Failure to Make Repayment
Failure to Make Repayment- If the debtor fails to make repayment by the due date, the creditor may claim for damages apart from the principal amount (i.e. the loan principal and the agreed interest). However, if such failure was not caused by the debtor’s intention or negligence, the creditor shall not claim for damages. (Article 390 of the Civil Act)
· “Intention” means a state of mind of a person who knows that his or her act or omission would result in any damage or loss, but deliberately lets another suffer such damage or loss, or turns blind eyes to such consequence.
· “Negligence” means a state of mind of a person who fails to take the due care that a reasonable person usually takes. Negligence arises where another person suffers loss as a consequence of such lack of care.
Scope of Claim for Repayment on Loan
Where there was an agreement as to liquidated damages, the creditor may claim for the liquidated damages.
- If amounts of liquidated damages were agreed between the parties when they prepared the promissory note, the creditor, without proving the amount of loss, may claim for the liquidated damages where the debtor fails to perform his or her debt obligation. (Article 398-(1) of the Civil Act)
· If the amount of damages agreed by the parties is unduly excessive, the Court may reduce the amount to a more reasonable and appropriate sum. (Article 398-(2) of the Civil Act)
Where there was no agreement as to liquidated damages, the creditor may claim for damages in accordance with the statutory interest rate.
- Where there was no agreement as to liquidated damages, the creditor may claim for damages in accordance with the statutory interest rate of five percent (5%) per annum (or six percent (6%) per annum in the case of a commercial transaction). (Article 397-(1) of the Civil Act; Article 379 of the Civil Act; Article 54 of the Commercial Act)
· However, if any interest agreed in advance does not exceed twenty percent (20%) per annum, which is a maximum interest chargeable under the Interest Limitation Act, such interest shall apply. (The proviso of Article 397(1) of the Civil Act; Article 2(1) of the Interest Limitation Act; the "Regulations on Maximum Interest Rate" under Article 2(1) of the Interest Limitation Act)
- With regard to damages for non-performance of debt repayment, the creditor is not required to prove the loss whereas the debtor may not raise the defense that he or she was not negligent. (Article 397-(2) of the Civil Act)
※ In the case where claim for damages are related to performance of repayment obligation, the interest rate shall be twenty percent (12%) per annum.
In the case of claim for damages arising out of non-performance of repayment obligations, the debtor may argue that the statutory interest rate of five percent (5%) per annum would be applicable to such damages. However, as this interest rate is significantly less than the normal interest rate applicable in the cash loan agreement, there is a possibility that the debtor would deliberately refuse to make repayment or delay the action in court.
To prevent this mischief in relation to quantum of damages, the court shall order to increase the statutory interest rate accrued as from the date when the notice of claim or equivalent is delivered to the debtor at twenty percent (12%) per annum. (Article 3 of the Act on Special Cases Concerning Expedition, etc. of Legal Proceedings; Article 3-(1) of the same Act which stipulates said Statutory Interest Rates)