K&P Law Firm Wins a Lawsuit on Behalf of Defendant X in a Claim for Unjust Enrichment of a Promissory Note
Below is a detailed explanation of the unjust enrichment claim.
1. Basic Facts
The plaintiff had planned to construct an art museum in Sabuk-myeon, Chuncheon City, and on March 29, 2012, entered into a contract for the construction of the museum (hereinafter referred to as "the Contract") with Company Y, where X was the CEO.
On October 25, 2013, X issued a promissory note to the plaintiff in the amount of KRW 160,000,000, with a due date of September 30, 2014 (hereinafter referred to as "the Promissory Note"). X also prepared a notarial deed concerning this promissory note.
2. Summary of Plaintiff’s Claims
On October 25, 2013, X asked the plaintiff to lend money to pay a subcontractor of Company Y. Instead of preparing a loan agreement, X and the plaintiff agreed to issue the Promissory Note, which was notarized.
The statute of limitations for the promissory note claim, which is three years from the due date, had passed. As a result, the plaintiff sought the same amount of money as unjust enrichment, arguing that the note's expiration gave rise to a claim for unjust enrichment in the amount of the note.
3. Arguments of K&P Law Firm
K&P Law Firm argued, citing Supreme Court precedents, that X's intention when issuing the note was to provide it "for the purpose of payment." When a promissory note is issued for payment, no claim for unjust enrichment arises even if the note becomes invalid due to the statute of limitations.
When a debtor delivers a promissory note to a creditor in connection with the fulfillment of an existing debt, the parties’ intention can be classified into three categories:
- The note is delivered "in substitution for payment," meaning the original debt is extinguished and replaced by the promissory note liability;
- The note is delivered "for the purpose of payment," meaning the original debt remains, and the note serves as a means of payment;
- The note is delivered "for security purposes," meaning the note is meant to secure the payment of the original debt.
Without a specific agreement, it is presumed that the promissory note does not extinguish the original debt, but is delivered either "for the purpose of payment" or "for security purposes," meaning the original debt coexists with the note liability. If the primary obligor on the note is a third party, the note is presumed to be delivered "for the purpose of payment" (see Supreme Court Judgment 95Da25060, November 8, 1996).
Furthermore, if a promissory note is issued or endorsed either for the purpose of payment or to secure the payment of a debt, the statute of limitations on the note does not give rise to an unjust enrichment claim against the issuer or endorser. This holds true regardless of whether the underlying debt is extinguished due to expiration or any other reason, whether before or after the note's expiration (see Supreme Court Judgments 93Da26991, October 22, 1993, and 2000Da10376, May 26, 2000).
4. Court’s Decision
The court accepted the arguments made by K&P Law Firm, ruling that since the promissory note was issued for the purpose of securing or guaranteeing the payment of the underlying debt, the claim for unjust enrichment did not arise even though the statute of limitations on the promissory note had expired.
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