• Whether the asset transfer agreement constituted a standard form contract under the Act on the Regulation of Terms and Conditions;

• Whether the limitation on recourse provision contained in the asset transfer agreement was unfair;

• Whether a financial institution could be held liable for damages based on defects in, or invalidity of, the transferred security interest.

3. Legal Strategy
Attorneys Young-ho Chae and Carolyn Ye-Eun Kang argued that the plaintiff entered into the transaction with full awareness of the uncertainties associated with debt recovery and the risks relating to the security interests involved in the acquisition of non-performing loans.

In particular, they emphasized that the assets were transferred as non-performing loans rather than performing assets and that the plaintiff had acquired them at a discounted price on that basis.

Accordingly, they argued that the alleged losses were not caused by any wrongful conduct on the part of the financial institution but merely reflected the realization of risks inherently associated with NPL transactions.

The attorneys further demonstrated that the plaintiff had been provided with ample opportunity to review the transaction documents and conduct due diligence regarding the assets before entering into the agreement.

On that basis, they argued that the limitation on recourse provision could not be regarded as unfair.

4. Significance of the Case
The court accepted the arguments advanced by One Law Partners, LLC and dismissed the plaintiff’s claims.

The court held that, although the asset transfer agreement could be characterized as a standard form contract, the contractual limitation on recourse provision was not unfair.

The court further ruled that, even where defects exist in a loan receivable or mortgage security interest, or where such interests are ultimately determined to be invalid, those circumstances alone do not establish that the financial institution unjustly obtained benefits equivalent to the value of the assets.

This decision confirms that, in transactions involving the transfer of non-performing loans and security interests, a purchaser's discovery of defects in the security does not automatically give rise to liability on the part of the transferor.

The ruling is also significant because it affirms the validity of limitations on recourse provisions contained in asset transfer agreements and respects the principle of contractual risk allocation in financial asset transactions.

Furthermore, the decision provides important guidance for future disputes involving NPL investments, financial asset sales, assignments of receivables, and security interest transactions.
 

Attorney Young-ho Chae | yhchae@onelawpartners.com
Attorney Carolyn Ye Eun Kang | yekang@onelawpartners.com
 

Public Relations Team, One Law Partners, LLC | pr@onelawpartners.com