An apartment sales contract based on a deferred payment system of intermediate payment interest refers to a contract under which after purchasers of the apartment will take out a loan for intermediate payment from a bank designated by a developer of the apartment and the developer pays the bank interest of the loan in place of the purchasers for a certain period and the purchasers will pay the developer the amount equivalent to the interest payment by proxy paid until the expiration date of the designated move-in period.

The developer of A Apartment parceled out apartment units based on the deferred payment system of intermediate payment interest. However, some purchasers failed to pay the balance of the sales price. As such, the developer terminated the apartment sales contract with the purchasers in default and acquired claims for default penalty, late fees of sales price payment, and interest paid by proxy. Company B, a constructor of A Apartment, was assigned above claims and other claims in full ancillary to the above claims. Afterwards, when Company B went bankrupt, the trustee of Company B filed a claim against the purchasers for the assigned claim amount.

On the first issue of the scope of return of interest paid by proxy, the trial court dismissed the plaintiff’s claim on this issue and held that the purchasers are not responsible for the return of interest payment by proxy that the developer paid on behalf of the purchasers “after the termination of the apartment sales contract” as such an amount was incurred due to the reason attributable to the developer who failed to repay the loan principal and interest immediately.

DR & AJU represented the plaintiff at the appellate court, arguing that the purchasers should also pay the loan interest that the developer paid in place of the purchasers even after the termination of the apartment sales contract on the grounds of the following: (i) Based on the interpretation of the apartment sales contract and the loan agreement for intermediate payment, the developer has no obligation to pay the purchasers’ loan for intermediate payment by subrogation after termination of the apartment sales contract; (ii) It is difficult to predicate that causal relationship between the developer’s default in payment of loan principal and interest and the accrual of loan interest after the termination of the apartment sales contract because the interest paid by proxy after the termination of the contract included loan interest and overdue interest, accrued during the period from the end of the payment by proxy until the termination of the contract; and (iii) The nature of an indemnity claim that the developer acquired equals to a claim for restitution of unjust enrichment which does not require the claiming party to be non-attributable to the claim.  

On the second issue of addition of legal interest and its scope, the trial court decided that the defendants should repay the interest payment by proxy with late interest accrued from the following day when the plaintiff delivered its demand for the performance to the defendants at the rate of 6% per annum, as the trial court determined that the obligation for repayment of the loan interest paid by proxy prior to the termination of the apartment sales contract is a debt with no fixed term of repayment.

In response to this, DR & AJU pointed out that the claim for the repayment of interest payment by proxy has a nature of restitution obligation arising under the termination of the apartment sales contract. In this regard, DR & AJU argued that the late interest for the interest payment by proxy therefore shall be equal to the statutory interest rate applicable in commercial activities of 6% per annum accruing from each date of interest payment by proxy without respect to the plaintiff’s claim for performance, in accordance with Article 548(2) of the Civil Act and Article 54 of the Commercial Act.

The appellate court accepted DR & AJU’s argument on both issues and held that (i) the purchasers should also repay the intermediate loan interest paid by the developer even after termination of the apartment sales contract; (ii) as per interest paid by proxy before the termination of the contract, the statutory interest rate in commercial activities accruing “from the date of payment by proxy” and not from the following day of the plaintiff’s demand for performance.

This is the first precedent that ruled on the scope and nature of the purchasers’ obligation to repay interest payment by proxy upon termination of an apartment sales contract based on a deferred payment system of intermediate payment interest. However, depending on the cases, it cannot rule out the possibility that, unlike this case, “it can be determined that the developer agreed to assume an obligation to repay the loan principal and interest in lieu of discharging the developer’s obligation to return the apartment purchase price paid to the developer.”

Consequently, in the case where a newly-built apartment is distributed based on a deferred payment system of intermediate payment interest, it is advisable to clarify who will bear the obligation to repay the intermediate payment loan, either developer or purchasers, when the apartment sales contract is terminated.