic factual basis

The reasoning of the lower judgment and the record reveal the following facts.

A. Defendant Innice Development Industry Co., Ltd. (hereinafter “Defendant Innice Development Industry”), Defendant Innice Development Co., Ltd. (hereinafter “Defendant Innice Development”), and Defendant Innice Development Co., Ltd. (hereinafter “Defendant Innice Development”), both companies are incorporated with the purpose of real estate development business. Defendant 1 actually operates the Defendant Company.

around August 2013, Defendant Company acquired the right to implement multi-family housing development projects (name 1 omitted) other than Suwon-si (hereinafter “○○-dong project”).

The Plaintiff entered into a joint agreement with Defendant 1 on August 31, 2013 in the name of the wife Nonparty 1. The details thereof are that the Plaintiff invested KRW 3 billion in the ○○dong business, and Defendant 1 paid KRW 30 billion out of the profit from the operation of the ○○dong business to the Plaintiff, and transfers 30% of shares to the Plaintiff or the Plaintiff’s person designated. The Plaintiff and Nonparty 1 entered into a primary additional agreement with Defendant 1 and Nonparty 2 on September 4, 2013, changing the amount of the Plaintiff’s investment to KRW 3.6 billion in total, and KRW 3.9 billion in shares. On September 9, 2013, the Plaintiff changed the amount of the investment made by the Plaintiff and Nonparty 1 to KRW 4.3 billion in total from September 23, 2013 to KRW 3.3 billion in shares.

On October 2013, the Plaintiff requested Defendant 1 to make an investment in funds necessary to participate in the urban environment rearrangement project of Jongno-gu Seoul ( Address 2 omitted) (hereinafter referred to as “△△”) as a joint executor of the urban environment rearrangement project of Jongno-gu (hereinafter referred to as “△△”) and paid the total amount of KRW 750 million to Defendant 1 from October 4, 2013 to November 11, 2013.

B. On April 10, 2014, the Plaintiff entered into a final agreement with Defendant 1 and ○○dong Business to determine the timing and method of return of investment funds, etc. paid to △△ business (hereinafter “final agreement”). The Defendant Company jointly and severally guaranteed Defendant 1’s obligation to the Plaintiff. The main contents of the final agreement are as follows.

(1) The amount invested by the Plaintiff is KRW 4.75 billion in investment and KRW 5 billion in total of KRW 300 million in stock price (Article 1 “investment”).

(2) Of the investment principal, KRW 2.5 billion out of the investment principal shall be paid from the end of August 2015 to the end of August 1, 2015 when the sale rate exceeds KRW 90 billion (Article 3 “time of payment of the investment principal”).

(3) Defendant 1 paid 10 billion won with the Plaintiff’s investment profit and bears the tax, and does not raise any objection in connection with this (Article 4 “investment profit”).

(4) In the case of the Plaintiff’s investment profit of KRW 5 billion, Defendant 1 paid KRW 5 billion to Nonparty 1 as the person designated by the Plaintiff when the apartment sales rate of ○○dong business exceeds KRW 70%, and the Plaintiff paid KRW 5 billion to Defendant 1 as the investment amount of △△ business with Defendant 1’s cooperation by using the certificate of beneficial interest (Article 5(1)).

Defendant 1, among the Plaintiff’s investment profits, shall pay KRW 5 billion to Nonparty 4 to the person designated by the Plaintiff on the ground that when the apartment sale rate of ○○dong business exceeds 70%, the beneficial right certificate is KRW 5 billion as “the right to finance, the subsequent subordinate to the lender,” and the remaining KRW 5 billion is paid (Article 5(2)).

C. On August 28, 2014, the Defendant Innice Development Industry entered into a management-type land trust agreement with the trustor and beneficiary, Korea Asset Trust Co., Ltd., the trustee, the trustee, the Korea Assets Trust Co., Ltd., and the AbSMM No. 1 as joint first beneficiary, the Dae Forest Industry Co., Ltd., and the Korea Forest Industry Co., Ltd., and the 3rd priority beneficiary. Defendant 1’s wife Nonparty 3 was designated as the first priority beneficiary.

On August 28, 2014, Defendant Innice Development entered into a management-type land trust agreement on apartment complexes among Korea Asset Trust Co., Ltd. and ○○ Dong business, and the management-type land trust agreement on apartment complexes. The remainder except the priority profit limit is the same as the trust agreement on apartment complexes (hereinafter “instant trust agreement”).

The instant trust agreement was amended on July 28, 2015, and the third priority beneficiary is the company and the company KTFI Co., Ltd. and Nonparty 3 is the fourth priority beneficiary. Accordingly, the Defendant Company was able to receive a dividend or reimbursement in the fifth priority order.

D. The sale of apartment units in the ○○ Dong project began on October 28, 2014. The apartment complex was sold in units on December 14, 2014, and the apartment complex was sold in units by 70% on December 26, 2014.

2. Whether the final agreement is a monetary loan for consumption;

A. For the following reasons, the lower court rejected the Defendants’ assertion that Article 4 and Article 5 of the final Arrangement is a monetary loan agreement and determined as an agreement to pay profits under an investment agreement.

The final agreement and the previous agreement set the Plaintiff’s investment method and time, the method and proportion of profit distribution between the Plaintiff and the Defendants, and the business allocation between the Plaintiff and the Defendant 1 in relation to the investment or investment in ○○ Partnership Business, etc. whose success is unknown.

The final agreement provides that a PF loan shall be returned when the investment principal is a PF loan or when the sale rate exceeds 90%, and that the investment profit shall be paid when the sale rate exceeds 70%. The time the final agreement was made is prior to the conclusion of the instant trust agreement or the apartment is sold in lots. Therefore, it is difficult to deem that the Defendants agreed to pay the investment principal or the investment profit to the Plaintiff.

The final arrangement provides a different method or condition of return by clearly separating loans, investment principal, stock price, and investment profit. Articles 4 and 5 of the final arrangement provide “investment profit”.

B. Examining the reasoning of the lower judgment in light of the record, the lower court did not err in its judgment by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on the legal nature of the final agreement

3. Interpretation of Article 5 of the Final Agreement

A. Interpretation of a juristic act is clearly confirming the meaning given by the parties to the act of representation. Although it is not merely a certain language used, the meaning given by the parties to the act of representation ought to be reasonably interpreted according to the contents of the language, regardless of what is the intent in the party’s internal deliberation. In a case where the meaning is not clearly expressed in accordance with the language and text expressed by the parties, it shall be reasonably construed in accordance with logical and empirical rules, general common sense and transaction norms, by comprehensively taking into account the following: (a) the form and content of the language; (b) the motive and background leading up to the juristic act; (c) the purpose and genuine intent to be achieved by the parties to the juristic act; and (d) transaction practices (see Supreme Court Decisions 93Da2629, 2636, Oct. 26, 1993; (d) the Supreme Court Decisions 2008Da905, May 14, 2009; 2015Da3914, 3921, Mar. 27, 2018).

(b)Article 5(1) of the Final Agreement;

(1) For the following reasons, the lower court determined that the Defendants agreed to transfer the preferential right to benefit, which is substantially 5 billion won, to the Plaintiff, on condition that the apartment sale rate exceeds 70%, under Article 5(1) of the final agreement.

Article 4 of the Final Arrangement provides for the Defendants’ obligation to pay KRW 10 billion on the basis of the title “investment profit.” Article 5(1) of the Final Arrangement provides for the Defendants’ obligation to pay the amount of KRW 10 billion. Article 5(1) of the Final Arrangement provides for an uncertain means of payment, which is the fulfillment of the conditions that exceed 70% of the apartment sale rate or the beneficial interest

If the right to benefit under Article 5(1) of the Final Arrangement is not known as possible, it is not determined that the right to benefit should be transferred when the apartment sale rate exceeds 70% under the title of Article 4 of the Final Arrangement and the title of “payment date of investment profit” in Article 5. In general, apartment construction projects, the apartment sale rate of which exceeds 70%, are assessed as successful projects.

Therefore, Article 5(1) of the Final Agreement states that if the apartment sale rate is expected to exceed 70% and the Defendants are expected to return considerable profits, the Defendants may be deemed to have transferred preferential rights to the Plaintiff, which can be actually distributed or reimbursed KRW 5 billion to the Plaintiff.

(2) 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 in violation of logical and empirical rules, or by misapprehending the legal doctrine on the probative value of disposal documents

(c)Article 5(2) of the Final Arrangement

(1) On the grounds delineated below, the lower court determined that the Defendants agreed to transfer the second priority interest or the equivalent priority interest to the Plaintiff under Article 5(2) of the final agreement.

Article 5(2) of the final Agreement stipulates the type and priority of the right to benefit that the Plaintiff shall pay to the person designated by the Plaintiff as “the right to finance, the right to lender, and the subordinate to the lender.” However, the instant trust agreement set the priority right of the “financial right and the lender” as the first priority.

(2) Examining the following circumstances revealed through the record, it is difficult to readily conclude that the Defendants agreed to transfer to the Plaintiff the first priority right or the equivalent priority right, but it is reasonable to deem that the Defendants agreed to transfer the first priority right rather than the third priority right stipulated in the instant trust agreement.

The instant trust agreement provides for a financial company, such as ABM company and ABM company, which shall bear the project cost as the first priority beneficiary, and the Si Corporation is determined as the second priority beneficiary. The Si Corporation bears the obligation to complete the construction regardless of the delay in the payment of the construction cost, and thus, takes an essential role together with a financial company that bears the responsibility to complete the construction work. Therefore, the Defendants need to designate the Si Corporation as the first beneficiary in order to secure the claim for the construction cost, etc. As such, the Plaintiff, who lent or invested in the ○○dong Project and △△△ Project, could have known such circumstances.

The Plaintiff may receive the investment profit as stipulated in Article 5 of the final arrangement that the sales rate of the ○○ Dong business should exceed 70%. As can be seen from the expression “the terms and conditions of payment or profit”, the investment profit may cause the essential cost of the business, namely, the loan to the financial company and the construction cost for the start-up business. Therefore, the right to preferential benefit of the “ lower priority” can be interpreted as the right to preferential benefit that can be paid with the remainder of the cost incurred essential for the ○○ Dong business.

The Defendant Company designated Nonparty 3 as the third priority beneficiary under the instant trust agreement, but changed to the hycelloid Co., Ltd. and the hyp capital company. Nonparty 3 did not correspond to “financial right and lender,” and the hyptop capital company and the hyp capital company are not directly related to the ○○dong business. Therefore, it is difficult to view that the Plaintiff and the Defendants, at the time of the final agreement, deemed the aforementioned persons or companies as “financial right and lender” and intended to designate them as the priority beneficiary rather than the Plaintiff.

If the plaintiff's preferential right is deemed to be equal to or lower than the third preferential right, there is no reason to determine "financial right or junior higher than the lender" in Article 5 (2) of the final agreement.

In full view of the motive, circumstance, objective to be achieved through an agreement, intent of the parties, etc. under Article 5(2) of the final agreement, the Defendants may be deemed to have agreed to transfer the right to benefit prior to the third priority right under the instant trust agreement to the person designated by the Plaintiff under Article 5(2) of the final agreement, rather than the third priority right under the instant trust agreement.

(4) Nevertheless, there are some inappropriate parts in the reasoning of the lower judgment that determined that the preferential right under Article 5(2) of the final Agreement is a secondary preferential right or a preferential right corresponding thereto. However, even if the preferential right under Article 5(2) of the final Agreement is a preferential right prior to the third priority right, it is difficult to view that the lower court erred and adversely affected the conclusion of the judgment on the grounds that the refusal of performance and the calculation

4. Requirements for damages and calculation of the amount of damages due to non-performance;

A. If the obligor clearly expresses his/her intent not to perform his/her obligation, the obligee may cancel the contract, or claim damages against the obligor for reasons of non-performance, even before the due date under the principle of good faith. Whether the obligor clearly expresses his/her intent not to perform his/her obligation should be determined by comprehensively examining the behavior of the parties and the specific circumstances before and after the contract. Meanwhile, in cases where the obligor clearly expresses his/her intent not to perform his/her obligation and can claim damages without a peremptory notice, the computation of damages due to the obligor’s non-performance should be based on the market price of the object of performance at the time of the refusal of performance (see Supreme Court Decision 2005Da6337, Sept. 20, 2007).

B. The lower court accepted the Plaintiff’s first preliminary claim seeking damages on the grounds of nonperformance of obligation on the following grounds.

(1) Since the apartment sale rate of ○○dong Business was fulfilled with the conditions stipulated in Article 5 of the final agreement in excess of 70% on December 26, 2014, the Defendants are obligated to transfer the right to preferential benefit to the Plaintiff. In light of the fact that the agreement between the first instance court and the lower court in the instant case is a monetary loan agreement, or the right to preferential benefit as stipulated in Article 5 of the final agreement is claimed as the Defendant’s general right to preferential benefit, and the Defendant clearly expresses his/her intent not to comply with the Plaintiff’s claim, the Defendants should be deemed to have refused to perform the obligations stipulated in Article 5 of the final agreement.

(2) In order to perform the duty under Article 5(2) of the final Agreement on April 16, 2015, Defendant 1 issued to Nonparty 4 a certificate of beneficial interest in the amount of KRW 5 billion out of the amount of Nonparty 3’s priority profit, which is stipulated in the apartment complex trust agreement, to Nonparty 3’s third priority profit, and notified the transfer of the certificate of beneficial interest to Korea Asset Trust Co., Ltd., a trustee under the name of Defendant Indian Development Industry on the same day.

However, it is difficult to recognize that Nonparty 3 transferred the right to preferential benefit and notified the above right to preferential benefit, which is Nonparty 3, the first beneficiary. The evidence submitted by the Defendants alone is insufficient to recognize that Nonparty 3 entrusted the Defendants with the right to give notice of transfer or transfer. Therefore, it is difficult to deem that the Defendants fulfilled their obligations under Article 5(2) of the final Agreement.

(3) In light of the fact that the party to the final agreement is the Plaintiff, Article 4 of the final agreement explicitly states the party to whom the investment profit reverts as the Plaintiff. Article 5(1) of the agreement sets the Plaintiff’s duty of re-investment on the premise that the party to whom the investment profit accrues is the Plaintiff, and Nonparty 1 is the Plaintiff’s wife and Nonparty 4 is the Plaintiff’s wife, it is reasonable to deem the party to whom the right to benefit under Article 5

(4) As of September 5, 2016, Korea Asset Trust Co., Ltd. began to pay to the first, second, and third priority beneficiaries as of September 5, 2016, and the fourth priority beneficiary was able to pay for all apartment units. Around that time, ○○ Dong Project was fully performed by apartment units. The third priority beneficiary Co., Ltd., the second priority beneficiary, was fully repaid by Korea Asset Trust Co., Ltd... In light of these circumstances, the first instance judgment of this case and Article 5 of the final Agreement at the time the Defendants expressed their intent to refuse performance, should be deemed to have been in a state where the first priority beneficiary right under Article 5 of the final Agreement at the time the lower court or the lower court’s lawsuit was fully repaid. Accordingly, the Defendants jointly and severally liable to pay the Plaintiff

C. Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine and the record, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on the refusal of performance and the calculation of damages

5. Whether the principle of pleading has been violated;

In the lower court’s first preliminary claim, the Plaintiff sought damages against the Defendants on the ground of nonperformance, and the second and third preliminary claim against the Defendant Company, the Plaintiff expressed his intention to designate the Plaintiff and Nonparty 4 as the third and fourth priority beneficiary, and requested the issuance of the certificate of priority interest.

In preparation for the dismissal of the first preliminary claim, the Plaintiff merely made the second and third preliminary claim, and did not made the first preliminary claim on the premise that the Defendants are obligated to deliver the certificate of priority interest to the third and fourth priority claims. Therefore, the lower court did not accept the first preliminary claim in excess of the Plaintiff’s claim. Therefore, contrary to what is alleged in the grounds of appeal, the lower court did not err by violating

6. Conclusion

The Defendants’ appeals are dismissed in entirety as it is without merit, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Dong-won (Presiding Justice)