In an unjust enrichment action concerning the effect of a performance deposit made pursuant to a first-instance judgment with provisional execution, Kim & Chang represented the plaintiff, a debtor. Although the debtor had validly deposited the funds awarded under the ruling, the creditor refused to accept the deposited funds and demanded additional late-payment damages accruing after the deposit date. The creditor argued that the statutory rate of 12% per annum continued to accrue until the deposited funds were actually withdrawn or received.

Through a carefully constructed substantive and procedural analysis, together with extensive comparative-law research, our firm demonstrated the lack of merit in the creditor’s position. As a result, only a few months after the action was filed, the court rendered a full judgment in favor of the plaintiff, holding in substance that a deposit made in accordance with a judgment subject to provisional execution is valid, and once the judgment becomes final and conclusive, the effect of definitive extinguishment of the debt and exemption from default liability arises retroactively as of the time of deposit.

Pursuant to Article 213 (1) of the Civil Procedure Act, judgments involving property claims typically include an ex officio declaration of provisional execution. When a debtor receives such a judgment, standard practice and Supreme Court precedents dictate that the debtor may tender the awarded principal and interest during the appeal process to halt the accrual of high late-payment damages and prevent enforcement actions. Should the creditor reject the tender, the debtor can deposit the funds with the court under Article 487 of the Civil Code.

Recently, however, some creditors have selectively and inaccurately relied on Supreme Court precedents concerning restitution of provisional execution proceeds (including Supreme Court Decision 2011Da17847) to argue that late-payment damages continue to accrue until the creditor actually withdraws or receives the deposited funds. On that basis, they have refused to accept the deposit and pressured debtors to pay additional late-payment damages accruing after the date of deposit at the statutory rate. To avoid the risk of compulsory enforcement, the debtor in this case paid the additional late-payment damages under reservation of rights and then filed this action to recover those amounts as unjust enrichment.

In this case, the court ruled fully in favor of the plaintiff (the debtor), holding that a deposit for performance made pursuant to a provisionally executable judgment is valid. Furthermore, if the judgment is affirmed on appeal without modification to the provisional execution order or the merits, the debt is retroactively extinguished as of the deposit date, thereby exempting the debtor from liability for further default interest.

In reaching this conclusion, the court relied on several key grounds:
 

• Article 460 of the Civil Code requires only an objective offer of performance conforming to the contents of the obligation. Accordingly, a “conditional tender of performance” made while reserving appellate rights is also lawful as long as it objectively conforms to the contents of the obligation, and the creditor may not refuse acceptance on the ground that the debtor reserved its appellate rights.

• The deposit-for-performance regime under the Civil Code was designed to protect a debtor who intends and is able to perform but is unable to be released from the debt relationship due to the creditor’s circumstances. For that reason, if the creditor refuses acceptance after a judgment subject to provisional execution, the debtor must be deemed entitled to make a valid deposit for performance.

• Since the effect of performance arising from provisional execution is subject to the condition subsequent that the declaration of provisional execution or the merits judgment be overturned on appeal, and since a legal act subject to a condition subsequent loses effect only upon the fulfillment of that condition under Article 147 (2) of the Civil Code, the performance deposit should be deemed effective as of the time it was made, so long as the declaration of provisional execution or the merits judgment is not overturned on appeal.

• If a debtor were held to remain in default even after validly making a deposit for performance, despite the creditor’s refusal to accept the funds, the debtor would suffer an unfair double burden—the loss of the benefit of use of the funds and additional late-payment damages—whereas the creditor, having voluntarily chosen to forgo the benefit of use of the funds, should bear the resulting economic loss as a matter of equity.
   

The court further held that because a performance deposit made in conformity with the debtor’s obligation necessarily presupposes a valid tender of performance under Article 460 of the Civil Code, the debtor cannot be regarded as bearing any default liability after the deposit, even under Article 461 of the Civil Code, which provides that a tender of performance relieves the obligor from liability for non-performance from that time onward, independently of the retroactive effect of the deposit.

We constructed a comprehensive legal framework through an extensive review of Korean case law and scholarly commentary, comparative-law analysis of German and Japanese laws, and submission of an expert opinion by a highly regarded professor of civil law. We were successful in securing a complete victory within just six months of filing.

This decision confirms that a debtor who receives a district court judgment subject to provisional execution may, while properly exercising appellate rights, safely prevent the expansion of high late-payment damages of up to 12% per annum by making a valid tender of performance and deposit for performance. It is also significant in practice because it curbed the creditor’s attempt to increase late-payment damages by arbitrarily refusing acceptance.

For companies involved in large-scale damages claims or monetary disputes, where a district court judgment subject to provisional execution has been rendered, it is essential to strategically use valid tender-of-performance and performance-deposit procedures in order to manage the substantial risk of late-payment damages during the appellate process.

[Korean Version]