Injehakwon vs Gimhae-si, Land Sold but Why the Dispute? ... Legal Battle Over 'Excess Profits' and 'Extinction of Rights' Begins

Gimhae City: "Since the Hospital Was Not Built, Capital Gains Should Be Recovered"

Inje Hakwon: "Only Looking at the Sale Price, What About the Money Spent Over 20 Years?"

Debate Over Interpretation of the 'Statute of Limitations' Starting P

In Gimhae-si, Gyeongnam, there is intense conflict between the Inje Foundation and Gimhae City over the sale of the planned site for Baek Hospital in Samgye-dong.

The land was sold by the Inje Foundation at the end of 2021, but recently Gimhae City suddenly initiated a recovery measure regarding the excess profits. Gimhae City's logic is that “since the land purchased to build a hospital was sold at a higher price for a different purpose, the profits should be reclaimed.”

At first glance, Gimhae City's position seems reasonable. However, when examining the facts that occurred over the 20 years from the land purchase to the sale, it is difficult to ignore the Inje Foundation's rebuttals and appeals.

In September 1992, after the old Army Engineer School in the Samgye-dong area relocated, Gimhae City designated the vacant site as the ‘Northern District Residential Development Planned Area.’ Subsequently, in May 1996, the Inje Foundation and Gimhae City signed a preliminary contract for the sale of a 34,193㎡ site in the Northern Residential District for the construction of a comprehensive medical facility.

At that time, Gimhae City needed a comprehensive medical facility to prepare for the rapidly increasing population, and the Inje Foundation needed to respond to regional medical demand and expand medical education facilities, so their interests aligned.

However, after signing the preliminary contract, the school foundation's management deteriorated due to the IMF crisis, forcing them to abandon plans to build the comprehensive medical facility. The Inje Foundation, which had paid the deposit twice, faced difficulties in securing funds and even encountered a financial crisis within the school. To make matters worse, the decline in school-age population and the government's half-price tuition policy compounded the foundation's financial difficulties.

The Inje Foundation repeatedly requested contract termination for the site, but Gimhae City notified them that it was not possible, leading to repeated disputes. Starting in March 1998, the Inje Foundation expressed its intention to abandon hospital construction and requested contract termination from Gimhae City, and in February 1999, they requested a refund of the deposit, which was refused.

In August 2003, they again requested contract cancellation from Gimhae City. However, Gimhae City consistently notified that it was not possible, and eventually, in December 2003, a formal contract was signed for approximately 14.167 billion KRW.

Although the formal contract was signed, the school foundation claimed it lacked the capacity to build the comprehensive medical facility and requested a change of use or expressed willingness to transfer the site to another institution. The foundation's finances had rapidly deteriorated due to the government's half-price tuition policy and the decline in school-age population. Meanwhile, in April 2007, the Ministry of Education audit concluded that the Samgye-dong hospital site should be disposed of and the proceeds accounted for in the school fund.

Following the comprehensive audit by the Ministry of Education, which instructed to find a specific utilization plan or dispose of the site and account for the proceeds in the school fund, the Inje Foundation proceeded with the sale of the site.

The Inje Foundation announced a public sale in September 2012 and continuously attempted to sell the site from 2017. On October 28, 2021, they notified Gimhae City by official letter of the site sale.

On November 15, 2021, the Inje Foundation sent a reply requesting that “the buyer must be made fully aware before the sale that the site cannot be used for purposes other than the designated comprehensive medical facility.” On December 22 of the same year, they also replied requesting that “such conditions be explicitly stated in the sales contract.”

The construction company G, which purchased the site, understood the sales condition that use change was not allowed and has currently applied to the city for a change of use to build public housing.

The former site of Gimhae Baek Hospital located in Samgye-dong, Gimhae-si, Gyeongnam. [Image source=Gimhae-si]

In response, Gimhae City claims that it can exercise the right to cancel the contract agreed upon with the Inje Foundation in 2003 and invalidate the sale of the site by Inje University and reclaim it.

The right to cancel the contract stipulates that if Inje Foundation does not build medical facilities or transfers the land to a third party without Gimhae City's consent, the city can cancel the contract.

According to this contract, Gimhae City argues that before ownership is transferred to a third party, the city can recover ownership by retaining 10% of the sale price as a penalty and returning 12.751 billion KRW to Inje University. Furthermore, if ownership has been transferred to a third party, the city can claim disposal profits, interest, and other amounts as a return claim.

The key issue is the interpretation of the statute of limitations period for exercising the right to cancel the contract.

The sales contract for the site did not specify a period for exercising the right to cancel, so the legal consensus is that, according to Article 162, Paragraph 2 of the Civil Act, the statute of limitations should be considered 10 years.

Gimhae City claims, “We believe the right to cancel can be exercised for 10 years from 2017, when the Inje Foundation began pushing for the sale,” while the Inje Foundation argues, “The 10-year statute of limitations starts from 2003, when the contract was signed, so the right to cancel could only be exercised until 2013.”

An Inje Foundation official explained, “Supreme Court precedents and many legal experts interpret the statute of limitations as starting from the date the right arises, which is after the contract is signed, and in real estate cases, it begins from the completion of registration transfer.”

They added, “The statute of limitations is 10 years from 2003 when the contract was signed, so after 2013, any special agreements or legal effects are invalid.”

Inje University.

Some also argue that the financial gains from the Inje Foundation's sale should be reclaimed. The school foundation contracted to sell the site for about 14.2 billion KRW but proceeded with a sale contract at 38.51 billion KRW. Therefore, they argue that the profit should be reclaimed.

In response, the Inje Foundation states, “This claim is a simple arithmetic logic subtracting the purchase price of 14.17 billion KRW from the sale price of 38.51 billion KRW, but after deducting various costs incurred over 20 years, it is actually a loss.”

The real estate industry estimates that, in addition to the purchase price of 14.17 billion KRW, the Inje Foundation likely paid nearly 10 billion KRW in property tax and comprehensive real estate tax during the holding period. It is also analyzed that corporate tax and corporate income tax on capital gains could be close to 3 billion KRW.

The Inje Foundation explains that sale proceeds can only be used for educational facilities for students (construction funds) according to Article 28 of the Private School Act and Article 11 of the Enforcement Decree, and cannot be used privately for school staff salaries or allowances.

A Gimhae City official said, “The city’s large central hospital has closed, and there is no proper progress in building medical facilities, so the medical environment is very poor. We believe it is wrong for the medical hub construction plan, which was promoted through mutual agreement, to be swayed by unilateral circumstances.”

This content was produced with the assistance of AI translation services.