A section of the Civil Act’s contract provisions is displayed (Image courtesy of Korea Bizwire)
SEOUL, Feb. 7 (Korea Bizwire) — South Korea’s Ministry of Justice has embarked on a sweeping revision of the nation’s Civil Act, marking the first comprehensive overhaul since its enactment in 1958. The reform aims to modernize property and contract laws, reflecting economic shifts and aligning with global legal standards.
The ministry announced on February 7 that it has drafted amendments covering general principles, property rights, and contractual obligations, focusing on provisions that directly impact citizens’ daily lives. The proposed changes, which revise over 200 legal clauses, will be open for public consultation until March 19.
Key reforms include the introduction of a variable statutory interest rate, replacing the fixed annual rate of 5%. Under the new framework, interest rates will be determined by presidential decree, factoring in market rates, inflation, and economic conditions. This change addresses concerns that the current fixed rate fails to balance the interests of creditors and debtors amid economic fluctuations.
The amendments also introduce the concept of ‘undue pressure,’ allowing contracts signed under psychological dependence or undue influence—such as in cases of coercion by religious leaders or caregivers—to be annulled.
This principle, widely adopted in common law jurisdictions such as the United States and the United Kingdom, is now being incorporated into South Korea’s traditionally civil law-based system.
Another significant revision enables contract modifications in response to fundamental changes in circumstances. Previously, South Korean courts recognized contract termination under such conditions, but the reform follows international trends by allowing for contract adjustments instead of outright dissolution.
The revised Civil Act will also include explicit provisions on abuse of agency authority, stipulating that transactions conducted by agents for personal gain or third-party benefit will be nullified if the counterparty was aware or negligently unaware of the abuse.
Additionally, the amendments codify the principle of ‘substituted claims’ in cases of contractual non-fulfillment. This allows creditors to claim financial compensation equivalent to the benefits lost due to contract non-performance, such as compensation for expropriated properties or insurance payouts.
The reform also restructures liability for contract breaches, simplifying existing provisions and clarifying sellers’ obligations to compensate buyers for defective goods or property, regardless of fault. The revision streamlines the current eight categories of defects into two, ensuring broader consumer protections.
The National Assembly (Yonhap)
Further changes include an update to the statute governing non-performance of obligations, revising the definition of non-fulfillment from ‘when performance becomes impossible’ to ‘when performance is not completed.’ This modification clarifies legal interpretation and strengthens enforcement mechanisms.
Compensation for damages will remain primarily monetary, but the amendments introduce broader provisions for restitution, including annuity-based payments for physical or health-related harm.
To enhance accessibility, the Ministry of Justice is also refining legal language, replacing archaic terms and complex expressions with clearer, more modern phrasing.
“This overhaul is a long-overdue response to South Korea’s evolving social, economic, and cultural landscape,” the ministry stated. “Updating the Civil Act is a crucial national task that can no longer be postponed.”
The ministry has been preparing these amendments since June 2023 under a dedicated Civil Act Reform Committee led by former Supreme Court Justice Yang Chang-soo. While family and inheritance laws have undergone periodic revisions, property laws have remained largely unchanged for decades.
Following the public consultation period, the ministry will seek legislative approval, aiming to submit the finalized proposal to the National Assembly in the first half of 2025.
M. H. Lee (mhlee@koreabizwire.com)
