[1] The meaning of “a claim with a period of less than one year” under Article 163 subparag. 1 of the Civil Act, which requires a three-year short-term extinctive prescription

[2] The concept and essential function of financial lease

[3] In a case where the period of extinctive prescription of the monthly rent claim based on the water purifier lending contract concluded by Gap and Eul was at issue, the case holding that the extinctive prescription period of the monthly rent claim is three years since the above lending contract cannot be deemed as a financial lease in light of all circumstances

[1] Article 163 subparag. 1 of the Civil Act provides that the term “claim with a period of less than one year” under Article 163 subparag. 1 of the Civil Act means a claim paid regularly for a period of less than one year.

[2] A financial lease is a transaction in which a lessee collects money, interest, and other expenses for a leased object from a lease fee paid during the lease without a lessee who newly purchased or leased a specific object selected by the lessee and is liable for direct maintenance and management of the leased object. The essential function of a financial lease is to provide the lessee with financial convenience for the acquisition fund of the leased object.

[3] In a case where the period of extinctive prescription of monthly rent claim based on the water purifier lending contract concluded by Gap and Eul is at issue, the case reversing the judgment below that the extinctive prescription period is five years on the ground that the above lending contract was concluded for the purpose of lending the water purifiers owned by Gap company to many and unspecified persons, such as Eul who wants to use them, and the essence of the contract is not the provision of financial convenience for the acquisition of leased goods, but the provision of opportunity to use leased goods, and monthly rent in the above lending contract is not the payment of principal, interest, expenses, etc. for the financial convenience of the funds acquired by Gap company provided to Eul, but the above lending contract is not a financial lease, and it is not a consideration for the use of water purifiers. Thus, the monthly rent claim based on the above lending contract is "a claim for the payment of rent or other money for a period of not more than one year" as stipulated in Article 163 subparagraph 1 of the Civil Act, and the extinctive prescription period is at least three years.

[1] Article 163 subparagraph 1 of the Civil Code / [2] Article 2 subparagraph 10 of the Specialized Credit Finance Business Act / [3] Article 163 subparagraph 1 of the Civil Code, Article 2 subparagraph 10 of the Specialized Credit Finance Business

[1] Supreme Court Decision 96Da25302 delivered on September 20, 1996 (Gong1996Ha, 3145) Supreme Court Decision 2005Da65821 Delivered on February 22, 2007 / [2] Supreme Court Decision 97Da26098 Delivered on November 28, 1997 (Gong1998Sang, 62)

Alcarwon Co., Ltd.

Defendant (Attorney Kang Dong-hee, Counsel for defendant-appellant)

Seoul Southern District Court Decision 2012Na6252 decided February 7, 2013

The judgment below is reversed, and the case is remanded to Seoul Southern District Court Panel Division.

The grounds of appeal are examined.

The lower court rejected the Defendant’s defense of the expiration of extinctive prescription, on the ground that the term of extinctive prescription of the monthly lending fee claim is five years, on the ground that the instant lending agreement between UDF and the Defendant (hereinafter “instant lending agreement”) constitutes a financial lease.

However, such judgment of the court below is not acceptable.

“Claims prescribed by a period of less than one year” under Article 163 subparag. 1 of the Civil Act that takes the short-term extinctive prescription for three years means claims paid regularly for a period of less than one year (see, e.g., Supreme Court Decisions 96Da25302, Sept. 20, 1996; 2005Da65821, Feb. 22, 2007).

In addition, a financial lease is a transaction in which a lessee newly acquires or borrows a specific object selected by a lessee and is liable for direct maintenance and management of such leased object for a certain period without any direct maintenance and management thereof, and the lessee is liable for the acquisition of the leased object, its interest, and other expenses, and its essential function is to provide the lessee with financial convenience for the acquisition of the leased object (see Supreme Court Decision 97Da26098 delivered on November 28, 1997).

However, the following circumstances revealed by the evidence duly admitted by the court below, i.e., the lending contract of this case was concluded to lend a ion water purifier owned by U.S. E.S. E. for the purpose of lending to many and unspecified persons, including the defendant who wants to use it. The essence of the lending contract is not providing financial convenience for the acquisition of leased goods, but providing the opportunity to use leased goods. The monthly lending fee in the lending contract of this case is not the nature of the installment payment of principal, interest, expenses, etc. for the financing convenience of the funds acquired by U.S. E. E. L.S. to the defendant, but is the consideration for the use of E.S. water purifier. Unlike ordinary financial leasing, the defendant can terminate the lending contract at any time during the contract period of 36 months, unlike ordinary financial leasing, and the repair and completion exchange for the failure caused by a cause other than the defendant's care. In light of the legal principles on the concept of financial leasing, the lending contract of this case cannot be deemed as a financial leasing.

Therefore, in light of the Supreme Court precedents on short-term extinctive prescription under the Civil Act as seen earlier, the monthly rent claim based on the instant lending contract is “a claim for the payment of money within a three-year short-term extinctive prescription period as stipulated under Article 163 subparag. 1 of the Civil Act,” and such extinctive prescription period shall be deemed three years.

Nevertheless, the court below held that the loan contract in this case is a financial lease and the period of extinctive prescription of the monthly loan claims is five years. In so doing, the court below erred by making a decision contrary to the precedents of the Supreme Court on short-term extinctive prescription under the Civil Act and affected the conclusion of the judgment, and there is a justifiable ground for appeal pointing this out.

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Shin (Presiding Justice)