[1] Whether a penalty for breach of contract may be reduced by applying mutatis mutandis Article 398(2) of the Civil Act to the estimate of damages (negative), and the validity of an agreement of penalty with excessive penalty compared to the interests of creditors arising from compulsory performance of an obligation (=part or whole invalidation)

[2] The legal nature of the premium paid in connection with the lease of a commercial building, and whether the lessor bears the duty to return the premium (negative in principle)

[1] Articles 103 and 398 of the Civil Act / [2] Articles 105 and 618 of the Civil Act

[1] Supreme Court Decision 92Da46905 Decided March 23, 1993 (Gong1993Sang, 1272), Supreme Court Decision 2010Da56654 Decided December 23, 201 / [2] Supreme Court Decision 2000Da59050 Decided April 10, 200 (Gong2001Sang, 1109), Supreme Court Decision 2002Da25013 Decided July 26, 2002 (Gong2002Ha, 2058)

Plaintiff (Attorney Lee Chang-soo, Counsel for the plaintiff-appellant)

Defendant (Law Firm Barun, Attorneys Park Jong-soo et al., Counsel for the defendant-appellant)

Suwon District Court Decision 2012Na45068 decided July 19, 2013

The judgment of the court below is reversed, and the case is remanded to Suwon District Court Panel Division.

The grounds of appeal are examined.

1. Relevant legal principles

Inasmuch as an agreement on penalty for breach of contract is set to secure the performance of an obligation and its content differs from the scheduled amount of damage compensation, it cannot be reduced by analogical application of Article 398(2) of the Civil Act regarding the scheduled amount of damage compensation by analogy. However, if the agreed penalty is excessively excessive compared to the interests of creditors arising from the compulsory performance of the obligation, the agreement is null and void in violation of public order and good morals (see, e.g., Supreme Court Decision 2010Da5654, Dec. 23, 2010).

2. The judgment of the court below

A. The lower court acknowledged the following facts based on the admitted evidence.

1) On March 15, 201, the Defendant: (a) between the Nonparty and the Nonparty, the Nonparty agreed to transfer the right to lease of the instant store which is an entertainment drinking house from the Defendant to KRW 200 million; (b) KRW 330 million,00,000,000,000,000 for the premium and facility cost (hereinafter “the instant premium”); and (c) paid KRW 200,000,000 on the date of the instant contract as the down payment; and (d) paid KRW 333,00,000,000,000 for the instant premium until March 31, 2012; (b) upon the delivery of the instant store to the Nonparty, the Defendant agreed to transfer the right to return KRW 200,000,000 to the lessor of the instant store under the name of the Nonparty’s right to lease from the date of delivery to the date of sub-lease or the right to sub-lease each month; and (c) the Defendant may not transfer or sub-lease the said contract to the Nonparty.

2) On the date of the contract, the Nonparty paid KRW 200 million to the Defendant an amount equivalent to the deposit for the sub-lease contract that is the down payment and the sub-lease contract. The Nonparty did not pay the rent at least four times a month from August 15, 201, while operating an entertainment drinking house with the delivery of the instant store. On November 7, 2011, the right of lease was transferred or sub-leaseed without permission. Accordingly, the Defendant expressed his/her intention to terminate the instant lease transfer and sub-lease contract on the grounds of the Nonparty’s breach of duty and expressed his/her intention to the Nonparty on December 14, 2011.

3) On the other hand, on August 29, 201, a settlement was concluded between the Defendant and the Nonparty prior to the filing of the lawsuit, stating that “the Nonparty shall deliver the instant store to the Defendant on April 1, 2012, and not pay KRW 330 million until March 31, 2012, or if the right to rent the instant store is transferred to a third party in advance or is in arrears on at least three occasions a month basis, the instant store shall be immediately delivered.” On December 29, 2011, after the said declaration of termination, the Defendant entered into a sub-lease agreement with the third party on the instant store.

B. The lower court determined as follows based on the aforementioned factual basis.

1) Since the instant lease transfer and sub-lease contract was terminated due to the non-party’s violation of his duty, the Defendant may confiscate the security money received from the non-party pursuant to the penalty provision and refuse to return it, barring any special circumstance.

2) However, the following circumstances are as follows: ① KRW 200,000,000 of the lease price of KRW 530,000,000 constitutes KRW 400,000; KRW 330,000,000 of the unpaid remaining amount; ② the amount equal to KRW 200,000,000 in the sublease contract; ② even if the non-party does not pay a rent, most of monetary damages can be compensated from the deposit of the pre-paid down payment contract; the non-party is liable to pay a rent of KRW 50,000,000,000,000,000,000,000 won is more than KRW 50,000,000,000,000,000,000,000,000,000,000,000,000,000,000,00,000,00.

3) Therefore, the Defendant’s assertion that KRW 200,000,000 which was received from the Nonparty pursuant to the penalty provision of this case was confiscated is with merit only within the scope of KRW 53 million, and the remainder of the above assertion is without merit.

3. Judgment of the Supreme Court

However, the lower court’s aforementioned determination on the penalty clause of this case is difficult to accept for the following reasons in light of the legal doctrine as seen earlier.

A. Payment of premiums, which is incidental to the lease of a building for business purposes, does not constitute a content of a lease agreement, and is, in itself, the transfer of intangible property value, such as tangible business facilities, fixtures, etc., or tangible business facilities, customers, credit, business know-how, or business advantages depending on the location of a store, or the cost for use for a given period. In a case where premiums have been paid from a lessee to a lessor, the lessor shall not be obligated to return the premiums unless there is an agreement opposing the initial lease. However, the lessee may recover the amount of the premiums by transferring the property value to another person or allowing the lessor to use the same. Therefore, even if the lessor acquired the property value at the end of the lease, or the lessor agreed to continue to use the leased value for a given period of 00 weeks or more, it cannot be deemed that the lessor has the duty to return the leased value for a given period of 100 weeks or more due to the agreement that the lessor had no special circumstances such as the lease’s termination of the lease.

Therefore, if the non-party agreed to pay KRW 330 million to the defendant in the contract of transfer and sub-lease of the right of lease of this case constitutes the premium with the above nature, there is considerable room to view that the whole amount of the premium of this case should be attributed to the defendant, who is the transferor and sub-lease, as long as the prohibition of sub-transfer or sub-lease of the right of lease is agreed as recognized by the court below, and the contract of transfer and sub-lease of this case is terminated due to the reasons attributable to the non-party, the transferee

Therefore, in the event that the contract is terminated due to the reasons attributable to the non-party when the premium was not paid in KRW 30 million, the contract was concluded to confiscate KRW 200 million equivalent to the deposit amount that is much smaller than that of the defendant in order to compensate for the damages suffered by the defendant due to the price of the site of the premium in the future (the defendant is the person who agreed to the purport that the penalty provision in the case of this case shall not be subject to separate liability in addition to forfeiture of KRW 200,000,000,000,000 won, unlike ordinary penalty). It is difficult to view that the agreed penalty amount is too heavy compared to the profits the defendant obtained.

B. Furthermore, in interpreting the area of private autonomy, such as the contract for the transfer of the right of lease and the sub-lease through the public order and good morals, it shall be very careful, such as comprehensively examining the details and contents of the contract. According to the records, in concluding the contract for the transfer of the right of lease and sub-lease, there is no circumstance to deem that the defendant was in a superior position to compel the non-party to engage in the contract for the transfer of the right of lease and sub-lease, while the contract for the transfer of the right of lease and sub-lease of the right of lease of this case does not have a penalty clause against the non-party, but also has a penalty clause against the non-party. The contract clause for the transfer of the right of lease of this case does not have a penalty clause against the non-party, and the amount of the penalty is limited to the agreement that the non-party is 400

Nevertheless, the lower court did not fully reflect the aforementioned details and content of the conclusion of the contract, and did not consider the Nonparty’s failure to perform the duty to transfer the right to lease and sub-lease the instant damages incurred to the Defendant due to the non-party’s nonperformance of the duty to lease the right to lease and sub-lease the Defendant committed an error of declaring partial invalidation of the instant penalty provisions on the sole basis of the circumstances indicated in its reasoning, which are merely an extremely formal and tactical basis on the premise that the said damage was merely an amount equivalent to the rent, without sufficiently examining whether the instant premium was included in KRW 30 million.

C. Ultimately, the court below erred by misapprehending the legal principles on the validity of the penalty agreement, thereby affecting the conclusion of the judgment. The ground of appeal assigning this error is with merit.

4. Conclusion

Therefore, the judgment of the court below is reversed and 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 Lee In-bok (Presiding Justice)