Complete Guide to Commercial Statute of Limitations in South Korea

1. Understanding Commercial Statute of Limitations in South Korea

The commercial statute of limitations in South Korea refers to a legal system where commercial claims become extinguished if not exercised within a specified period. While the general civil statute of limitations is 10 years, the commercial statute of limitations is set at 5 years, making it a crucial defense mechanism in corporate disputes.

Various creditor-debtor relationships arising from corporate activities require swift resolution and legal stability. The commercial statute of limitations system prevents operational instability caused by long-delayed claims, considers the difficulty of securing evidence for aged transactions, and promotes safety and efficiency in commercial transactions by applying shorter limitation periods.

Basis and Purpose of Commercial Statute of Limitations

The commercial statute of limitations reflects the principle of expeditiousness in commercial transactions, embodying the “rapid conclusion doctrine” designed to promptly resolve commercial transaction relationships. This is because commercial transactions are characterized by their business nature, involving continuous and repetitive dealings with unspecified multiple parties.

2. Key Differences: Commercial vs. Civil Statute of Limitations

Category	Commercial Statute of Limitations	Civil Statute of Limitations
Limitation Period	5 years	10 years
Applicable Claims	Claims arising from commercial acts	General claims
Legal Basis	Commercial Act Article 64	Civil Act Article 162
Fundamental Principle	Rapid conclusion doctrine	Legal stability

The primary differences between commercial and civil statutes of limitations are the limitation period and applicable claims. The commercial statute of limitations provides shorter limitation periods for the expeditiousness and safety of commercial transactions, serving as an important legal protection in corporate activities.

3. Legal Framework and Statutory Provisions

Key Related Provisions

Commercial Act Article 64 (Commercial Statute of Limitations)
“Claims arising from commercial acts shall be subject to a 5-year statute of limitations if not exercised within that period, unless otherwise provided in this Act. However, if other laws provide for shorter limitation periods, those provisions shall apply.”

Commercial Act Article 46 (Basic Commercial Acts)
This article enumerates types of basic commercial acts, including sale and purchase of goods or securities for profit, financial transactions, transportation, insurance, and similar activities.

Civil Act Articles 163 and 164
When these articles provide for shorter limitation periods than the Commercial Act, such provisions take precedence.

4. Scope and Application of Commercial Statute of Limitations

The scope of “claims arising from commercial acts” subject to commercial statute of limitations includes:

1) Basic Commercial Acts

• Sale and purchase of goods or securities for profit
• Financial transactions
• Transportation, insurance, and similar commercial acts

2) Auxiliary Commercial Acts

• Acts performed by merchants for their business
• Examples: Business financing, investment attraction, real estate transactions, etc.

3) Deemed Merchants’ Commercial Acts

• Acts performed by deemed merchants for their business

4) Claims Derived from Commercial Acts

• Damage compensation claims for breach of commercial contracts
• Restitution claims from termination of commercial contracts
• Unjust enrichment claims arising from commercial acts

5. Application Criteria: Necessity for Expeditious Resolution

South Korean Supreme Court considers “the necessity for as expeditious resolution as commercial transactions” as a crucial criterion when determining the application of commercial statute of limitations.

Assessment Criteria

1. Business Characteristics of Transactions: Are they conducted continuously and repeatedly with unspecified multiple parties?
2. Necessity for Swift Resolution: Is prompt resolution necessary similar to commercial transactions?
3. Relationship with Commercial Acts: Do they maintain substantial identity with commercial acts?

These criteria are applied on a case-by-case basis, based on the specific application theory.

6. Case Study: Corporate Representative’s Debt Promissory Note

Case Overview

This case concerns the application of commercial statute of limitations to debts based on a promissory note written by Representative B of Chinese corporation A Limited to the plaintiff.

Key Facts:

1. Plaintiff invested in and loaned money to A Limited
2. On August 11, 2014, B wrote a promissory note to the plaintiff for approximately 100 million KRW
3. Due dates stated in the note: August 30 and September 30, 2014
4. Plaintiff filed a lawsuit on March 29, 2024 (approximately 9 years and 5 months later)

KNP Law Firm’s Defense Strategy

1. Commercial Statute of Limitations Defense
   • The promissory note amount represents company’s business fund investment and borrowing, constituting commercial acts
   • Applied 5-year commercial statute of limitations as auxiliary commercial act
2. Completion of Limitation Period
   • 5 years elapsed from the September 30, 2014 due date
   • Limitation period completed on September 30, 2019
   • Lawsuit filed on March 29, 2024, after limitation period completion

Court’s Decision

The court accepted KNP Law Firm’s commercial statute of limitations defense and dismissed the plaintiff’s claims.

Basis for Decision:

1. Investment attraction and money borrowing for company’s business funds constitute auxiliary commercial acts
2. Representative’s personal guarantee note derived from commercial acts
3. Therefore, 5-year commercial statute of limitations appropriately applied

7. Starting Point and Calculation of Limitation Period

Starting Point

The commercial statute of limitations follows an objective starting point:

• Begins when the creditor can exercise their rights
• Actual knowledge of the right’s existence is irrelevant

Period Calculation

1. Principle: Limitation completed after 5 years of non-exercise
2. Exception: If other laws provide shorter limitation periods, those take precedence
3. Interruption: Can be interrupted by demands, seizures, provisional seizures, provisional dispositions, debt acknowledgment, etc.

8. Practical Application of Statute of Limitations Defense

Defense Strategy

1. Proving Commercial Nature: Demonstrate that the transaction constitutes a commercial act
2. Period Calculation: Verify accurate starting point and elapsed period
3. Timely Assertion: Explicitly raise the defense during proceedings

Considerations

1. Subjective Starting Point: Ongoing discussion about introducing subjective starting point through Civil Act amendments
2. Scope of Commercial Acts: Careful assessment of whether auxiliary commercial acts are included
3. Priority of Short-term Limitations: Shorter civil limitations take precedence if applicable

9. Key Points for Corporate Executives and Legal Counsel

1. Establish Credit Management System
   • Thorough documentation of claim occurrence timing and content
   • Implement limitation period management system
2. Understanding Commercial Act Criteria
   • Most corporate activities constitute commercial acts
   • Particular attention to scope of auxiliary commercial acts
3. Promissory Note Considerations
   • Notes can have limitation interruption effect
   • New limitation period starts from due date in the note
4. Importance of Evidence Preservation
   • Maintain documentation proving transaction nature
   • Systematic management of contracts, emails, meeting records, etc.
5. Regular Legal Review
   • Periodic examination of major transaction relationships
   • Proactive verification of limitation period completion

10. Related Jurisprudence in South Korea

1. Application of Commercial Statute of Limitations to Subrogation Claims

Supreme Court Decision 98Da17544 (July 10, 1998) addressed cases where an insurer who entered into commercial insurance contracts with joint tortfeasors pays compensation to victims within policy limits, then exercises direct subrogation rights against other tortfeasors’ insurers. The Court ruled that such subrogation claims constitute claims from auxiliary commercial acts performed by merchants for their business, subject to 5-year commercial statute of limitations.

2. Commercial Statute of Limitations for Delayed Damages

Supreme Court Decision 79Da1453 (November 13, 1979) addressed delayed damage claims after due dates for bank loan business transactions. The Court ruled that such delayed damages are not interest claims or tort damage claims subject to civil short-term limitations, but rather subject to 5-year commercial statute of limitations under Commercial Act Article 64 as claims arising from commercial acts.

3. Restitution Claims from Contract Cancellation

Supreme Court Decision 93Da21569 (September 14, 1993) ruled that restitution claims from cancellation of commercial contracts are subject to commercial statute of limitations as “transformed claims” derived from commercial acts.

4. Directors’ Duty Breach Damage Claims

Supreme Court Decision 84Daka1954 (June 25, 1985) ruled that a company’s damage compensation claims for directors’ or auditors’ duty breach are subject to 10-year civil statute of limitations, reasoning that such claims constitute liability for breach of mandate relationships. Despite the mandate contracts being auxiliary commercial acts, the decision applied civil limitations due to distinctions in duty breach responsibilities.

5. Limitations on Short-term Limitations for Product Prices

Supreme Court Decision 2007Da12944 (June 25, 2009) addressed fees that communication device sales agents agreed to pay if unable to sell devices within specific periods. The Court ruled these fees were not “prices of goods sold by merchants” but rather obligations from separate agreements related to activation incentives, applying 5-year commercial statute of limitations rather than civil short-term limitations.

6. Guarantee Performance Claims in Consignment Sales

Supreme Court Decision 95Da39854 (January 23, 1996) ruled that guarantee performance claims in consignment sales are not subject to 3-year short-term limitations as they lack reciprocal relationship with consignor’s product supply. Since consignment sales constitute commercial acts and both consignees and consignors are typically merchants, the Court applied 5-year commercial statute of limitations under Commercial Act Article 64.

KNP Law Firm has successfully resolved recent commercial statute of limitations cases and possesses extensive legal service experience in complex commercial statute of limitations disputes arising from inter-corporate transactions.