Supreme Court: "For Contracts Substantially Performed, Only 'Civil Law Termination' Allowed Upon Change of Circumstances"

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[Asia Economy Reporter Heo Kyung-jun] The Supreme Court has ruled that when a contract is terminated due to a change in circumstances after a substantial part of the contract has been performed, only the future portion of the contract can be terminated.

Contracts are divided into "one-time contracts" and "continuous contracts." In continuous contracts, which are performed over time and not one-time contracts such as sales, gifts, or loans, if a substantial part has been performed, termination can only apply to the unfinished portion of the contract.

The Supreme Court's First Division (Presiding Justice Kim Seon-su) overturned the lower court's ruling that partially ruled in favor of plaintiffs A and B in their appeal against overseas migration agency C for a refund of fees, and remanded the case to the Seoul Central District Court on the 5th.

A and B entered into a contract with overseas migration agency C in 2011 for the arrangement of unskilled employment immigration to the United States. Although they obtained labor and immigration permits from the U.S. Department of Labor, the immigration process stalled after a decision for "additional administrative review." With no progress by 2019, A and B filed a lawsuit demanding a 90% refund of the fees from C, claiming contract termination.

The trial focused on whether the contract could be subject to "contract rescission" under Article 548 of the Civil Act, rather than "contract termination" under Article 550, which generally causes effects prospectively unless special circumstances exist. Rescission nullifies the contract from the beginning, obligating the rescinding party to restore the original state, whereas termination cancels the contract's effect from the termination point forward, leaving the contract intact until then.

The first and second trials accepted the plaintiffs' claim that the contract was rescinded due to C's responsibility and ruled that C must refund about 18 million KRW each to A and B, which is 90% of the fees.

However, the Supreme Court found the calculation to be incorrect. It held that the contract between the parties should be regarded as terminated, requiring a recalculation of the settlement scope.

The court stated, "C has the obligation to continuously and faithfully perform the arrangement and processing tasks to ensure the long-term employment immigration process proceeds smoothly in stages," and judged, "This contract is a continuous contract."

It added, "Since a substantial part of the contracted work has already been performed and the plaintiffs seek to extinguish the contract's effect due to a 'change in circumstances,' only termination can be applied."

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