[edit] Supreme Court Decision 2001Da61852 delivered on December 11, 2001 [Affirmation of Absence of Liability]

【main Issue】

Whether the applicability of standard terms, under which a right to change the interest rate is granted to a financial institution, is excluded in case where it is agreed in the loan agreement to determine the interest rate on a fixed rate basis (negative)

【Summary of Decision】

In financial transactions, an interest rate is determined on a fixed rate basis or on a floating rate basis (the method in which the interest rate is pegged to a base rate such as prime rate, and thus changed from time to time). Meanwhile, the so-called agreement subject to right of change, whereby one party is given the right to change the interest rate or the method of determination thereof, complements the fixed rate basis method and the floating rate basis method to address the uncertainty of economic circumstances that is difficult to predict. The fixed rate method and the method whereby one party is given the right to change the interest rate are not contradictory to each other. Accordingly, even if there was an agreement on fixed interest rate, the applicability of standard terms, whereby the financial institution is granted the right to change the interest rate, is not necessarily excluded.

【Reference Provisions】 Article 105 of the Civil Code and Article 4 of the Form Contracts Control Act

Article 4 of the Form Contracts Control Act (Precedence of Individual Agreement) If an enterprise and a customer agree on a matter that is addressed in the standard terms, in a manner that is different from the provision in the standard terms, such agreement shall prevail over the standard terms.

【Reference Cases】 [1] Supreme Court Decision 2000Da67235 delivered on March 9, 2001 (Gong2001Sang, 849)

【Plaintiffs, Appellees】Kim Chul-min and 1 Other (Attorney Park Jae-young, Counsel for plaintiffs and appellees)

【Defendant, Appellant】Tong Yang Card Corporation (Law Firm Youl-chon, Woo, Yun, Kang, Jeong & Han, Attorneys Moon Il-bong and 2 Others, Counsel for defendant-appellant)

【Court of First Instance】Seoul District Court Judgment 98Gadan 319436 delivered on October 25, 2000

【Court of Second Instance】 Seoul District Court Judgment 2000Na 80435 delivered on August 24, 2001

【Disposition】 The part of the judgment of the court below against defendant shall be reversed, and that part of this case shall be remanded to the Appellate Division of the Seoul District Court.

【Reasoning】 The grounds for appeal are examined as follows.

According to the reasoning of the court below, the court below adopted the following facts based on the evidence presented:

① In the Loan Conditions column of the credit card loan application (the Application) prepared by the plaintiffs and the defendant with respect to the loan herein (the Loan), the words 'interest rate shall be [ ] % per annum' were printed in fixed letters. When the plaintiffs and the defendant prepared the Application, Plaintiff Kim Chul-min wrote '14.8' and Plaintiff Yoon Tae-sung wrote '15', by handwriting in the above blank space. There was otherwise no inscription or indication of any possible change in the interest rate.

② In the case of another credit card loan identical to the Loan, it was printed in fixed letters in Article 4 (2) of the credit card loan agreement (the Agreement) attached to the Application form of the defendant, that in principle, the interest rate shall be [ ] % per annum calculated on a pro rata basis, to be paid in arrears on a monthly basis, provided that the initial interest shall be calculated on a pro rata basis based on a year of 365 days for the period from the loan date to the due date of initial interest payment.

③ Article 7 (1) of the Agreement provides: it is agreed that in addition to this Agreement, the General Terms and Conditions for Credit Transactions (the General Terms and Conditions) shall apply to this transaction, and if the General Terms and Conditions are changed, such changes shall apply, and Article 7 (2) specifies that in case of any conflict between this Agreement and the General Terms and Conditions, this Agreement shall prevail.

④ Neither the Application nor the Agreement provides that the interest rate of the Loan is a floating rate. Further, except as described in paragraphs ① and ②, there is no agreement regarding the interest rate.

⑤ Article 3 (1) of the General Terms and Conditions ancillary to the Agreement provides that the debtor shall accept the interest rate as determined by the Company within the maximum rate prescribed by relevant laws and other restrictions, and Article 3 (3) specifies that if the Company changes the interest rate, (omitted) the debtor agrees to comply with such change if such change is (omitted) in accordance with any change in financial circumstances or other reasonable basis.

Based on an overall consideration of the foregoing facts, the practice of loan transactions prevailing at the time of execution of the Agreement, and the economic positions of the plaintiffs and the defendant, the court below determined as follows: The plaintiffs and the defendant should be deemed to have agreed that the interest rate of the Loan shall be 'the fixed rate that each of the plaintiffs entered by hand in the interest rate column of the Application' at the time of execution of the Agreement. Meanwhile, the General Terms and Conditions apply as supplement in case where there is no separate agreement, and therefore insofar as there exists a separate agreement, i.e. the above agreement on fixed rate, such separate agreement prevails over the General Terms and Conditions. Accordingly, each rate related to the Loan is a fixed rate, and the defendant cannot change the interest rate, etc. under Article 3 (3) of the General Terms and Conditions.

However, in financial transactions, an interest rate is determined on a fixed rate basis or on a floating rate basis (the method in which the interest rate is pegged to a base rate such as prime rate, and thus changed from time to time). Meanwhile, the so-called agreement subject to right of change, whereby one party is given the right to change the interest rate or the method of determination thereof, complements the fixed rate basis method and the floating rate basis method to address the uncertainty of economic circumstances that is difficult to predict. The fixed rate method and the method whereby one party is given the right to change the interest rate are not contradictory to each other. Accordingly, even if there was an agreement on fixed interest rate, the applicability of standard terms, whereby the financial institution is granted the right to change the interest rate, is not necessarily excluded. In this regard, the following facts can be established according to the records: The introduction to each Application prepared with respect to the Loan provides: I and the guarantor confirm and agree that we will perform the terms under the terms of the Company with respect to the card loan transaction described below, and that each provision of the Credit Card Membership Regulations and the General Terms and Conditions shall apply to the transaction. Please therefore approve the transaction. The introduction to the Agreement provides: I acknowledge that the Company's Membership Regulations and the General Terms and Conditions shall apply to the credit card loan transaction between I and the Company, and agree as follows. Article 7 (1) of the Agreement provides: It is agreed that in addition to this Agreement, the General Terms and Conditions shall apply to this transaction, and if the General Terms and Conditions are changed, such changes shall apply. Article 7 (2) specifies that in case of any conflict between this Agreement and the General Terms and Conditions, this Agreement shall prevail. Article 3 (1) of the defendant's General Terms and Conditions provides that with respect to the rate, calculation method, timing and method of payment of the interest, discount fees, guarantee fees and commissions, the debtor shall accept the interest rate as determined by the Company within the maximum rate and other restrictions prescribed by relevant laws. Article 3 (2) provides that if the debtor delays performance of any obligation to the Company, the debtor shall pay default interest accrued on the amount payable at the rate determined by the Company, within the limit prescribed by relevant laws, based on the number of days delayed in a year of 365 days. Article 3 (3) specifies that if the Company changes the rate, calculation method, timing or method of payment of the interest, discount fees, guarantee fees, commissions or default interest as set forth in Paragraphs (1) and (2), the debtor shall comply with the change without objection in case where the change in interest rate is in accordance with the change of the maximum rate under relevant laws. In other cases, if they have been changed within the maximum rate prescribed by relevant laws in accordance with any change in financial circumstances or other reasonable basis, the debtor agrees to comply with the change.

In light of the foregoing provisions, so long as the plaintiffs and the defendant did not enter into an agreement which conflicts with the grant of right to change the interest rate under Article 3 (3) of the General Terms and Conditions, in entering into each Agreement, the defendant can exercise the right to change the interest rate under Article 3 (3) of the General Terms and Conditions. Based on the inscriptions regarding interest rate in the Application and Agreement, on which the court below relies, it can be accepted that when the plaintiffs and the defendant entered into each Agreement, they agreed to determine the interest rate on a fixed rate basis, not on a floating rate basis, and that the interest rate at the time that the Loan was made was the rate indicated in each Application. However, it cannot be accepted on the same basis that the plaintiffs and the defendant entered into an agreement contrary to the provision of Article 3 (3) of the General Terms and Conditions, that is, which excludes the defendant's exercise of right to change the interest rate under that provision. As such the defendant may exercise the right to change interest rate based on Article 3 (3) of the General Terms and Conditions.

Accordingly, the court below, which ruled that the defendant cannot exercise the right to change interest rate under Article 3 (3) of the General Terms and Conditions, erred in having misunderstood the legal principles concerning the grant of right to change interest rate in financial transactions or having violated the rules of evidence, which affected the decision.

Accordingly, the part of the judgment of the court below against defendant shall be reversed and remanded to the court below for trial and determination. Accordingly, it is hereby decided as per Disposition. This decision is delivered with the assent of all Justices who reviewed the appeal.

Justices Song Jin-hun (Presiding Justice)

Byun Jae-seung

Lee Kyu-hong (Justice in charge)

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