‘Material’ breach

1. Breach

Non-performance of contractual obligation, or a performance which is not in accordance with the contract, would constitute an instance of breach.

Wrongfulness of a breach

2000Da47361 (dated 27 December 2002; an agreement to donate concluded under duress was not performed; non-performance was held to be prima facie ‘wrongful’): Breach of contract is in itself assessed to be ‘wrongful’. Only in exceptional, extraordinary circumstances, it may be possible that the breach can be found to be ‘justified’. (re-affirmed in 2011Da85352; land owners challenging the housing re-development project and – erroneously – refused to convey the lands. The refusal was held to be wrongful and the land owners judged to be ‘at fault’)
2011Du2477: A pension fund withheld some portion of pension payments to some of the retired public servants in accordance with a statutory provision which required withholding of a portion of pension payments if the retiree has other incomes (Public Servants Pension Act, Article 47). But the statutory provision was later declared unconstitutional by the Constitutional Court. The retirees brought lawsuits to claim withheld portions together with delay damages. The Supreme Court held that since the relevant provision is retroactively invalidated, the pension fund who withheld the portion of payments must, in principle, be found to be in wrongful breach of the pension contract (even if it only did what the statute required it to do at the relevant time). The Supreme Court, however, ruled that the delay damage (delay interest) need only be paid after the date the statute was declared unconstitutional as the breach was exceptionally “not wrongful” because i) the unconstitutionality of the provision was not self-evident; ii) the pension fund was required by law to abide by the statutory provision while it was not struck down; and iii) the pension fund had no power to influence the legislative process.

Fault

The party committing a breach is presumed to be at fault. (Art. 390. The party in breach must argue and prove that its act was neither intentional nor negligent.)
In practice, other than force majeure, the court rarely accepts the defence of no fault. 2001Da1386: (천재지변이나 이에 준하는 경제사정의 급격한 변동 등 불가항력으로 인하여 목적물의 준공이 지연된 경우에는 수급인은 지체상금을 지급할 의무가 없다고 할 것이지만, 이른바 imf 사태 및 그로 인한 자재 수급의 차질 등은 그와 같은 불가항력적인 사정이라고 볼 수 없다.)
대법원 2007. 12. 27 선고 2006다9408 판결: 채무불이행으로 인한 손해배상액이 예정되어 있는 경우에는 채권자는 채무불이행 사실만 증명하면 손해의 발생 및 그 액을 증명하지 아니하고 예정배상액을 청구할 수 있고, 채무자는 채권자와 채무불이행에 있어 채무자의 귀책사유를 묻지 아니한다는 약정을 하지 아니한 이상 자신의 귀책사유가 없음을 주장ㆍ입증함으로써 예정배상액의 지급책임을 면할 수 있다. 그리고 채무자의 귀책사유를 묻지 아니한다는 약정의 존재 여부는 근본적으로 당사자 사이의 의사해석의 문제로서, 당사자 사이의 약정 내용과 그 약정이 이루어지게 된 동기 및 경위, 당사자가 그 약정에 의하여 달성하려고 하는 목적과 진정한 의사, 거래의 관행 등을 종합적으로 고찰하여 합리적으로 해석하여야 하지만, 당사자의 통상의 의사는 채무자의 귀책사유로 인한 채무불이행에 대해서만 손해배상액을 예정한 것으로 봄이 상당하므로, 채무자의 귀책사유를 묻지 않기로 하는 약정의 존재는 엄격하게 제한하여 인정하여야 한다.
Sale, contract for a work, lease: if a breach is committed, the breaching party’s fault is almost always recognised.
Contract to treat a patient: if the physician applied procedures which are within the bounds of acceptable practice, fault is not recognised. It is not even clear whether a ‘breach’ can be recognised in the first place.

2. Effect of a breach

The aggrieved party may compel the performance in so far as it is possible to do so (Article 389 of KCC);
Alternatively, the aggrieved party may, if the breach is material, terminate the contract, usually with retroactive effect (Articles 543-553);
Additionally, the party may seek compensation for any foreseeable loss incurred as a result of the breach (Article 390 of KCC).
The victim of a breach may choose between a reliance measure of damages and a performance measure of damages. Supreme Court Judgment 2002Da2539, dated 11 June 2002; Supreme Court Judgment 2001Da75295, dated 23 October 2003.

3. Materiality of a breach

Supreme Court Judgment 2005Da53705, dated 25 November 2005
In order to terminate a contract, the breach must be about an obligation which is indispensable to achieve the purpose of the contract. A breach of an incidental obligation which has little importance would not be a ‘material breach’. In order to be ‘material’, the breach must be about an obligation which is important enough so that without its proper performance the purpose of the contract cannot be achieved and the parties would not have entered into the contract.
This is a question of fact which must be assessed in light of the parties’ intention which was expressed or reasonably inferred from objective circumstances existing at the time of entering into the contact.
While a particular obligation may not, in itself, be of great value, if its discharge is of critical importance to the parties, the breach thereof will be judged to be a material breach.
The content and the purpose of the contract, the consequences of non-performance of the obligation in question should all be taken into account in this assessment.