Developer enters rehabilitation: full sale price confirmed as a claim

Background

Our two clients bought the apartments they had been renting when the units were converted for sale, and paid the full price. The developer had agreed to remove existing mortgages within one month of the final payment but did not. When our clients rescinded and sued, the developer entered corporate rehabilitation proceedings.

The issue

Whether removing the mortgages was a 'principal obligation' whose breach justified rescission, and how much our clients' refund claims should be confirmed at in the rehabilitation.

Our approach

Our clients argued that they had validly rescinded after the developer failed to remove the mortgages despite a set deadline. Once the developer entered rehabilitation, they had the receiver take over the suit and converted it into an action to confirm rehabilitation claims for the refund.

The court's reasoning

The court held that leftover mortgages exposed buyers to the risk of losing ownership and restricted use of the property, so removing them was a principal obligation essential to the contract's purpose. The receiver's points, that the units were bought below market and the deadline had been extended, did not make it a minor obligation, and the rescission was upheld.

Outcome

The court confirmed each client's rehabilitation claim at the full price of about KRW 147.39 million plus interest, conditioned on returning the unit at the same time. It set interest at 6% a year rather than the 12% our clients sought, dismissing that part. Each side bore its own costs.

What this case means

Even after the other party enters rehabilitation, having the receiver take over the suit and confirming the claim gives a basis for payment under the rehabilitation plan.

This is the outcome of an individual case and does not guarantee the same result in similar matters. Some facts have been generalized to protect the parties involved.