Recognition of an Asset Trust Company’s Liability for Damages for Non-performance of Its Contractual Obligation to Purchase Real Property

LEE & KO Obtains Victory for Client in Case for Recognition of an Asset Trust Company’s Liability for Damages for Non-performance of Its Contractual Obligation to Purchase Real Property after Establishing a Real Property Investment Company.

In a lawsuit brought by a construction company (“Plaintiff”) against an asset trust company (“Defendant”) for damages of KRW 29.4 billion in relation to a contract for Defendant’s purchase of a building to be constructed by Plaintiff (the “Contract”), the Seoul Central District Court ruled in favor of Plaintiff on February 22, 2012, holding that Defendant is liable for damages for the non-performance of its contractual obligation to purchase the real property (2010KaHap88199).

In the lawsuit, Defendant argued that: (a) in circumstances where it is not allowed to purchase the building under the Real Property Investment Company Act of Korea or its articles of incorporation, the Contract should be interpreted as a conditional agreement, under which Defendant must perform the purchase obligation only upon the satisfaction of a condition that Defendant has successfully gathered investors to purchase the building and established a real property investment company (pursuant to the said law) and obtained certain business approvals from the Ministry of Land, Transport and Maritime Affairs (the “MLTMA”); and (b) because, due to the unforeseeable global financial crisis, Defendant could not gather necessary investors, resulting in its failure to establish a real property investment company and obtain approvals from the MLTMA, Defendant should not be held liable for the damages, as it is exempt from any liability under Article 5 of the Contract (“if a real property investment company established by Defendant has not obtained approvals from the MLTMA”).

However, the court rejected both arguments, ruling that: (1) under the strict interpretation of the legal instrument concerned (e.g., a sale and purchase contract), it cannot recognize that the Contract was intended to be a conditional agreement (as argued by Defendant); and (2) Article 5 of the Contract does simply provide for a situation in which approvals from the MLTMA are not obtained, but such provision does not cover a situation in which Defendant has failed to establish a real property investment company due to its failure to gather necessary investors. The court decided that Defendant should pay Plaintiff damages calculated as the difference between the purchase price of the building as agreed under the Contract and the appraised fair market value of the building.