Contracts Can Now Be Made with Variable Interest Rates Based on Inflation and Interest Rates

Introduction of Variable Interest Rate System
Civil Act Amendment Bill Announced by Ministry of Justice

[Image source = Yonhap News]

The ‘variable interest rate system,’ which aims to add flexibility and adaptability to the fixed statutory interest rate under civil law according to market conditions, will be introduced. The plan is to respond flexibly to economic situations by considering inflation rates, base interest rates, market interest rates, and other factors. This is intended to prevent unreasonable profits and losses in creditor-debtor relationships.

On the 7th, the Ministry of Justice announced a legislative notice for the ‘Civil Act Amendment Bill’ centered on this content. The current Article 379 of the Civil Act will be amended to include a clause stating that ‘the base interest rate set by the Bank of Korea, the interest rate prevailing in the market, the inflation rate, and other changes in economic conditions’ will be taken into account, thereby introducing the variable interest rate system.

In addition, the doctrine of ‘undue pressure’ recognizing the cancellation of declarations of intent due to unfair interference will also be introduced. Until now, cancellation of declarations of intent was only possible due to reasons such as mistake, fraud, or coercion, but this amendment aims to allow cancellation when decision-making is unfairly interfered with due to psychological dependence or close trust relationships.

If a significant change in circumstances occurs after a contract is established, previously only contract rescission or termination was possible, but going forward, contract ‘modification’ will also be allowed. If modification is difficult, the contract may be rescinded or terminated. Furthermore, the general provisions on non-performance of obligations will be revised to explicitly expand the scope of non-performance, thereby broadening the application of restoration and periodic compensation.

The Ministry of Justice stated, “We focused on enhancing the normative power of the Civil Act and making it easy and convenient for the public to use,” adding, “We expect that modernizing the Civil Act will improve public convenience and reliability.”

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