【Holding】
[1] Meaning of "a remarkable reason that makes performance by the other party difficult" under Article 536(2) of the Civil Act / Whether the grounds giving rise to the "defense of insecurity" are limited to objective and general circumstances arising on the creditor's side, such as credit instability or deterioration of financial condition (negative), and whether a party bearing an obligation to perform first may refuse to perform its own obligation until the other party's performance becomes certain where, considering the circumstances of both parties, it has become remarkably uncertain whether the other party's obligation will be performed when due, even though it has not yet fallen due (affirmative) / Whether, in a construction contract under which the work is performed over a considerable period and the price is agreed to be paid in installments at certain intervals as progress payments, etc., the contractor may refuse to perform its obligation to continue construction under Article 536(2) of the Civil Act where, owing to various circumstances arising after the formation of the contract, the contractor can no longer reasonably expect to receive a substantial portion of the construction price as agreed even if it continues the work, so that requiring the contractor to perform its obligation to perform first under the original contract would be contrary to fairness (affirmative)
[2] Where a party has the power to refuse performance between mutually dependent obligations, whether liability for delay in performance does not arise by virtue of the existence of the power to refuse performance itself, even if the party has not specifically expressed an intention to refuse performance (affirmative)
[3] Whether the due date of the obligation owed by the other party to a party to a bilateral contract is changed to the time of refusal of performance merely because that party has refused to perform its own obligation by exercising the defense of insecurity under Article 536(2) of the Civil Act (negative)
【Summary of Decision】
[1] Article 536(2) of the Civil Act provides for the so-called "defense of insecurity" by stipulating that even where one party to a bilateral contract is obligated to perform first, that party has the defense of simultaneous performance "if there is a remarkable reason that makes performance by the other party difficult." Here, "a remarkable reason that makes performance by the other party difficult" refers to a case in which, owing to a change of circumstances after the formation of the contract, such as the creditor's credit instability or deterioration of financial condition, the debtor bearing the obligation to perform first can no longer receive the counter-performance, so that requiring the debtor to perform its obligation to perform first under the original contract would be contrary to fairness and the principle of good faith. Since there is no reason to interpret the grounds giving rise to the defense of insecurity restrictively as being limited to objective and general circumstances arising on the creditor's side, such as credit instability or deterioration of financial condition, where, considering the circumstances of both parties, it has become remarkably uncertain whether the other party's obligation will be performed when due, even though it has not yet fallen due, even a party bearing an obligation to perform first should be regarded as entitled to refuse to perform its own obligation until the other party's performance becomes certain.
In particular, in a construction contract under which the work is performed over a considerable period and the price is agreed to be paid in installments at certain intervals as progress payments, etc., such payment of the construction price functions as a premise guaranteeing the contractor's smooth future performance; therefore, where, owing to various circumstances arising after the formation of the contract, the contractor can no longer reasonably expect to receive a substantial portion of the corresponding construction price as agreed even if it continues the work, so that requiring the contractor to perform its obligation to perform first under the original contract would be contrary to fairness, the contractor may refuse to perform its obligation to continue construction under Article 536(2) of the Civil Act, even if the owner has no circumstances such as credit instability.
[2] Where a party has the power to refuse performance between mutually dependent obligations, liability for delay in performance does not arise by virtue of the existence of the power to refuse performance itself, even if the party has not specifically expressed an intention to refuse performance.
[3] The defense of insecurity under Article 536(2) of the Civil Act merely grants a party bearing an obligation to perform first the power to refuse to perform its own obligation when there is a remarkable reason that makes performance by the other party difficult, and the exercise of that power does not have the effect of changing the originally agreed due date or changing the nature of the obligation into one without a fixed due date. Therefore, even if one party to a bilateral contract has refused to perform its own obligation by exercising the defense of insecurity, the due date of the obligation owed by the other party to that party cannot be regarded as having been changed to the time of refusal of performance merely on account of that circumstance.
【Referenced Statutes】
[1] Article 536(2) of the Civil Act [2] Articles 387 and 536(2) of the Civil Act [3] Articles 387 and 536(2) of the Civil Act
【Referenced Precedents】
[1][2][3] Supreme Court Decision 97Da5541, July 25, 1997 (Gong1997Ha, 2687)
[1] Supreme Court Decision 2011Da93025, March 29, 2012 (Gong2012Sang, 663)
(Source: Supreme Court Decision 2026Da202468, July 16, 2026 | Judicial Information Disclosure Portal, Precedents)
2026. 10. 14. · By Attorney Dongwoo Shin
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