The Boundary between Avoidance and Termination of Bilateral Contracts: Simultaneous Performance, Revival of the Underlying Claim, and the Right of Termination

Question

Where the counter-performance that the debtor received from the counterparty to an avoided act is a pecuniary gain, a rule applies that, absent special circumstances, the benefit is presumed still to exist. Up to what point does that rule operate at the stage of determining the scope of the restitution obligation? Once the presumption interacts with the procedural question of how the amount and form of a monetary claim are fixed at the litigation stage, the position of the party that raised the defence of simultaneous performance may change. A related question is what, and how much, the person obliged to make restitution must show in order to rebut the presumption.

Is the scope of the claim revived under Article 109(1) of the Debtor Rehabilitation and Bankruptcy Act confined to the claim that was the direct object of the avoided act? The central issues are whether, when payment of a promissory note is avoided and the note amount is returned, the underlying claim that was extinguished together with the claim on the note is also revived, and from what point damages for delay on the underlying claim so revived are to be calculated. Differences in the time and scope of revival substantially change the outcome of distribution and of claims to participate.

Where lies the boundary of the cases in which a bankruptcy trustee may exercise the right of termination under Article 335(1) of the Debtor Rehabilitation and Bankruptcy Act? If the same provision may apply, directly or by analogy, to public-law legal relationships bearing the characteristics of a bilateral contract, the practical issue becomes how to determine the reciprocal nature, interdependence and interconnection of the remaining performances in contracts such as implementation agreements for private investment projects, where the stage of progress and the outstanding rights and obligations are complex.

Material to check

First, the full texts of the three judgments should be read through. In the judgment in 2022Da211928, it should be confirmed sentence by sentence how the framing of the issues differed between the first instance and the appellate instance, in what form the scope of the appeal and the principle of prohibition of disadvantageous alteration were discussed, and at what stage the pecuniary nature of the counter-performance and the presumption that the benefit still exists were mentioned.

Next, the statutory texts should be compared directly. The wording and structure of Article 415 of the Civil Procedure Act, the effects of exercising the right of avoidance under Article 108(3), subparagraphs 2 and 4, of the Debtor Rehabilitation and Bankruptcy Act, the effect of revival under Article 109(1), and the rules on termination of bilateral contracts not yet fully performed by either party under Article 335(1) and (3) should be read side by side. The former Act on Public-Private Partnerships in Infrastructure and Article 27 of the General Act on Public Administration should also be checked in order to understand the nature of the public-law relationship.

Materials showing the substance of the contractual relationship should follow. Arranging in chronological order the text of the implementation agreement for the private investment project and any amending agreements, the documents on the grant and creation of the right of management and operation, the vesting of ownership of the facility and the time of handover, and a list of the obligations still outstanding at the operating stage makes it possible to set out the specific rights and obligations that remained at the time of the declaration of bankruptcy. Where an act is subject to avoidance, the circumstances of payment and of restitution should be traced in the same way.

Finally, the procedural record should be examined. The record should be searched for whether the claims stated in the complaint, the notice of appeal, the statement of grounds of appeal and the reply were altered, the basis on which the first instance calculated the monetary claim it recognised, when and in what form any defence of deduction or set-off was raised, and which parts the parties did not appeal. The procedural history not summarised in the judgment is often decisive for the application of the principle of prohibition of disadvantageous alteration.

Possible readings

One interpretation reads the scope of the restoration of claims and of the duty of restitution broadly. Where the consideration is a monetary benefit, the existing benefit is presumed, so unless the person subject to the duty of restitution rebuts the presumption, the scope of restitution broadens, and the restoration following avoidance is also regarded as extending beyond the claim that was the direct object of the avoided act to include the underlying claims that were extinguished together with it. According to this view, the purpose of the avoidance system of securing the effectiveness of creditor enforcement takes precedence, and procedurally as well the principle of prohibition of reformatio in peius should be strictly applied so as to prevent unfavorable changes that the appellant did not foresee.

Another interpretation draws the scope of the duty of restitution narrowly and views procedural changes flexibly. Because the presumption of existing benefit is an exceptional rule that operates only where the monetary nature of the consideration is recognized, it says that where the consideration is not a monetary benefit, the question of existence must be examined substantively. The restored claims, it likewise holds, should be measured by the claims directly extinguished by the avoided act, and the scope within which other claims extinguished together with them are also restored should be viewed restrictively within the framework of causation and foreseeability. At the same time, it emphasizes procedural flexibility to the effect that the organization of issues in the appeal instance should be permitted to some degree for the discovery of substantive truth.

The dispute also continues as to the bankruptcy trustee's right of termination. The broad view holds that Article 335, paragraph (1) of the Debtor Rehabilitation and Bankruptcy Act can be applied, or applied mutatis mutandis, to public-law legal relationships possessing the characteristics of a bilateral contract, so that if counter-value and interrelatedness remain among the performances outstanding at the time of bankruptcy, the right of termination should be recognized. The narrow view, emphasizing the peculiarities of the public-law legal relationship and the legislative purpose that the contract was designed to serve, contends that once one party has reached the stage of having already completed the corresponding performance, it is no longer a bilateral contract with neither party's performance completed, and therefore the right of termination should be denied.

What the decisions held

The judgment in 2022Da211928 clarified the scope of application of the principle of prohibition of disadvantageous alteration under Article 415 of the Civil Procedure Act. In a case in which only the party that had raised a claim of simultaneous performance appealed, the Court held that where the appellate court recharacterised the claim of simultaneous performance based on the monetary claim recognised in the first-instance judgment as a claim of deduction or set-off and, in accepting it, altered the content of that monetary claim to the appellant's disadvantage, this violates the principle of prohibition of disadvantageous alteration absent special circumstances. The judgment also set out the criterion that, where the counter-performance the debtor received from the counterparty to an avoided act is a pecuniary gain, the benefit is presumed still to exist absent special circumstances.

The judgment in 2018Da224781 construed broadly the scope of the counterparty's claim revived under Article 109(1) of the Debtor Rehabilitation and Bankruptcy Act. On the premise that the claim revived by avoidance is not confined to the claim that was the direct object of the avoided act but may include other claims, such as guarantee claims or insurance claims, that were extinguished together with the extinction of that claim, the Court held that where payment of a promissory note endorsed or transferred for the payment of an underlying obligation is avoided and the holder of the note returns the note amount, not only the claim on the note but also the underlying claim that was extinguished along with it is revived.

The judgment in 2017Da273441, on the premise that Article 335(1) of the Debtor Rehabilitation and Bankruptcy Act may apply, directly or by analogy, to public-law legal relationships bearing the characteristics of a bilateral contract, set out as the criteria for decision the reciprocal nature, interdependence and interconnection of the remaining performances. In a case in which a project operator that had concluded an implementation agreement for the construction and operation of an underground car park, and had been granted and was exercising the right of management and operation, was declared bankrupt, the majority opinion, taking into account the legislative purpose and public-law particularities of the former Act on Public-Private Partnerships in Infrastructure, the degree to which the agreement had progressed at the time of the declaration of bankruptcy, and the specific rights and obligations remaining to the parties, held that because the local government had already fully performed its obligation standing in an equivalent reciprocal relationship by creating the right of management and operation before the bankruptcy, the agreement did not constitute a bilateral contract not yet fully performed by either party and no right of termination arose. There was also a separate opinion that the implementation agreement was a public-law contract.

Practical checklist

First, the record should be aligned stage by stage to determine whether any claim was altered in the course of the litigation. Alongside the scope of the appeal, it should be checked how the defence of simultaneous performance was framed at first instance and how the content of the monetary claim was specified, whether the same claim was converted into a claim of deduction or set-off on appeal, and whether that alteration actually placed the appellant in a worse position. It should also be examined whether the record contains any circumstances that could be regarded as special circumstances.

Second, the nature of the counter-performance that the debtor received from the counterparty to the avoided act must be classified first. Whether the presumption that the benefit still exists applies depends on whether the counter-performance was a pecuniary gain or a transfer of property in kind or of a right, and even where the presumption applies, the materials capable of rebutting it should be identified. Because the amount and timing of the restitution obligation will differ, the accounting records and payment records should be arranged in chronological order.

Third, the scope of the claims revived by avoidance should be checked item by item of the claim. The basis and scope of revival differ depending on whether a claim was the direct object of the avoided act or another claim extinguished together with the extinction of that claim, and where a promissory note or cheque was used as a means of payment, the relationship between the underlying claim and the claim on the instrument must be mapped separately. The starting date for damages for delay on a revived claim should also be stated separately in the statement of claim.

Fourth, in examining a bankruptcy trustee's right of termination, the state of performance of the contract at the time of the declaration of bankruptcy must be carefully reconstructed. The reciprocal nature, interdependence and interconnection of the remaining performances should be tabulated item by item of performance, and it should be set out which party had already completed the corresponding performance and how the particularities of the public-law relationship and the legislative purpose of the relevant statutes bear on the decision. The time and conditions of the grant of the right of management and operation, or of a similar right, are key evidence.

Glossary

The defense of concurrent performance is a defense whereby a party may refuse to perform its own obligation unless the counterparty performs its obligation, whereas deduction and set-off are institutions that offset one claim against another. Because the two differ in legal nature and requirements, handling a case asserted in the first instance as a defense of concurrent performance by converting it in the appeal instance into deduction or set-off may be assessed not as a mere correction of legal principle but as a change of the allegation.

The right of avoidance is an institution that renders void acts by which the debtor reduced its property or conferred a benefit only upon a specific creditor, and restores the property to the debtor's estate. As its effect, the counterparty must return what it received, and with the return the claim that had been extinguished against the counterparty is revived. At this point, whether the scope of restoration ends at the claim that was the direct object of the avoided act or extends to other claims extinguished together with it is an important issue of interpretation.

A bilateral contract with neither party's performance completed refers to a state in which neither of the two parties to the contract has yet completed its own obligation, and the counter-value nature, dependence, and interrelatedness of the remaining performances are criteria for discerning whether the remaining performances stand in a relationship of exchange with one another, whether the performance of one side depends on the subsistence of the other, and whether they are connected legally and economically in formation, performance, and subsistence so as to serve as security for one another. The right of management and operation is the right to undertake the operation of a social overhead capital facility and obtain revenue, and the time and content of its grant directly affect the determination whether the reciprocal relationship has been completed.

Sources and limitations

This white paper is general research material prepared solely on the basis of the three decisions — Supreme Court Decision 2022Da211928, Supreme Court Decision 2018Da224781, and Supreme Court Decision 2017Da273441 — and the provisions cited in those decisions. The case numbers, decision dates, and statutory article numbers cited were used only within the scope given in the input materials, and no other cases were newly created or cited.

This material is not legal advice and presents no legal opinion or conclusion on a specific case. The summaries and comparisons of the judgment documents are merely organization intended to aid understanding, and conclusions may differ depending on the evidentiary relationships and procedural developments of individual cases. In an actual dispute, the latest amendments to the relevant statutes and changes in precedent must be checked without fail, and advice from qualified legal professionals must be obtained.

Points left open

The starting point of delay damages on the underlying claim restored through avoidance is unclear. Depending on whether the effect of restoration arises retroactively or whether they are calculated from the time of return or the time of claim, the amount of distribution and the amount of participating claims differ, and the three decisions addressed did not directly set forth any criterion on this point. Likewise, by what materials and under what standard the existing benefit is to be assessed where the consideration is not a monetary benefit remains open in the same manner.

The boundary at which obligations remaining in the operation stage may be regarded as ancillary has likewise not been fixed. Where obligations such as maintenance duties, tariff regulation, and the duty to hand over the facilities remain even after the grant of the right of management and operation in a private investment project implementation agreement, more precise criteria as to whether the remaining obligations can form a corresponding reciprocal relationship, and to what degree the public-law peculiarities restrict the determination, must be organized in subsequent cases.

When to reconsider

If Article 415 of the Civil Procedure Act is amended, or if a Supreme Court decision is rendered that newly organizes the scope of application of the principle of prohibition of reformatio in peius, this white paper must be reviewed again. Likewise, if Articles 108, 109, and 335 of the Debtor Rehabilitation and Bankruptcy Act are amended, or if new determinations supplementing their interpretation emerge, the portions concerning the scope of restoration and the requirements of the right of termination will be updated immediately.

Re-review is also necessary where the structure of the facts changes. If the nature of the consideration changes from money to goods or rights, if the contract reaches bankruptcy at the construction stage rather than the operation stage, or if the conditions and timing of the establishment of the right of management and operation change, the determination of the counter-value nature and interrelatedness of the remaining performances may change. The same procedure must be followed at the point when an amendment agreement to the implementation agreement or substitutive legislation of the relevant statutes is confirmed.

Statutes referred to

• 민사소송법 제415조
• 채무자 회생 및 파산에 관한 법률 제108조 제3항 제2호, 제4호, 제109조 제1항, 제335조 제1항, 제3항
• 구 사회기반시설에 대한 민간투자법(2011. 3. 31. 법률 제10522호로 개정되기 전의 것) 제1조, 제2조 제7호, 제4조 제1호, 제13조, 제24조, 제26조, 제27조
• 행정기본법 제27조

Decisions referred to

• 대법원 2022. 8. 25. 선고 2022다211928 판결 · Decision ledger
• 대법원 2022. 5. 13. 선고 2018다224781 판결 · Decision ledger
• 대법원 2021. 5. 6. 선고 2017다273441 전원합의체 판결 · Decision ledger

Verification status

The texts of the relevant provisions and the judgment documents of Supreme Court Decision 2022Da211928, Supreme Court Decision 2018Da224781, and Supreme Court Decision 2017Da273441 were cross-checked against the Korea Law Information Center as of 2026-10-15. This white paper cites only the three decisions it addresses.